Bear Stearns Hedge Fund Managers Indicted

Former Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, were arrested and indicted on wire and securities fraud charges on Thursday following a federal criminal probe into the collapse of two funds they managed. The failure of the two funds, the High Grade Structured Credit Strategies Master Fund and the Enhanced Master Fund, helped spark the credit crisis by stoking fears about investments in the subprime mortgage market.

The indictment states that the fund managers allegedly lied about the funds' prospects despite concerns over liquidity and overly-optimistic market forecasts. The indictment also indicates that at least one of the two managers removed a portion of his own funds from one of the investment vehicles he oversaw, and did not inform investors of the redemption.

Of considerable interest is that hedge funds in our largest investment banks performed so badly compared to independent hedge funds.  One could speculate that hierarchical oversight in the banks was inferior to investor oversight that is stronger in the independent funds.