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Posts Tagged ‘collapse of bear Stearns hedge funds’

Bear Stearns Hedge Fund Managers ‘Facing the Music’

Posted by Larry Doyle on October 12th, 2009 12:29 PM |

Is it possible for an industry to accrue trillions in losses and nary an individual forced to truly ‘face the music?’ That reality, perhaps more than any other, is the greatest indictment of the incestuous relationship between Wall Street and its regulatory oversight in the form of the SEC and FINRA.

The music is about to start playing as Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin enter court this week for the start of their trial in which they are accused of misrepresenting the health of their two hedge funds at Bear Stearns.

This trial will attract a tremendous amount of attention. Why? The very fact that it is truly the first legitimate legal proceeding linked to the meltdown of our financial crisis. The trial will highlight incriminating statements and e-mails written by both Cioffi and Tannin. Additionally, we should expect the prosecution to present material which highlights the fact that Cioffi and Tannin seemed to intentionally misrepresent the very nature of their investment holdings.

The Wall Street Journal provides further color on this case in writing, A Case Pitting Spin Against Fraud:

A criminal trial involving two former Bear Stearns executives could help answer a key question stemming from the financial crisis: How far can Wall Street firms go to put a positive spin on bad news?

Ralph Cioffi, a former money manager at Bear Stearns, is escorted by officials to a waiting vehicle in Manhattan on June 19, 2008.

(Ralph Cioffi, a former money manager at Bear Stearns, is escorted by officials to a waiting vehicle in Manhattan on June 19, 2008.)

The two executives, Ralph Cioffi and Matthew Tannin, will fight securities-fraud charges in a widely anticipated trial beginning on Tuesday in a Brooklyn, N.Y., federal court. The money managers unsuccessfully scrambled to keep two mortgage-heavy Bear Stearns hedge funds afloat in 2007 amid sinking mortgage-market prices, the first of several blows that eventually felled Bear Stearns and marked the start of the credit crisis. J.P. Morgan Chase & Co. bought the firm in a March 2008 fire sale.

Prosecutors accused Messrs. Cioffi and Tannin of misleading investors about the health of the two funds, testing the degree to which Wall Street should disclose bad news to investors. (more…)

Book Review: House of Cards by William D. Cohan

Posted by Larry Doyle on August 20th, 2009 12:53 PM |

Was the failure of Bear Stearns a function of excessive greed, poor risk management, a weak Board, a lack of diversity in business lines, or all of the above?

Having worked at Bear Stearns from 1990-1996, I have a real appreciation for the depth of penetration William D. Cohan brings to this enormous failed enterprise in his book, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street.

Cohan does an excellent job in capturing the culture of Bear. What were the key points within the culture? In my opinion . . .

1. Everything (including principles) was secondary to maximizing profits each and every day

2. Silo mentality promoted a lack of teamwork and allowed ‘people without principle’ to advance as long as they generated profits.

3. As people progressed and careers grew, senior management openly promoted individuals to ‘have at it’ in order to move forward.

4. The most senior management at Bear ultimately did not fulfill their responsibility of protecting shareholder interests. Why? They were totally consumed with maximizing their own wealth. On Wall Street, it is often said, there are bulls, bears, and pigs. At Bear Stearns, certain senior managers fell into the pig category. (more…)

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