Wall St bankers 'lied over and over again'

NEW YORK - Amid the economic wreckage, after seven million job losses and approaching two million home foreclosures in the US alone, with businesses and consumers around the world still struggling to get finance after the long credit crunch, Wall St is finally on trial.

A little piece of Wall St at least.

In the first major case against bankers at the heart of the meltdown, a jury of 12 mainly working-class New Yorkers yesterday began deciding the fate of the two Bear Stearns managers whose hedge funds imploded in 2007, signalling the start of the crisis.

Ralph Cioffi, 53, and Matt Tannin, 48, are accused of luring investors into the sub-prime mortgage market, even when they knew the market was headed for collapse.

Having pocketed millions of dollars in pay and bonuses during the boom years, the pair left investors nursing losses of US$1.4 billion ($1.8 billion) and ruined forever the reputation of Bear Stearns, one of the oldest investment banks on Wall St.

The pair sat motionless in the courtroom in downtown Brooklyn as attorneys prepared their opening arguments.

It promises to be a bitter fight, between prosecutors who accuse the pair of lying and manipulating evidence, and a defence which says the men are being made scapegoats for a financial crisis that was not of their making.

Prosecuting counsel Patrick Sinclair told jurors that the duo deceived investors "from France to Chicago, from Switzerland to right here in Brooklyn", and flouted the "special relationship of trust" that comes with looking after other people's money.

"These two defendants lied to their investors to save their multimillion dollar bonuses," said Sinclair. "In the United States of America, that is a crime. It's a serious crime and it's called securities fraud."

"They lied over and over again to lull investors into a false sense of confidence."

The prosecution hinges on a string of emails written by the men which suggest they knew much earlier that the market was - in a word used by Cioffi - "toast".

Judge Frederic Block, however, ruled that a diary-type Gmail Tannin sent to himself could not be presented in the prosecution's opening argument, and that "no mention of the famous - or infamous - Gmail scenario" should be made.

In the email the former hedge fund manager admitted that the two hedge funds he was involved in running "could blow up" eight months before they actually did.

The outcome of the trial could be harbinger of things to come, as the US Justice Department readies cases against even bigger fish on Wall St.

"This is not a revenge opportunity," the 75-year-old judge Frederic Block had told prospective jurors.

Cioffi's counsel, Dane Butswinkas, conceded mistakes, but said they were punished for failing to anticipate "the greatest financial crisis since the Great Depression".

Cioffi and Tannin face 20 years in jail if they are found guilty of the most serious of the charges against them: securities fraud. Cioffi is additionally charged with insider dealing, for transferring US$2 million of his own money out of his fund shortly before its collapse.

Jury selection took a day, as the judge attempted to weed out people whose bias may prevent them from giving Tannin and Cioffi a fair hearing. Six alternate jurors were also chosen. Defence and prosecution had agreed a questionnaire to tease out subtle prejudice.

One potential juror was dismissed after answering that "people on Wall St get away with a lot of wrongdoing".

What the jury will not have to do is trace the vibrations that began with the collapse of the funds in July 2007 and which amplified through the financial system for eight months before finally leading to a run on the bank at Bear Stearns.

The firm's demise, in March 2008, and its sale at a knock-down price to rival JPMorgan Chase, shook Wall Street to its foundations - and yet it proved to be just the first in a line of dominoes to fall.

Neither Cioffi nor Tannin is charged with "causing" the credit crisis. They are charged with behaving dishonestly when the crisis began to break.

The pair were traders in mortgage securities, curators of two hedge funds that invested in debt which is now known to have been toxic at the core but which had seemed to promise great riches.

They worked at the long end of the chain that stretched from overheated housing markets, where millions of buyers took on mortgages they could not afford. Those mortgages were sliced and diced by Wall St and sold like they were shares.

- INDEPENDENT