Two Bear Stearns hedge fund managers are off the hook for the financial crisis

It looks like any Americans eager to pin the blame for the financial crisis on particular Wall Street bankers have just missed a chance. How so? Two financial-crisis scapegoat candidates wriggled out of that role on Tuesday, thanks to the decision of a jury in Federal District Court in Brooklyn, N.Y.

The jurors decided that Ralph R. Cioffi and Matthew M. Tannin, who formerly managed two Bear Stearns hedge funds that imploded back in June 2007, did not lie to investors and that Cioffi did not violate laws against insider trading, according to the New York Times. This seems fine to me because I don't think they should get the blame for the financial crisis.

Why did the jury reach its verdicts? I'm not sure, but I know that Cioffi and Tannin were accused of, and acquitted of, lying to investors who lost a total of $1.6 billion that they had entrusted to the pair. The pair had been charged with presenting an optimistic financial picture of their funds without disclosing that they were plummeting in value and that Cioffi had already pulled some assets from one of them.

But wait -- there's more: Cioffi was acquitted on a separate charge of insider trading on allegations that he moved $2 million he had invested in one of the failing hedge funds to another less risky fund while telling investors he was adding to his position.

In trying to understand why the two were acquitted, I think Cioffi's defense attorney summarized it well. He told the Associated Press that prosecutors failed to show that the managers "knew what the future held and they hatched a criminal scheme to lie to investors."

Indeed, the two defendants are a sideshow diversion from where the blame really belongs -- which is that most of the conduct that caused the financial catastrophe was perfectly legal.

Peter Cohan is a management consultant, Babson professor and author of nine books, includingCapital Rising (due in June 2010). Follow him on Twitter.

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