Two former Bear Stearns hedge fund managers charged with fraud have been found not guilty by a New York jury.
Ralph Cioffi and Matthew Tannin were cleared of charges including securities fraud and conspiracy charges relating to the collapse of two hedge funds.
Prosecutors had argued the two managers lied to clients to protect bonuses when their funds were losing money.
The hedge funds bet on the high-risk sub-prime mortgage market in the US before they crumbled in June 2007.
The collapse cost investors in the funds about $1.6bn (£0.95bn).
In March last year, Bear Stearns became one of the most high-profile victims of the credit crunch, after American banking giant JP Morgan agreed to buy it with the backing of the US Federal Reserve.
U.S. Loses Bear Fraud Case
The U.S. government lost the first major criminal trial spawned by the financial crisis as two former Bear Stearns hedge-fund managers were acquitted of securities fraud. Some prosecutors had viewed the case as a blueprint for future charges against Wall Street executives.
The two men, Ralph Cioffi and Matthew Tannin, were accused of lying to investors — telling them they were optimistic about their funds, while privately worrying they were all but dead. The funds collapsed in 2007, in a prelude to the mortgage crisis that eventually felled Bear Stearns itself less than a year later and heralded the arrival of a full-blown credit crisis. (Bear Stearns was bought by J.P. Morgan Chase & Co.)
The acquittals are a setback for the U.S. attorney’s office in Brooklyn, N.Y., which along with several other offices is investigating Wall Street for possible criminal wrongdoing stemming from the credit crisis, including at Lehman Brothers Holdings Inc. and American International Group Inc. In Tuesday’s case, the question boiled down to this: Were the two men misleading investors, or simply putting a positive spin on sagging returns?