Former Bear Stearns hedge fund managers indicted

By Chelsea Emery

NEW YORK (Reuters) - Two former Bear Stearns hedge fund managers were arrested and indicted on conspiracy and securities fraud charges on Thursday following a federal criminal probe into the collapse of two funds they oversaw.

Former managers Ralph Cioffi, 52, and Matthew Tannin, 46, surrendered to officials and were paraded in handcuffs in front of reporters and onlookers en route to their arraignment. The two pleaded not guilty and their attorneys said they will fight the charges.

The disintegration last summer of the two funds helped kick off a credit crisis that persists today by stoking widespread fears about investments linked to risky subprime mortgage loans.

According to the indictment, the fund managers lied about the funds' prospects, despite concerns over liquidity and the outlook for the market.

In a April 22 e-mail included in the indictment, Tannin warned Cioffi the subprime market could be "toast" -- while at the same time both men were touting their funds as an "awesome opportunity" for investors.

Cioffi is facing an additional insider trading charge for transferring a portion of his own investments from one of the funds without telling investors, prosecutors said.

The crumbling of the two funds, the High Grade Structured Credit Strategies Master Fund and the Enhanced Master Fund, also spurred questions about the oversight and risk management operations at Bear Stearns, which was sold in March to JPMorgan Chase & Co in an emergency takeover deal brokered by the U.S. Federal Reserve.

INDICTMENT