- The Washington Times - Thursday, November 12, 2009

The swift acquittal of two Bear Stearns executives in the government’s criminal case tied to the financial meltdown likely will force prosecutors to rethink the evidence they planned to present in a raft of cases that have yet to go to trial, legal specialists say.

Criminal cases may be percolating against executives at fallen mortgage lender Countrywide Financial Corp. and bailed-out insurance giant American International Group Inc., among others. The Bear Stearns acquittals show how tough it can be to prove that bank executives committed fraud by lying to investors.

The government must show that executives were actually committing fraud and not simply doing their best to manage the worst financial crisis in decades, said Michael Levy, a white-collar defense attorney at Bingham McCutchen in Washington. Jurors were not swayed by e-mails the government presented in the Bear Stearns case.

The two Bear Stearns executives, Ralph Cioffi and Matthew Tannin, ran hedge funds that collapsed after betting heavily on the shaky subprime mortgage market. The jurors in federal court in Brooklyn, N.Y., on Tuesday acquitted the pair of conspiracy and other charges in a purported scheme that cost investors about $1.6 billion.

The jurors said they decided that e-mail evidence presented against Mr. Cioffi and Mr. Tannin was contradictory and taken out of context and that the executives were blamed for a market cataclysm beyond their control.

Fraud is “a very difficult theory for the government to prevail on, in the context of an unprecedented financial crisis,” Mr. Levy said Wednesday.

Federal prosecutors and the Securities and Exchange Commission have launched wide-ranging investigations of companies across the financial-services industry.

But a year after the crisis struck, charges haven’t yet come in most of the probes. The investigations also are targeting government-owned mortgage financiers Fannie Mae and Freddie Mac and crisis casualty Lehman Brothers.

The Bear Stearns case was the second case to go to trial, following the conviction in August of a former Credit Suisse broker on conspiracy and securities fraud charges in connection with a $1 billion subprime mortgage fraud.

That’s a sharp contrast to the 2002 corporate accounting scandals that engulfed Enron, WorldCom and other companies. Back then, “perp walks” seemed to occur almost daily, and news conferences brought announcements of charges against a series of executives and high-profile individuals.

The not-guilty verdict dealt a setback to the Justice Department. It “will cause prosecutors to rethink any future cases related to the financial meltdown,” said Robert Mintz, a former federal prosecutor who is a private defense lawyer.

The Justice Department “remains committed to following the facts and the evidence where they lead,” spokeswoman Laura Sweeney said Wednesday. “If we believe the actions of individuals or companies were criminal, we will pursue those cases aggressively.”

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