Uncle Sam suffered a major setback yesterday when a federal jury in Brooklyn acquitted two former Bear Stearns hedge fund managers accused of lying to investors to cover up the 2007 meltdown of two funds widely viewed as triggering the financial crisis.
After a closely watched three-week trial and nine hours of jury deliberation, Ralph Cioffi and Matthew Tannin received not guilty verdicts on the nine counts related to accusations that they misled investors about the health of two funds that ultimately imploded during the subprime-mortgage meltdown.
The duo faced multiple charges, including securities fraud and wire fraud.
But the evidence the feds presented to jurors failed to measure up.
Juror Aram Hong noted that e-mails in the prosecutors’ case showed Cioffi and Tannin were working “24/7” to save the funds in the months before they collapsed.
“If this was really a fraud case, they wouldn’t have worked that hard,” she said, adding that she would invest with the two men if she had money.
“Just because you’re the captain of a ship and it gets hit doesn’t mean you should be blamed,” Hong said.
Added jury forewoman Jenny McCaughey: “The government never provided enough evidence to convict them.” Said a third juror: “We never found anything beyond a reasonable doubt.”
Juror Serphaine Stimpson, a 27-year-old office manager in Brooklyn, told The Post, “Obviously these guys did something wrong, but we didn’t have enough to convict.
“Every piece of evidence contradicted another. The government didn’t give us a clear enough view of what they said happened without leaving us with doubt. We didn’t feel it was proven enough,” she said.
Meanwhile, after the verdict tears of joy were flowing on the defense side, as family and their lawyers celebrated with Wall Streeters. Tannin’s lawyer, Susan Brune, openly wept after reading a statement outside the courtroom.
Investors’ reaction was harder to gauge, since many are guarded institutions.
A woman answering the phone at Concord Management, a Tarrytown, NY, hedge fund that invested in the funds, declined to comment and refused to give her name before hanging up.
The verdicts are a major black eye for the feds, who’d hoped the case would amount to a prosecution model for crisis abuses.
They also present a high hurdle on the critical issue of proving guilt in cases where a defendant is accused of being part of a cover-up, as opposed to outright fraud like that of convicted Ponzi schemer Bernard Madoff.
Yesterday’s verdict also could be viewed as a predictor for an even-higher profile case pending against former Countrywide CEO Angelo Mozilo.
Mozilo’s facing allegations by the Securities and Exchange Commission that he misled investors about the health of his mortgage company, and, as in the Cioffi-Tannin case, the government is relying on e-mails to show that he was privately fretting over an imminent disaster while publicly touting the health of the firm.
“Of course, we are disappointed by the outcome in this case, but the jurors have spoken, and we accept their verdict,” said Assistant US Attorney Robert Nardoza.
At the start of the trial last month, the government stormed the court with what appeared to be smoking-gun e-mails, including one in which Tannin wrote that the “entire subprime market is toast” and suggested the funds be shuttered.
But some of that oomph was lost during the trial when the e-mails were presented in context, or following witness’ testimony.
In another setback, US District Court Judge Frederic Block ruled the feds could not introduce as evidence an e-mail written by Tannin that the hedge funds he helped run could “blow up” months before they did.