Uncle Sam suffered a major setback and black eye this afternoon when a federal jury in Brooklyn acquitted two former Bear Stearns hedge fund mangers accused of lying to investors to cover up the 2007 meltdown of two funds widely viewed as the start of the financial crisis.
After a three-week trial, Ralph Cioffi and Michael Tannin received not guilty verdicts on the nine counts related to accusations that they misled investors about the health of two hedge funds that ultimately imploded because of the subprime mortgage crisis. The duo had faced multiple charges, including securities fraud and wire fraud.
The verdict is a major blow for federal prosecutors, who had hoped their case would serve as a template for others seen as having a role in triggering the financial crisis. It also suggests that juries might be a lot more sympathetic to defendants facing charges of being part of a cover up, as opposed to outright fraud cases like that of convicted Ponzi schemer Bernard Madoff.
“Of course, we are disappointed by the outcome in this case, but the jurors have spoken, and we accept their verdict,” said Robert Nardoza, the Assistant US Attorney pursuing the case.
The government went into the case with what appeared to be smoking-gun e-mails, including one in which Tannin wrote that the “entire subprime market is toast” and suggesting the funds be shuttered. But some of the e-mails’ oomph was lost during the trial when they were presented in context, and at least one government witness’ testimony backfired.