U.S. seeks delay of civil case vs. Bear managers

NEW YORK (Reuters) - U.S. federal prosecutors asked securities regulators to delay a civil case against two former Bear Stearns hedge fund managers while they hold grand jury hearings in building a criminal case against the pair.

Fund managers Ralph Cioffi and Matthew Tannin were arrested and indicted in June, the first executives to face federal criminal charges in fallout from the subprime mortgage crisis. Both pleaded not guilty. A trial date has not yet been set.

The Securities and Exchange Commission had also begun civil securities fraud charges against Cioffi and Tannin, accusing them of misrepresenting the investments of two funds they oversaw.

A memorandum filed on Wednesday by U.S. Attorney Benton Campbell in the U.S. District Court in Brooklyn asked for a stay in the civil case until the conclusion of the criminal case.

“A stay is necessary in the civil case to preserve the secrecy of the ongoing grand jury proceedings,” the memorandum said.

The document said the SEC was consulted and took no position on the stay, and that the defendants had declined to comment on the request.

Cioffi and Tannin were charged on June 19 with conspiracy and securities fraud related to the demise of their two funds, raising questions about oversight and risk management at Bear Stearns. The firm was sold in March to JPMorgan Chase & Co JPM.N in an emergency takeover brokered by the U.S. Federal Reserve.

The charges marked the first major criminal case announced by federal prosecutors stemming from the subprime mortgage crisis.

Cioffi and Tannin are accused of touting the funds’ prospects to investors as an “awesome opportunity,” while at the same time expressing private concern about an impending subprime mortgage meltdown.

Cioffi’s lawyer has said his client may be “an easy target” for the government because the Bear funds were among the first big blow-ups of the subprime crisis. A lawyer for Tannin has called her client “a scapegoat for a widespread market crisis.”

Reporting by Grant McCool; Editing by Gary Hill