White-collar trials Subcrime

Pinning the blame for the financial crisis is not easy IT IS, as one tabloid succinctly put it, “Wall St 1, US 0.” On November 10th the first and so far only executives to face criminal charges relating to the financial crisis were acquitted of lying to investors about the state of the subprime-stuffed hedge funds they ran at Bear Stearns. The funds’ collapse caused losses of $1.6 billion. Had Ralph Cioffi and Matthew Tannin been convicted, they might have spent up to 20 years in prison. Prosecutors relied on e-mails that, they argued, showed the two panicking behind the scenes while reassuring investors in public. In one, Mr Tannin described the mortgage market as “pretty damn ugly.” But after just six hours of deliberation the jurors sided with defence arguments that the missives had been taken out of context. The lack of a convincing corroborating witness, and the fact that the investors were institutions, not widows, also played a part. One juror even praised the two managers for working “24/7” to save their funds. The case underlines the difficulty in proving fraud amid such financial turmoil. Messrs Cioffi and Tannin seem to have been as dazzled as anyone else by the alchemy of securitisation. When things went wrong, they talked up their funds’ prospects while trying to keep them afloat. That, the jurors decided, was no conspiracy to mislead. Poor judgment is reprehensible, but not illegal. Even before this setback, prosecutors were struggling to build other cases: against Dick Fuld, Lehman’s former boss, Joe Cassano, AIG’s one-time derivatives supremo, and others. Several are reported to have gone cold (though the pace of insider-trading cases has picked up). But prosecutors of dotcom-era excesses learned from their early mistakes. Wall Street has won the first round, but there is lots of time left on the clock.