The first major trial post-meltdown is slated to begin in Brooklyn this morning. Ralph Cioffi and Matthew Tannin, formerly hedge fund managers for Bear Stearns, stand accused of misleading investors about the value of their funds while they secretly exchanged emails indicating that they knew the jig was up and that implosion was imminent. They're charged with conspiracy, wire fraud, and securities fraud. Cioffi also faces an insider trading charge.
The case is expected to be something of a bellwether, determining the public's attitude toward Wall Street in real time. Will these guys be hung out to dry as a symbol of the Wall Street excess that led to the worst recession in 80 years? Or has a 50% rebound in the Dow been enough for all to be forgiven?
What can't be disputed is that the two knew exactly what they were doing. In emails that proved extremely prescient for 2007, Cioffi once wrote, "The entire sub-prime market is toast." and the two shared this exchange about what the end would look like:
“I’m fearful of these markets,” Cioffi wrote. Tannin “said it’s either a melt down or the greatest buying opportunity ever, I’m leaning more towards the former. As we discussed it may not be a meltdown for the general economy but in our world it will be,” the indictment quotes Cioffi as writing.“Wall Street will be hammered with lawsuits. Dealers will lose millions and the CDO business will not be the same for years,” he wrote, according to a related complaint by the U.S. Securities and Exchange Commission.
The government has lots of dirt on these guys, so I have a hard time believing that they'll walk. But you never know. On the other hand, a jury might just decide to lay all the blame for the crisis at their feet. It will be interesting to see what happens.
