Jury acquits ex-Bear Stearns hedge fund managers

By Grant McCool and Michael Erman

NEW YORK (Reuters) - Two former Bear Stearns hedge fund managers were found not guilty of fraud, a decision that could make government prosecutors less likely to bring criminal charges against Wall Street executives for their role in the financial crisis.

The case -- the first major prosecution arising from the meltdown of major U.S. financial institutions -- was seen as a litmus test of whether a jury, presented with evidence from emails between money managers and conference calls with investors, would convict individuals for corporate collapses.

Ralph Cioffi, 53, and Matthew Tannin, 48, were acquitted of all charges on the second day of deliberations by a jury in U.S. District Court in Brooklyn, New York. Cioffi and Tannin left the courthouse with their smiling wives and relatives, some of them crying tears of relief.

Cioffi and Tannin managed two funds, crammed with subprime mortgage-backed securities, that lost institutional and individual investors a total of $1.6 billion when the funds collapsed in mid-2007 at an early phase of the Wall Street market meltdown.

The jury on Tuesday acquitted both men of conspiracy, securities fraud and wire fraud -- charges brought in a June 2008 indictment. Cioffi was acquitted of an additional charge of insider trading.

"There wasn't enough evidence ... The emails went both ways," jury forewoman Jenny McCaughey told reporters after the verdict. "They say one thing one time, another thing another time. We just didn't have enough to convict them."

Bear Stearns collapsed in March 2008, several months after the funds managed by the two men failed. It was sold to JPMorgan Chase & Co in a government-brokered fire sale.

Cioffi, who worked for Bear Stearns for 25 years, and Tannin still face civil lawsuits, including one brought by Bank of America over the bank's investment in their funds.

"The government clearly will need to rethink whether and when to assert criminal responsibility in connection with the financial meltdown," said Jacob Frenkel, former SEC enforcement lawyer and now a law firm partner.

During the trial, one wire fraud count was moved to the federal district of Manhattan, but it was not immediately clear whether that prosecution would go ahead.

In a telephone interview, Cioffi said civil proceedings remained and he declined to comment on the verdict other than to say he was happy with the outcome of the month-long trial.

"We're going home with the family for dinner, opening a bottle of wine and we're just going to relax," Cioffi said. "That's all we have planned for tonight."

The federal prosecutor whose office brought the case, three months after the government began a crackdown on mortgage fraud, said he was disappointed.

"Honesty and integrity are the principles upon which our financial markets function," Benton Campbell, the U.S. Attorney for the Eastern District of New York, said in a statement. "Enforcing and protecting those principles will continue to be one of the principal efforts of this office."

Juror Serphaine Stimpson, 27, an office coordinator at a Brooklyn college, called Cioffi and Tannin "scapegoats for Wall Street." She said: "All eyes were on the trial. It's Bear Stearns we're talking about."