Bear Stearns executives among 400 charged with mortgage fraud

June 20th, 2008 - 2:38 pm ICT by IANS  

DPA
New York/Washington, June 20 (DPA) More than 400 people have been charged with mortgage fraud across the US since March, while two former hedge fund managers of crippled financial firm Bear Stearns have been arrested, the Justice Department has said. About $1 billion have been lost to the 406 defendants already charged with a wide variety of fraudulent schemes, while another 60 people were arrested in a nationwide sweep Wednesday.

Mortgage fraud has contributed to a nationwide housing market crisis that has led to a record number of foreclosures and billions of dollars in losses for financial institutions.

Bear Stearns executives Ralph Cioffi and Matthew Tannin were arrested Thursday morning at their homes in New York and New Jersey over their roles in the company’s spectacular collapse earlier this year.

The two are alleged to have misled investors on the stability of two hedge funds they managed, which collapsed in June 2007 and cost investors an estimated $1.4 billion.

The hedge fund collapses helped spark the wider subprime mortgage crisis that has cost financial institutions nearly $400 billion in writedowns of mortgage-related assets.

“Our objective is to protect the consumer and to stabilize the economic markets,” Robert Mueller, director of the Federal Bureau of Investigation, told reporters. “These schemes undercut the confidence in the market.”

Mueller said there were about 1,400 ongoing investigations across the US, while 19 companies are also being probed for possible banking fraud that may have added to the severity of the country’s financial woes.

Cioffi and Tannin are the first executives arrested in connection with the credit crisis. The Securities and Exchange Commission has been conducting an investigation into the scam.

Bear Stearns was nearly forced into bankruptcy in March, but was rescued by a buyout offer by rival JPMorgan Chase that was bank-rolled by the US Federal Reserve.

The value of mortgage-backed securities has plummeted across the financial industry, as a sharp drop in US housing prices since early 2007 led to a record number of foreclosures by US homeowners.
DPA

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