Two former Bear Stearns hedge fund managers have agreed to pay about $1 million to settle a civil lawsuit brought by the Securities and Exchange Commission, avoiding a second trial over whether they defrauded investors.þþAs part of the deal with the agency, neither of the former Bear executives, Ralph R. Cioffi and Matthew M. Tannin, will admit any wrongdoing. The agency has been sharply criticized in the courts and in Congress for allowing defendants to settle fraud cases without admitting or denying the charges.þþLawyers for the agency and the two men appeared in Federal District Court in Brooklyn on Monday and disclosed the settlement. The parties resolved the case on the proverbial courthouse steps — a trial was set to begin on Monday.þþThe settlement is still subject to approval by Frederic Block, the federal judge in Brooklyn presiding over the civil case. In Monday’s hearing, he raised his eyebrows over what seemed to him to be a relatively small sum of money being paid by Mr. Cioffi and Mr. Tannin to resolve the lawsuit.þþ“This case is being settled for, relatively speaking, chump change,” Judge Block said at the hearing. But he said he “was inclined to sign off on it.”þþMr. Cioffi and Mr. Tannin were indicted almost four years ago on criminal charges that they lied to their clients about the health of their hedge funds, which were largely invested in subprime mortgage-backed securities that plummeted in value when the housing market collapsed.þþþFederal prosecutors asserted that the former Bear executives publicly promoted the fund’s prospects while privately fretting about the state of their portfolio and the housing market.þþIn November 2009, a jury acquitted Mr. Cioffi and Mr. Tannin of criminal charges after a monthlong trial. The Securities and Exchange Commission, which had brought a parallel civil action against the two men, continued to pursue its case.þþJudge Block’s use of the phrase “chump change” brought to mind a recent decision by Jed S. Rakoff, a federal judge in Manhattan, who has been sharply critical of the S.E.C.’s method in resolving cases. Late last year, Judge Rakoff rejected a settlement between the agency and Citigroup over the bank’s sale of mortgage-backed securities. He rebuked the proposed deal, calling the proposed $285 million penalty “pocket change” for the bank.þþJudge Rakoff has also taken aim at the agency’s practice of settling cases without making the defendant either confirm or deny the charges. He said in the Citigroup case that it was hard to tell what the agency got out of the agreement “other than a quick headline.” Including the boilerplate “neither confirm nor deny” language in settlements creates “a stew of confusion and hypocrisy unworthy of such a proud agency as the S.E.C.,” Judge Rakoff said in a previous opinion.þþUnder the terms of the agency’s settlement with the former Bear executives, Mr. Cioffi will disgorge $700,000 in illegal gains, pay a $100,000 penalty and agree to a three-year ban from the securities industry. Mr. Tannin will forfeit $200,000 in illegal gains, pay a $50,000 penalty and accept a two-year industry ban.þþJudge Block asked the S.E.C. and lawyers for Mr. Cioffi and Mr. Tannin to file additional papers, due next week, before he will decide whether to approve the deal.þþAn agency spokesman and lawyers for Mr. Cioffi and Mr. Tannin all declined to comment.þ
Source: NY Times
