Legal News

Bear Indictments: Permissible Spin or Willful Misrepresentation?

By Dan Slater

In a WSJ op-ed, entitled “Business Failures Are Not a Crime,” Robert Mintz (pictured) — a former prosecutor who now leads the white collar practice at McCarter & English — argues that the Bear Stearns fund-manager case is neither Enron (book-cooking) nor Tyco (looting). Rather, he says it’s an indictment that benefits from the hindsight of 20/20, and results from a market failure that “extends well beyond these two defendants and their former employer to include many of our largest financial institutions.”

Last week, a federal grand jury in the Eastern District of New York indicted two former Bear Stearns fund managers — Ralph Cioffi and Matthew Tannin — alleging they misled investors when their fund was in peril, lied about their financial interest in the portfolios and destroyed evidence in the investigation. There’s also a parallel SEC securities-fraud civil action.

The case, argues Mintz, raises the question of whether all Wall Street failures should be prosecuted as crimes, rather than “leaving it up to appropriate financial regulators to fight it out in the civil arena. Put another way, are we attempting to criminalize conduct primarily based upon the fact that we now know that the investing decisions led to a disastrous end?”

But Mintz acknowledges that in a case like Bear — which he calls a garden-variety fraud — there is a point at which spin (legal) becomes willful misrepresentation (illegal), and that, unlike Enron, WorldCom and Tyco, is what the prosecution is really about.

Unfortunately, writes Mintz, Ralph Cioffi and Matthew Tannin were among the first to see their funds implode and that and that, “perhaps more than any other reason, is why they now find themselves facing the prospect of significant jail time.”

LB readers, any thoughts?

Photo: McCarter & English Web site

Full post as published by Law Blog - WSJ.com on June 26, 2008 (boomark / email).