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Blossom
Report: Regulators In Bear Hunt

By Mark DeCambre  TheStreet.com Senior Writer  12/17/2007 5:57 PM EST
 
Regulators and government officials are reportedly sniffing around to see if Bear Stearns played favorites by allowing some investors to exit now-bankrupt hedge funds that it froze during the summer.
 
The Securities and Exchange Commission and the U.S. attorney's office in Brooklyn are investigating allegations that Bear insiders were given preferential treatment and allowed to exit the beleaguered funds while the exit doors were shut for others, according to Business Week report Tuesday.

A call to a Bear spokesman was not returned and an official at the SEC declined to comment on "pending investigations."

Bear's hedge funds, High Grade Structured Credit Strategies and High Grade Structured Credit Strategies Enhanced, were managed in part by Ralph Cioffi. The investment vehicles turned out to be chock full of esoteric securities linked to subprime credit.

The collapse of the subprime market, spurred by soaring defaults and delinquencies among borrowers with poor credit histories, has insidiously eroded market confidence and leaked into higher-quality prime loans.

In February, investors began looking for the exits in an attempt to cut losses. They were blocked from doing so for months by Bear's asset management team, which continued to underplay the turmoil in the mortgage market, according to reports. At one time, the funds, including leverage, held approximately $35 billion in toxic debt. Bear attempted to bail out the highly leveraged hedge funds by extending it a $1.6-billion credit line but ultimately place them in bankruptcy protection in July amid lawsuits claiming that the New York-investment firm was not clear about the types of securities the funds would own or how badly they suffered from declines in subprime pricing.

The hedge fund flap ultimately sullied the fixed-income-centric shop's reputation and resulted in the removal of Bear's president, Warren Spector.

The Business Weekreport also indicated that Bear would be liquidating Bear Stearns Multi-Strategy Fund, which holds about $100 million in assets. Cioffi, who helped run the High Grade funds along with Matt Tannin, was reassigned to an advisor to help unwind the vehicle. Even in the wake of what would seem an embarrassing ordeal, Cioffi is said to be raising cash for a new fund, according to the New York Post.

Feds Probe Dealings at Bear Stearns Funds
Smartmoney.com -  By Dow Jones Newswires  December 17, 2007 6:01 PM

NEW YORK (Dow Jones) -- The Securities and Exchange Commission and the U.S. Attorney's Office in Brooklyn are investigating an allegation of insider trading at two Bear Stearns hedge funds that collapsed this summer, according to BusinessWeek, which cited unnamed sources.

Securities regulators and federal prosecutors are looking into whether some Bear Stearns insiders associated with hedge funds investing in subprime mortgage-backed securities pulled out personal investments while the funds' managers recommended that other investors stay put, reported BusinessWeek.

According to the magazine, people familiar with the probe say investigators have been seeking information from investors in the funds about the comments made by fund managers this spring in regard to redemptions, and the funds' exposure to the subprime-mortgage market.

-- Jerry A. DiColo, Dow Jones Newswires

 
 
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Judge Roy Bean
News flash - legallized gamblers get what's coming to them.

My "don't care light" is flashing. The fools deserve whatever happens to them and they should take their beef to the fools that they think misrepresented the value of their investments.

All I can say to these investor pinheads is "QUIT WHINING."  They bought in on the hype and they deserve whatever happens to them.

If you think these people give a rat's ass about what happens to you or your loan you're not only confused, you believe in the Fairy Godmother, the Tooth Fairy, Superman, Batman and Alan Greenspan.

If Bear Stearns was wiped off the face of the earth tomorrow by a meteor your mortgage payment would still be due.  How it got there and how you got into it is meaningless today, tomorrow or even next month.

You have to play the hand you're dealt with.  The fact that the house tables were stacked doesn't mean anything until you get out of the house and try to keep the other rubes from being taken.




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Ed Cage
Blossom quoted BusinessWeek:
"At one time, the (Bear) funds, including leverage, held approximately
$35 billion in toxic debt."

The Dow Jones Newswires wrote:
"Securities regulators and federal prosecutors are looking into whether some Bear Stearns insiders associated with hedge funds investing in subprime mortgage-backed securities pulled out personal investments while the funds' managers recommended that other investors stay put, reported BusinessWeek."

 
Terrific quotes and yet another excellent summary/analysis by Judge Roy..
I'll get a copy of the entire BusinessWeek article today. 
     As for the SEC investigation they would be well advised to focus on
these Bear investment "insiders."  It says here those "insiders" who
snuck out the back door while Bear was painting an optimistic picture
on the front steps were in large part the Bear Stearns hierarchy
themselves making them double-agent double-dipping "insiders."

Look for 2008 to be the last year in existence for the Bear Stearns
mortgage unit to be in existence. As for Bear's extensive connections
and investments in the Wall Street arena the status is also rather grim
as in "on life support."

            It couldn't have happened to a nicer group of fellas..

Ed Cage / ecagetx@tx.rr.com / 972-596-4363  

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Blossom
Entire Business Week article:

Probe of Insider Trading at Bear Stearns

Federal investigators are examining whether some insiders pulled money out of Bear's troubled hedge funds, while others were blocked from doing so

The investigation by securities regulators and federal prosecutors into this summer's collapse of two Bear Stearns (BSC) hedge funds that invested in risky securities backed by subprime mortgages is heating up. BusinessWeek has learned the Securities & Exchange Commission and the U.S. Attorney's office in Brooklyn are looking into an allegation that some Bear Stearns insiders associated with the funds may have been pulling their personal money out of the investment vehicles this spring when the market was in turmoil. The alleged redemptions occurred, sources say, during a time the funds' managers were urging other investors to stay put.

It's not clear which insiders at the Bear Stearns funds are drawing scrutiny. People familiar with the probe say investigators have been reaching out to investors in the highly leveraged funds, seeking information about the comments the funds' managers made during the spring with regard to the issue of redemptions, as well as the funds' exposure to the subprime mortgage market. The funds once controlled nearly $35 billion in collateralized debt obligations and other mortgage-backed securities, and investors lost a combined $1.6 billion when the funds filed for bankruptcy in July.

Lawyers for the funds' top managers, Ralph Cioffi and Matthew Tannin, either declined to comment on the investigation or did not return phone calls seeking comment. A Bear spokesman did not return a telephone call and an e-mail seeking comment. John Nestor, an SEC spokesman, says, "It's our policy to neither confirm nor deny investigations." A spokesman for Eastern District of New York U.S. Attorney Benton Campbell declined to comment.

Removed from Their Posts

The number of hedge fund insiders under scrutiny could be greater than one or two employees. At its peak, Bear Stearns Asset Management, the alternative investment arm of the big Wall Street firm led by Chief Executive James Cayne, employed about 140 people, many of whom did work for the hedge funds. Bear has since either dismissed or laid off dozens of BSAM employees.

Cioffi and Tannin, once senior employees at BSAM, were reassigned and appointed as advisers to the asset management group. BSAM's chairman and CEO, Richard Marin, was removed from his post and also named a special adviser. Marin did not return a call seeking comment. The most high-ranking casualty of the hedge fund imbroglio at Bear Stearns was Warren Spector, the investment firm's former president and co-chief operating officer. Spector was forced out in August, after the funds filed for bankruptcy in July, wiping out $1.6 billion in investor money. An attorney for Spector did not return phone calls seeking comment.

The issue of redemptions has been a point of frustration for investors in the elegantly named High Grade Structured Credit Strategies and High Grade Structured Credit Strategies Enhanced Leverage funds. Investors, including wealthy individuals and savvy asset-management firms, began submitting redemption notices in February, when the first signs of trouble began to emerge in the subprime housing market. Investors were told the earliest they could redeem their money was at the end of June, according to the funds' internal guidelines. But the June 30 redemption deadline was too late for most investors, as Cioffi and his team began barring investors from pulling money out the funds in early June.

Getting Back on Track?

Ross Intelisano, a New York attorney who represents a number of hedge fund investors, says if the allegation of insiders getting preferential treatment is true, it would be bad news for Bear, which is already named in a number of arbitrations and lawsuits. "People were trying to get out as early as February and March," says Intelisano. "If you open the gates just for the insiders, it will hurt (Bear) in litigation."

Scott Berman, an attorney who specializes in hedge fund litigation, says not all insider redemptions are improper. He notes insiders could have economic reasons for pulling money out of a fund, and often the offering documents for a fund will give managers some latitude on the issue of when they can withdraw their own money.

During the spring, Cioffi and Tannin did their best to convince investors that the Bear funds were poised for a rebound. In an Apr. 30 conference call with investors, Cioffi said, "We have a plan in place that will get the funds back on track to generate positive returns." In that same call, Tannin said he was confident the "structured credit market, and the subprime market in particular, has not systemically broken down."

Meanwhile, BusinessWeek has also learned that the collapse of two Cioffi-led funds caused another hedge fund casualty at Bear. In recent weeks, BSAM has begun notifying investors in the Bear Stearns Multi-Strategy Fund that it plans to liquidate that $100 million investment vehicle. The fund, which only invested in Bear-managed hedge funds, put several million dollars in the Cioffi-led funds.

Goldstein is an associate editor at BusinessWeek, covering hedge funds and finance. Henry is a senior writer at BusinessWeek.

 

Reader Comments

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John Dec 18, 2007 4:02 AM GMT Looks like it wasn't only the poor people and the "ignorant" who got screwed by the subprime mess. Hopefully some of our "financial advisors" can be taken to task on this one. As always, it's "buyer beware."

William Dec 18, 2007 3:19 AM GMT Bear Stearns is always being exposed for this kind of fraud. Why would anyone trust Bear Stearns with their nest egg?

gretasummers Dec 18, 2007 2:39 AM GMT If true maybe Jimmy Cayne will finally be forced out and he will have more time for playing bridge while this ship sinks even further!

Rescue Rick the Grass Cut Man Dec 18, 2007 12:36 AM GMT Rescue Rick the Grass Cut Man is here today to trim the unruly hedges - some hedge funds. Rescue Rick the Grass Cut Man is a yard safety super hero who strives to rescue individuals from accidents involving green grass and now greenbacks. Rescue Rick the Grass Cut Man is here today to rescue the investor from getting mulched on Wall Street. Think before you invest. It hurts. Please be careful with your investment decisions.

Dr. David S. Baskin Dec 17, 2007 10:45 PM GMT AS a former employee working throughout the firm in areas such as strategic planning and leadership coaching, I can lend a real-time assessment to the internal functioning of Bear Stearns. I have subsequently, as a executive leadership and organization development consultant, extensive experience to compare various organization. Bear Stearns always went beyond the "call of duty" to ensure that customers were treated with ethical standards with no room to tolerate less. I remember being in the Chicago office and being with a banker who was being verbally punished because Ace Greenberg (the previous CEO) thought the banker had overcharged a customer $50.00. This model of honesty and caring for the customer has permeated every member of the firm I was acquainted with. I understand things change, however, every name that has been in the news of late are the same people I knew and respected.

charles Dec 17, 2007 10:26 PM GMT Anyone who is a crook should be put in jail and have their goodies taken away.

Howard Johnson Dec 17, 2007 9:51 PM GMT Here's hoping that scrutiny of possible insider trading is not limited to the Bear Stearns debacle.

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Gonna RALPH !

http://wallstfolly.typepad.com/wallstfolly/2007/12/did-the-manager.html

 

Did the manager of Bear Stearns' imploded funds improperly withdraw $$$ soon before their collapse?

RalphCioffi-BearStearnsSinkingShip-002 copy.jpg

That's what the Feds are looking into....

Weeks before the two funds began imploding in April, fund manager Ralph Cioffi moved about $2 million of his own money from the riskier of the two hedge funds into another internal fund with a separate investment strategy, these people say.

Mr. Cioffi's move effectively lowered his exposure to the riskier of the two failed funds when it was on the brink of significant declines, these people say. No other senior Bear executive invested in the funds, according to people familiar with the matter.

A spokeswoman for Bear declined to comment.

Speaking to fund investors not long after the money transfer, Mr. Cioffi and a fellow fund manager still were publicly bullish about their two main funds, High-Grade Structured Credit Strategies Fund and a riskier sister fund.

As late as April 25, when they held an investor conference call, the two managers were telling investors that the amount of money investors were attempting to withdraw was lower than the amount of new money coming in, according to a lawyer representing investors who lost money in the funds.

"The consistent theme was that the investor redemptions were a lot less than the fresh investments," contends Ross Intelisano, a plaintiff attorney whose clients lost approximately $80 million when the Bear funds collapsed in late July. "That's what kept people in."

 

Bear Manager's Actions Are Subject of Inquiry - Wall Street Journal

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It's Perp Walk Time !

Will Ralph be the first perp to walk the walk?  He bet on the subprime market to deteriorate. He wasn't alone. Paulson & Co., GS, J. Kyle Bass and others shorted subprime and they all did well.   But when you are playing in risky markets with a lot of leverage, you have to be specifically as well as generally correct. Cioffi's hedge funds were hit when the ABX index, a proxy for the subprime market, appreciated from its low of 62 to 72 in May. Falling CDO values compounded his woes.  
http://www.nakedcapitalism.com/2007/06/troubled-bear-stearns-hedge-fund-may-be.html

"Cioffi joined Bear Stearns in 1985, selling so-called structured products such as bonds backed by mortgages or other loans."  There is just no way that he did not know about EMC Mortgage Corp's nasty default manufacturing mortgage servicing fraud and that many others were busy at MSF too.  They all used it to rig their bets.  My hope is that that prosecutors don't just focus on the 2 mil Cioffi yanked out of the fund and that they come to see Mortgage Servicing Fraud for the prolific insider trading tool that it has been since the late 1980's.


http://www.bloomberg.com/apps/news?pid=20601103&sid=a6dnRdEVgXKA&refer=us 

 

Bear Stearns Hedge Fund Manager Departs Amid Probes (Update4)
By Yalman Onaran

Dec. 19 (Bloomberg) -- Ralph Cioffi, the manager of Bear Stearns Cos. hedge funds that invested in subprime mortgages, left the firm as U.S. prosecutors examine whether he withdrew money from two funds before they collapsed in July.

The U.S. Attorney in Brooklyn and the Securities and Exchange Commission are investigating Cioffi's withdrawal of money from the funds, three people with knowledge of the matter said. The probe is part of a broader regulatory review, according to the people, who declined to be identified because the examination isn't public. Investors in the two funds, which filed for bankruptcy in July, lost $1.6 billion.

``This hits three hot buttons for the government right now: insider trading, hedge funds and subprime,'' said Michael Missal, a former SEC enforcement lawyer who oversees the regulatory practice at Kirkpatrick & Lockhart Preston Gates Ellis LLP in Washington. ``They've said those are their highest priorities, so the target gets that much more focused.''

Cioffi, 51, stopped working for New York-based Bear Stearns last week, said company spokeswoman Elizabeth Ventura in an interview yesterday. She declined to say why he exited the company, the second-biggest underwriter of bonds backed by mortgages, or comment on the federal probe.

Cioffi declined to comment on his departure. He stayed on as an adviser after being relieved of his duties as a fund manager in June, when his subprime mortgage investments began to unravel. He left because his role in unwinding the funds was completed, a person close to the firm said.

$2 Million Withdrawal

The Wall Street Journal reported the probe of Cioffi yesterday. He hasn't been accused of wrongdoing by the SEC or the U.S. Attorney.

Cioffi pulled $2 million, or one third of the amount he had in one of the funds, before March so he could commit it to another fund he set up, one of the people said. The withdrawal occurred before the investments ran into trouble, the person said.

The SEC and prosecutors ``would primarily focus on this as an insider trading case,'' said Michael Levy, a former U.S. prosecutor who now heads McKee Nelson LLP's white-collar investigation group in Washington. ``If he had information because he was an insider at the fund, and traded on that information that other people didn't know about, that can be the crux of an insider-trading case.''

Subprime Loss

The two Bear Stearns funds failed when prices for collateralized debt obligations linked to subprime mortgages plummeted as late payments among U.S. borrowers with poor credit histories or heavy debts increased. Bear Stearns said last month it would write down the value of CDO holdings by $1.2 billion in the fourth quarter, including some seized from one of Cioffi's funds.

CDOs are created by packaging assets including bonds and loans and using their income to pay investors. The securities are divided into different portions of varying risk and can offer higher returns than the debt on which they are based.

Chief Executive Officer James ``Jimmy'' Cayne ousted Co- President Warren Spector in August, blaming him for the hedge- fund blowup.

Bear Stearns, the fifth-largest U.S. securities firm by market value, will report its latest financial results tomorrow. Analysts predict the decline in the value of subprime-related investments and a drop in fixed-income trading revenue mean the company will report its first quarterly loss since going public in 1985. The mean estimate is for a loss of $1.82 per share, according to data compiled by Bloomberg.

Bear Stearns fell 1.2 percent today to $91.45 in New York Stock Exchange composite trading at 11:50 a.m. The stock has declined 43 percent this year, more than its four larger rivals.

No Bonuses?

Senior executives at Bear Stearns, including the 73-year-old Cayne, will forgo bonuses this year, the Wall Street Journal said today in its ``Heard on the Street'' column, citing people familiar with the matter. The firm is discussing a succession plan for Cayne, CNBC reported yesterday, citing people it didn't identify.

Cioffi's first fund, the High Grade Structured Credit Strategies Fund, generated a 46.8 percent return from October 2003 to March 2007. The second, started in August 2006, earned investors about 7.5 percent in its first seven months before losing 5.4 percent in March.

A native of Burlington, Vermont, Cioffi joined Bear Stearns in 1985, selling so-called structured products such as bonds backed by mortgages or other loans. Before transferring to asset management in 2003, Cioffi was the head of structured credit products.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net .

Last Updated: December 19, 2007 11:52 EST

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