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Two former managers of high-risk hedge funds at Bear Stearns investment bank went on trial Tuesday in New York facing fraud charges.
Jury selection began in federal court in Brooklyn for Ralph Cioffi and Matthew Tannin, managers of hedge funds that collapsed in June 2007. They face up to 20 years in prison if convicted.
The failures of their funds were a precursor to the collapse of the whole sub-prime mortgage market which precipitated a run on stock prices across Wall Street and the wider 2008 US financial crisis.
The two are accused of deliberately hiding problems about the funds from clients, losing 1.4 billion dollars of investors' money. They deny the charges.
"The indictment alleges that by March 2007, the defendants believed that the funds were in grave condition and at risk of collapse," the prosecutor's office said after the defendants' arrest in June 2008.
"However, rather than alerting the funds’ investors and creditors to the bleak prospects of the funds and facilitating an orderly wind-down, the defendants made misrepresentations to stave off withdrawal of investor funds," the prosecution alleges.
Bear Stearns was one of the prominent victims of the financial crisis. The bank collapsed in 2008 and was bought at a bargain basement price by JP Morgan in a US government-backed deal.
Opening arguments were expected Wednesday in the case being tried by Judge Frederic Block.
