New York law firm Klayman & Toskes
believes that claims against Bear Stearns -
now part of JP Morgan Chase - on behalf
of investors in its High-Grade Structured
Credit Strategies and High-Grade Structured
Credit Strategies Enhanced Leverage funds
are likely to increase following the criminal
indictment last week of the former managers
of the funds, Ralph Cioffi and Matthew
Tannin.
Last Thursday Cioffi and
Tannin were taken into custody and charged
by prosecutors with securities fraud, conspiracy
and wire fraud, alleging that they had lied
to investors about the collapse of the sub-prime
mortgage market.
In an April 2007 e-mail from
to Cioffi quoted in the indictment, Tannin
said: 'The subprime market looks pretty damn
ugly.' Based upon internal Bear Stearns reports
observed by Tannin, he proposed: 'I think we
should close the funds now,' noting that 'the
entire subprime market is toast'.
The prosecutors
claim, however, that Tannin failed to convey
this material information to investors in the
High-Grade Structured Credit Strategies funds,
while Cioffi pulled USD2m of his own money
out of the fund at the same time that we was
expressing optimism to investors about the
future performance of the funds. In connection
with this redemption, Cioffi has been separately
charged with insider trading.
A separate complaint
filed by the US Securities and Exchange Commission
in Brooklyn federal court alleges that during
the first five months of 2007, Cioffi and Tannin
'deceived their own investors, as well as the
funds' institutional counterparts, by fraudulently
concealing from them the full extent of the
fund' deepening troubles.'
The SEC also noted:
'Cioffi's clandestine redemption caused the
Enhanced Leverage Fund to pay out USD2m at
a time when the markets were weak and the fund
was facing another month of losses, as well
as escalating margin calls and forced sales.'
'While
Cioffi and Tannin are the first Wall Street
executives to be charged in connection with
the subprime crisis, they most likely will
not be the last,' says Steven D. Toskes, a
partner at Klayman & Toskes.
'The criminal
counts contained in the federal prosecutors'
indictment simply confirm what we have been
hearing from investors who believed that Bear
Stearns made misrepresentations and engaged
in fraudulent conduct in connection with the
funds.
The law firm, which specialises
in representing investors throughout the world
in securities arbitration and litigation cases
against Wall Street brokerage firms, expects
filings against Bear Stearns on behalf of institutions,
hedge funds and funds of funds will increase
in the coming weeks given the amount of inquiries
and in light of the charges.
