Insider trading and Bear's Collateral Condo Pledge: A long list of red flags

Ralph Cioffi, a former Bear Stearns hedge fund manager, has been indicted for an alleged fraud which contributed to firm's downfall. Mr. Cioffi and another former Bear Stearns hedge fund manager, Matthew Tannin, were indicted last year. The duo allegedly mislead investors about the status of the firm's two hedge funds whose failure costs investors approximately $1.6 billion in July 2007. Bloomberg is reporting that according to the government, Mr. Cioffi also "rarely" listened to the firm's compliance trading measures and had a combatitive relationship with Bear Stearns compliance and legal department.


Mr. Cioffi has also been charged with insider trading for redeeming $2 million from the Bear Stearns Enhanced Fund. This represented approximately 1/3 of his investment in the fund. Specifically, the government is claiming that Mr. Cioffi used material non-public information to time his withdrawal before the fund's collapse. Adding insult to injury news is also coming out that Mr. Cioffi attempted to pledge his investment in the fund as collateral for a building loan for a luxury condo complex his brother was building in Sarasota, Florida. Bear Stearns apparently didn't grant approval for this. Apparently, "Cioffi became extremely upset and accused the general counsel of BSAM of being behind the decision," the U.S. said in court papers.

Outside business activities fund relatives building developments, in-fighting among internal units, a hedge fund manager fighting with the firm's compliance department and a hedge fund manager reducing his stake in the firm. This long list of red flags seems to keep getting longer...

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