The Meltdown Fall Guys

Hedge funders Ralph Cioffi, left, and Matthew Tannin, right.Photo: Spencer Platt/Getty Images

While there’s no shortage of villains who helped bring on the crash, from George W. Bush on down, no one as of yet has stood trial for their financial sins. On October 12, we’ll get our first taste of retributive justice when Ralph Cioffi and Matthew Tannin, two former Bear Stearns hedge-fund managers, appear in federal court in Brooklyn to stand trial for their role in the June 2007 collapse of two Bear hedge funds that were invested heavily in subprime mortgages. Prosecutors allege that Cioffi and Tannin lied to investors about the health of the funds as the market soured in the spring of 2007. They also claim that Cioffi and Tannin expressed private distress at the state of their funds even as they were painting a rosy picture to investors. (“I’m sick to my stomach,” Cioffi wrote to a colleague in an e-mail included in the indictment.) Cioffi also faces charges of insider trading: Prosecutors allege that he personally pulled $2 million of his own money out of the funds while investors were left holding the bag. (Cioffi and Tannin have both denied any wrongdoing.)

The case carries symbolic weight: The collapse of the $1.6 billion Bear Stearns funds was the first tremor of the financial system’s earthquake. Less than a year later, Bear Stearns had ceased to exist, and the cascading failures of Lehman Brothers, Merrill Lynch, and AIG nearly triggered a second Great Depression. Cioffi is, in many ways, a Wall Street Everyman. He rose from a modest upbringing in South Burlington, Vermont, to acquire the status signifiers of the bubble: a big house in Tenafly, New Jersey; a Southampton house; country-club memberships; and three Ferraris.

It’s easy to see in Cioffi’s example the heads-I-win-tails-you-lose hucksterism that prevailed during the boom. But did Cioffi commit a crime? Cases based on selective e-mails make for damaging headlines, but they’re notoriously hard to prove in court. And, as much as we want someone to blame, there is a larger question of fairness at play: Cioffi’s case may not be much different from those of many of the Wall Street foot soldiers who recklessly deployed leverage and the newfangled financial instruments like collateralized debt obligations and credit-default swaps that we were all suddenly forced to learn about. The question remains unanswered as to why, even now, with the collapse of Bear Stearns and Lehman and the crises at Bank of America, Merrill Lynch, and AIG, no senior executive—from Cioffi’s superiors at Bear to Dick Fuld, John Thain, Ken Lewis, and Joseph Cassano—has been charged with wrongdoing.

It’s been a lonely time for Cioffi ever since he was paraded in front of reporters last June. Only one of Bear’s top brass called after he was indicted. Alan Schwartz, Cayne’s successor, called once. Cioffi, 53, has mainly retreated into exile with his wife and four children. He’s quit his two country clubs. In July, during the same week Goldman Sachs reported a record $3.44 billion profit and said it would dole out bubble-era bonuses, Cioffi dumped his Southampton estate for millions less than the $11.875 million asking price. And he sold two of the Ferraris—leaving him one, which is more than most people.

The Meltdown Fall Guys