Articles Posted in Bear Stearns

Below is an article from Reuters this week regarding our client’s $3.4 million arbitration victory against Bear Stearns related to the Bear Stearns High Grade Fund. There are many investors who, for one reason or another, had decided not to file arbitrations against Bear Stearns. Investors should be aware that FINRA has a six year eligibility rule. In some jurisdictions, an investor who files a FINRA arbitration more than six years after the purchase of the High Grade Fund may be the subject to a motion to dismiss in the FINRA arbitration. Since the original High Grade Fund launched in about September 2003, early investors who are contemplating taking action should make a final decision sooner rather than later so as to avoid any potential motion. Investors who rolled over from the High Grade Fund to the Enhanced Leverage Fund should have no FINRA eligibility rule issues.

Investor in defunct Bear fund wins $3.4 mln award 3:15pm EST * Award follows acquittal of fund managers * JPMorgan Chase is responsible for paying the investor By Matthew Goldstein NEW YORK, Feb 9 (Reuters) – A Georgia-based chain of service stations that lost money with a Bear Stearns hedge fund that collapsed in July 2007 has won a $3.4 million arbitration award.

The award by the securities industry arbitration panel is the first ruling in favor of an investor in one of two now defunct Bear hedge funds since a jury acquitted the funds’ former managers of criminal charges in November.

Below is a Reuter’s article about the first Bear Stearns High Grade Fund arbitration case won by an investor. John Rich and Ross Intelisano of Rich & Intelisano, LLP were lead trial counsel and Jake Zamansky and Ted Glenn of Zamansky & Associates were co-counsel.

“Investor in Defunct Bear Fund Wins $3.4 Mln Award”

* Award follows acquittal of fund managers

The SEC announced that it will continue to pursue its civil enforcement case against former Bear Stearns High Grade Fund portfolio managers Ralph Cioffi and Matthew Tannin, after the recent acquittal of criminal charges against Messrs. Cioffi and Tannin. According to recent news reports, Robert Khuzami, head of enforcement at the SEC, told Reuters TV, “We filed a case based on the evidence from our investigation.” Mr. Khuzami added, “we have a different standard of proof.”

The SEC’s complaint (available on its website) is indeed far more broad than the charges lodged by the U.S. Attorneys’ Office in Brooklyn. It also reaches all of the way back to the beginning of the High Grade Fund’s existence as opposed to just the late 2006, early 2007 time period the prosecutors focused on. The prosecutors’ standard of proof of “beyond a reasonable doubt” is much stiffer than the SEC’s and civil litigants’ standard of “by a preponderance of evidence.” In order for Messrs. Cioffi and Tannin to re-enter the securities industry, they will have to defend the SEC action as well.

Opening statements in the criminal trial of Ralph Cioffi and Matthew Tannin, the former portfolio managers for the Bear Stearns High Grade Funds, start today in federal court in Brooklyn, NY. The High Grade Funds imploded in 2007 causing $1.4 billion in investor losses. Prosecutors have charged Cioffi and Tannin with securities fraud and Cioffi with insider trading. The media coverage so far has focused almost exclusively on emails sent by Cioffi and Tannin regarding their personal thoughts about the Funds. The government alleges that Cioffi and Tannin thought the Funds were in serious trouble but then told investors on conference calls that everything was fine. While emails are often sexy and this is an important part of the case, the defense will likely argue that the email quotes were taken out of context and that the portfolio managers were simply analyzing the prospects of the Funds and were not intentionally lying to investors.

The press has not focused much on two just as important aspects of the prosecution’s case which should be easier to prove. First, according to the prosecutors, on the investor conference calls, the managers told investors that there was a lesser amount of investor redemptions in the High Grade Funds than there actually were. Here, the government can argue that Cioffi and Tannin clearly knew how much in redemptions were put in by investors yet they told investors a different number so investors wouldn’t run for the exits. The redemption amounts are undisputed facts and much less susceptible to defense spinning.

Second, the prosecutors allege that Cioffi and Tannin used their personal investments in the Funds as part of their pitch to investors, to invest in, and stay invested in the Funds. In early 2007, the government alleges Tannin told investors he was adding to his position. Also, Cioffi redeemed $2 million of his own personal monies in 2007 and did not notify investors. The government can argue that Tannin lied to investors about his own personal investments in order to keep them in the Funds. Also, that Cioffi, because he used his own personal investments in the Funds as a marketing tool, wilfully omitted his $2 million personal redemption in order to induce investors to stay in the Funds. The longer the Funds were alive, the better chance Cioffi and Tannin could continue to reap their multi million dollar annual bonuses.

Matthew Tannin, the former Bear Stearns High Grade Fund portfolio manager, kept a personal diary of e-mails to himself in a G-Mail account. The U.S. Attorney’s Office received the e-mails after using a search warrant on Google. According to e-mails released by prosecutors yesterday, Tannin wrote in as early as November 2006 that the funds “could blow up”. U.S. District Judge Frederic Block said at a hearing that he will likely allow prosecutors to introduce the newly obtained e-mails as evidence at Tannin’s trial. The U.S. Attorney’s Office apparently has not finished reviewing all of the e-mails.

These e-mails could be extremely helpful in the government’s case against Tannin. His trial is set for Oct. 13. The prosecutors can use Tannin’s e-mails to show his knowledge and intent that Tannin and a co-defendant Ralph Cioffi misled clients about the funds.

The e-mails may also be helpful for the many investors who have pending securities arbitration cases against Bear Stearns (our firm has multiple, significant arbitrations pending at FINRA). Since the notebook and Tablet PC of Cioffi and Tannin have gone missing, Tannin’s newly discovered personal e-mail diary may be investors only chance to look into Tannin’s thoughts regarding the funds.

The Bear Stearns High Grade Funds blew up in the early summer of 2007, precipitating the the credit crisis around the world. On October 13, 2009, in federal court in Brooklyn, NY, Ralph Cioffi and Matthew Tannin, the portfolio managers of the High Grade Funds, will be facing criminal trial on fraud and conspiracy charges. Cioffi has also been charged with insider trading. This is the first major criminal trial stemming from the subprime mortgage era. It will be closely watched around the world. The U.S. Attorneys’ Office of the Eastern District of New York recently won a huge trial against former Credit Suisse broker Eric Butler who was convicted of fraudulently selling millions of dollars of auction rate securities. The Brooklyn jury convicted Butler of conspiracy to commit securities fraud, securities fraud and conspiracy to commit wire fraud and he faces a maximum sentence of 45 years in prison. A major battle is being fought over whether the prosecutors can introduce evidence that a Tablet PC and a notebook of Cioffi and Tannin disappeared and about Cioffi’s lavish lifestyle.

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