Blame Game Over Bear Stearns Acquittal

Two managers of funds heavily invested in toxic securities walk free, making prosecutors the target of populist ire

Remember Bear Stearns, the canary in the coal mine of recession? When the investment bank collapsed in March 2008, blame fell on managers for failing to alert shareholders to massive risks. On Tuesday, two hedge fund managers who invested heavily in subprime mortgage-backed securities walked free. The jury not only acquitted Ralph Cioffi and Matthew Tannin of charges, but one juror even came out of the case saying she would trust the men with her money, Bloomberg reports. This is embarrassing to the prosecution, and in a case so concerned with assigning blame, the lawyers have become a natural target for attacks.

• Prosecutors' Missteps "Not only," says James Joyner at Outside the Beltway, "did the government lose its case against two top Bear Stearns managers but at least one juror came away wanting to invest with them." To have this outcome, even when "jurors were naturally disposed to convict," is "fascinating," decides Joyner. "[I] it certainly looks as if, at a minimum, these guys were overcharged." He wonders if the prosecution would have been more successful with some sort of accusation of "malfeasance" instead of "fraud."

• Decisive Calling this "The Wall Street trial of the century (and a horrendously botched prosecution)," Jon Shazar at Dealbreaker thinks the case a "huge defeat for the Justice Dept., serving as something of a test case for similar battles against Wall Street executives."

• Unhelpful Result, Thanks to the Prosecution At BusinessWeek, David Henry notes that "jury acquittals are absolute and cannot be appealed in the U.S." That makes this decision particularly frustrating: The prosecutors aimed low, trying to avoid complicated discussions of financial transactions that would confuse jurors, and attempting only to "[p]rove that Cioffi and Tannin lied on specific occasions to a few dozen well-off, and presumably sophisticated, people about the funds' condition" But that means they "left unexplored and unanswered for the public is to what extent Cioffi and Tannin were responsible for significant losses at Citigroup and Bank of America." Henry is disappointed:

There's no telling what more the prosecutors, with their subpoena power, might have found out about these very transactions that undermined what used to be the two biggest banks in the nation. There's no telling because the prosecutors took the smaller matters to the jury, and lost.

• These Managers Aren't the Problem Daily Finance's Peter Cohan, is just "fine" with the decision. "I don't think [Cioffi and Tannin] should get the blame for the financial crisis," he writes. "[T]he two defendants are a sideshow diversion from where the blame really belongs--which is that most of the conduct that caused the financial catastrophe was perfectly legal."