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Bear Stearns e-mail noted ‘meltdown’
Question of the Day
By April, Mr. Tannin said in an e-mail that the funds might need to be closed because “the subprime market looks pretty damn ugly” and the subprime securities might lose all their value if their AAA ratings were downgraded.
“There is simply no way for us to make money - ever,” should that occur, he said. Mr. Tannin attempted to avoid detection of his e-mail by sending it to Mr. Cioffi’s personal e-mail account from his own personal account, the indictment says.
The executives also lied to investors about $57 million in redemptions that were depleting the funds’ assets in April and May, the indictment says. The scramble by investors to redeem funds grew so quickly that by June 7, 2007, the executives no longer had any money left to honor redemption requests and the funds collapsed shortly afterward.
The Bear Stearns funds were among the first major casualties of the subprime meltdown and their failure hit global markets as a thunderbolt, triggering massive losses on stock exchanges and credit markets worldwide. The market turmoil has continued and most indexes remain down from their levels a year ago.
The Securities and Exchange Commission (SEC) filed simultaneous civil securities-fraud charges against the executives yesterday. SEC Chairman Christopher Cox noted that lightly regulated hedge funds are not immune from the anti-fraud provisions of securities law.
“Hedge funds are by no means unregulated when it comes to fraud,” he said. “Those who commit fraud at the expense of investors will always be the target of a relentless SEC.”
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