The US District Court for the Eastern District of New York ahas approved Securities and Exchange Commission settlements with two former Bear Stearns Asset Management portfolio managers, bringing to a close the SEC’s civil litigation against the managers.
The court ordered Ralph R Cioffi and Matthew M Tannin, who co-managed the Bear Stearns High-Grade Structured Credit Strategies Fund and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Fund, to pay a total of USD1.05 million in disgorgement and civil penalties and enjoined them from federal securities law violations. As part of the settlement, the Commission has issued orders instituting administrative proceedings that bar Cioffi and Tannin from industries regulated by the SEC for periods of three years and two years, respectively.
The SEC’s complaint, filed 19 June, 2008, alleged that the Bear Stearns funds collapsed in June 2007 after taking highly leveraged positions in structured securities based largely on subprime mortgage-backed securities. Cioffi was the senior portfolio manager, and Tannin was a portfolio manager and the chief operating officer for the funds. According to the complaint, Cioffi and Tannin misrepresented the extent to which the funds had invested in securities backed by subprime mortgages and, during an April 2007 investor conference call, Cioffi misrepresented the level of investor redemption requests. The complaint also alleged that Cioffi did not tell investors about his own April 2007 redemption of a portion of his personal investment in the Enhanced Leverage Fund used to invest in a third fund for which he acted as portfolio manager. The complaint further alleged that Tannin misrepresented that he was going to add to his personal investment in the Enhanced Leverage Fund and that he misrepresented the funds’ prospects during the April 2007 investor call.
Cioffi and Tannin settled the SEC’s charges, without admitting or denying the allegations in the complaint, and consented to the entry of district court judgments that permanently enjoin them from violating Section 17(a)(2) of the Securities Act of 1933, which prohibits untrue statements related to the offer or sale of securities. The judgments also ordered Cioffi to pay USD700,000 in disgorgement and a USD100,000 civil penalty, and ordered Tannin to pay USD200,000 in disgorgement and a USD50,000 civil penalty. Cioffi and Tannin further consented to issuance of the Commission orders, which bar them from associating with any investment adviser, broker-dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognised statistical rating organisation, for three years as to Cioffi and two years as to Tannin. The Commission issued its orders in administrative proceedings instituted after the district court entered the injunctions.