New details are emerging in the forthcoming Bear hedge fund indictments. The WSJ says the government will rely heavily on an email from hedge fund manager Tannin to co-manager Cioffi that their fund was "toast."
Cioffi and another colleague later persuaded Tannin he was overreacting, that the funds were expecting new financing, and that markets were, after all, unpredictable. In hindsight, of course, Cioffi was wrong. But is this sort of second-guessing really the stuff of a criminal indictment? Tannin and Cioffi made a business judgment. Do we really want business people -- whether at funds or companies -- always to err on the side of pessimism in this situation?
The WSJ article also suggests that investors were well aware of the peril and were demanding their money back. Precisely at what point did the undisclosed facts (vs. defendants' subjective beliefs) rise to materiality here? Again, should years in jail turn on these distinctions?
And it's not that the defendants would get off scot free if they weren't indicted. The WSJ says that the SEC is planning civil fraud charges against Cioffi and Tannin. And surely there will be private actions.
But this subtle stuff is for the boring trial somewhere down the road. What really matters for now is the impression on the public. According to the WSJ:
Prosecutors in Brooklyn are expected to hold a news conference to announce the criminal charges, and to publicly escort Messrs. Cioffi and Tannin to the Brooklyn federal court house, say people familiar with the matter.
Ah yes, the famous perp walk. This should convince the people that we're really doing something about the credit markets, etc.
And let's keep in mind that there's more at stake here than the defendants' freedom. Dealbreaker reports on where the Enron Task Force is now:
Kathryn Ruemmler, John Hueston, and Cliff Stricklin took partnership offers at top firms in DC, LA, and Denver, respectively. Sam Buell opted for the ivory tower instead and teaches at The University of Texas law school. Matthew Friedrich now heads the Criminal Division at DOJ after serving as special counsel to Attorney General Al Gonzalez, while his former colleague, Lisa Monaco, was first special counsel and now Chief of Staff to FBI Director Robert Mueller. Andrew Weissman, the second director to head up the Task Force, was also special counsel to Mueller and is now a partner at Jenner & Block's New York office. Leslie Caldwell, the previous director, is presently co-chair of the White Collar Practice at Morgan, Lewis & Brockius. Ben Campbell is the US Attorney for the Eastern District of New York. John Kroger won the Democratic primary for Oregon's Attorney General race and followed this up by winning the Republican primary as a write-in candidate. Sean Berkowitz, the third and last director of the Task Force, joined Latham & Watkins as a partner immediately after the disbandment, then successfully wooed Bethany McLean and ensured a lifetime of good press coverage (plus a table at the Waverly Inn).
Is this another way of saying that the only winners in these types of cases are the lawyers (well, and the FBI, which is lobbying hard for tens of millions of dollars more in its budget to fight white-collar crime)?
Posted by: Scott | June 23, 2008 at 04:20 AM