Wall St. trial summations hone in on "toast" email

By Grant McCool

NEW YORK (Reuters) - The trial of two former Bear Stearns hedge fund managers on fraud charges ended on Friday with sharp arguments over the meaning of the word "toast" in one defendant's email about the subprime mortgage market.

Ralph Cioffi, 53, and Matthew Tannin, 48, have denied allegations that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from problems with subprime mortgage-backed securities in 2007 that fueled the market meltdown.

Central to the government's case in a New York court is an April 22, 2007 email by Tannin to his boss Cioffi, who worked for Bear Stearns for 25 years. In it, Tannin refers to another colleague's report on collateralized debt obligations, securities backed by a pool of debt such as mortgages.

"The supbrime market looks pretty damn ugly ... If we believe the (report) is ANYWHERE CLOSE to accurate I think we should close the funds now," said part of Tannin's email, cited in the June 2008 indictment. "The reason for this is that if (the report) is correct then the entire subprime market is toast."

Tannin's lawyer, Susan Brune, told the Brooklyn federal court jury in her closing summation that U.S. prosecutors built their case on "hindsight bias" and emails selected out of context.

"They want to freeze-dry that Matt email and stick it to him," Brune told the jury, which is scheduled to begin deliberations on Monday, almost a month since the trial began on October 13.

"It is absolutely not right," she said.

Cioffi and Tannin have denied charges of securities fraud, wire fraud and conspiracy contained in a June 2008 indictment that accuses them of lying and misleading institutional and individual investors, who lost up to $1.6 billion in two funds.

But Assistant U.S. Attorney James McGovern told the jurors, "If you read this email, 'toast' is not a good thing. It is not saying you hedge against the 'toast'. It is saying the market that we deal in is over.

"There is no other reading of this email," McGovern said with emphasis.

The funds, after years of consistent success, failed in mid-2007. Less than a year later, Bear Stearns Cos was out of business.

Neither man was charged with contributing to the collapse of Bear Stearns in March 2008. Once valued at $45 billion, Bear Stearns was sold to JPMorgan Chase & Co in a government-brokered fire sale.

Prosecutors said the men lied to investors about redemptions that were being called early in the crisis.

In the course of three weeks of testimony, jurors were introduced to the world of hedge funds, leveraging, AAA securities, and lower-rated securities as well as Repo lending, subprime mortgages and collateralized debt obligations.

In closing summation on Thursday, a U.S. prosecutor said the hedge fund managers told "black and white lies" about the health of the funds in the first half of 2007, even though they knew market conditions were bad.