Friday November 6, 02:10 AM

Ex-Bear Stearns men lied, U.S. says in trial closing

By Grant McCool

NEW YORK (Reuters) - Two former Bear Stearns hedge fund managers on trial for fraud told "black and white lies" to investors in 2007 about the health of their funds even though they were seeing some of the worst market conditions ever, a U.S. prosecutor told a jury on Thursday.

In a closing summation of evidence in the trial that began on Oct. 13, prosecutor Ilene Jaroslaw tried to scorch defense arguments that the managers, Ralph Cioffi and Matthew Tannin, could not predict at such an early stage of the financial crisis how the markets would turn out.

"This case is not about hedge fund strategy or what happened in the market in 2007," Jaroslaw told the Brooklyn, New York, federal court jury, which is expected to begin deliberations on Monday. "What it is about, is the two defendants lied to their investors. It's not about the future... but a case of black and white lies."

Cioffi, 53 and Tannin, 48, have denied charges of securities fraud, wire fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from subprime mortgage-backed securities that fueled the market meltdown.

The 12 jurors were selected after answering written and oral questions about whether they could be fair and impartial in an era of lost jobs, government bailouts of banks and the Wall Street financial crisis.

The charges against the two men carry a possible prison sentence of 20 years.

EMAILS, CONFERENCE CALL

Much of the government's evidence centers on emails written by the two men to each other, colleagues at Bear Stearns Asset Management and investors outside the firm. The government evidence also focused on at least one conference call with investors about expected redemptions -- prosecutors alleged they misled investors.

The two funds managed by Cioffi and Tannin were laden with subprime mortgage-backed securities and collapsed in June 2007 after years of consistent success. Investors lost up to $1.6 billion, according to prosecutors.

Less than a year later, Bear Stearns Cos was out of business. Neither man is charged with contributing to the collapse of Bear in March 2008. It was sold to JPMorgan Chase & Co in a government-brokered deal.

During the trial, U.S. District Judge Frederic Block ruled that jurors could not hear a personal email by Tannin in which he wrote in November 2006 about his fear of a "blow up risk" for investors.

In addition to fraud charges, Cioffi is also accused of insider trading over moving $2 million from one fund he managed to another fund he managed. Cioffi, who worked for Bear Stearns for 25 years, has denied the charge.

One of his lawyers is expected to present a closing argument to the jury later on Thursday. Tannin's lawyer is expected to make a summation on Friday.

Jaroslaw, in addressing the insider trading charge, told the jury that Cioffi "saw the dire straits the funds were in" and "took out what he thought he could get away with."

Cioffi and Tannin, dressed in dark suits, sat at a long table in court with their lawyers listening intently to the prosecutor's summation.

The prosecutor cited trial evidence of a March 2007 email by Tannin to two broker traders in which he said, "my opinion is that this is a good time to invest. I am investing myself."

Jaroslaw said government evidence at trial showed Tannin "never added a dime" between February 2007 and May 2007, even though he had hundreds of thousands of dollars available.

"This is a black and white lie, calculated and intended to calm investors," the prosecutor told the jury.

The case is USA v Cioffi & Tannin, U.S. District Court for the Eastern District of New York, No. 08-415.

(Reporting by Grant McCool; Editing by Tim Dobbyn)