Monday, November 16, 2009

Tannin & Cioffi Win Criminal Acquittal

When the verdicts were read their wives burst into tears.

The case was seen as the first major litmus test of the U.S. effort to obtain convictions tied to the subprime mortgage crisis and subsequent recession. The trial was the first stemming from a federal probe of the collapse of the subprime mortgage-market, which cost investors as much as $396 billion. These two men were indicted in June 2008, by Brooklyn U.S. Attorney Benton Campbell a year after their hedge funds failed.

Last week a jury of eight women and four men deliberated less than a day before reaching a verdict of not guilty on all counts. Cioffi, 53, the portfolio manager for the hedge funds, and Tannin, 48, their chief operating officer, went on trial Oct. 13 in federal court in Brooklyn, New York. The charges were conspiracy, securities fraud and wire fraud. They faced as many as 20 years in prison if convicted. Although their wives were noticeably relieved, the two men remained stoic. Perhaps all too aware, that this was a major victory, but far from the end of the battle.

Experts agree, this acquittal makes it more difficult for the Justice Department to bring additional prosecutions for fraud related to the subprime market and the various financial instruments that were based upon it, as it should. A jury of their piers answered quickly as well as emphatically that these men are innocent, as we at The Cold Truth had predicted. The public will require more than simple scapegoats as signaled by this jury's public push for the end of this era of prosecutorial permissiveness. According to juror Serphaine Stimpson, “As the witnesses began to testify I had my doubts...the defense tore the government witnesses apart.... jurors just weren’t 100 percent convinced." She then added, the defendants, “were scapegoats for Wall Street.”

Another Juror commented, “When people are making money, they say anything, when people are losing money they want to put the blame on somebody." The juror, Hong, said that if she had money, she would invest it with Cioffi and Tannin.

Assistant U.S. Attorney James McGovern said during the trial, “There is evidence here of a conspiracy which is ‘Let’s not tell anybody about the problems we’re having,” It’s also about ‘Let’s not tell the investors about the level of redemptions we’re having, because then there will be a run on the bank.’” AUSA McGovern shows himself to be clearly uneducated when it comes to markets as preventing a run on the fund is not a fraudulent activity in fact nothing could be further from the truth. It is an imperative as a manager in such a situation. It is a managers fiduciary responsibility to do so, most especially when the facts are rapidly changing and it it is ones job to disseminate information on a moment to moment basis, even as that information is changing too rapidly for one to do so.

Larry Ribstein, a professor of law at University of Illinois completely agreed with our position at The Cold Truth when he stated, “This never should’ve been the subject of a criminal prosecution. It was a case of standard business dealings where the views of the markets were shifting rapidly and these guys were being criminally punished for expressing views on one day and acting differently another day,”

This battle has just begun as the SEC plans to sue the Cioffi and Tannin in civil court because the burden of proof is much lower than the criminal court- this is why the two remained unmoved upon their acquittal as they have many more legal challenges ahead, including answering the numerous client law suits that Tannin and Cioffi have face as an unfortunate bi-product of the US Attorneys criminal charges. “We of course respect the criminal verdict,” SEC spokesman John Nester said. “But at this time, we expect to go forward with litigating our civil action.”

More to follow.....

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