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E-Mails Seen as a Flash Point for Bear Stearns Fund Managers' Fraud Trial
Opposing counsel wrangle over e-mails as case against former hedge fund managers heads for Tuesday trial
The American Lawyer
October 12, 2009
On April 22, 2007, Bear Stearns hedge fund manager Matthew Tannin sent an e-mail to fellow hedge fund manager Ralph Cioffi. "The entire subprime market is toast," he said. "There is simply no way for us to make money -- ever." Three days after the now-infamous "toast" e-mail, Tannin reassured investors during a conference call, telling them he was "very comfortable with exactly where we are" and "there's no basis for thinking this is one big disaster."
Of course, it was indeed a big disaster. The hedge funds run by Tannin and Cioffi cratered, costing investors $1.6 billion and leading to the near-death of Bear Stearns, which was ultimately sold to JPMorgan Chase & Co. The fund managers were indicted for fraud and conspiracy in June 2008. On Tuesday their trial will begin in federal district court in Brooklyn -- with Tannin's e-mails front and center in the prosecution's case.
In fact, much of the nasty pretrial wrangling that's occupied the judge overseeing the case, Frederic Block, over the last week involves the former hedge fund manager's e-mails. In a five-page letter to the court (pdf) unsealed Thursday, prosecutors James McGovern and Ilene Jaroslaw said that newly disclosed e-mails from Tannin's Google account -- which the Brooklyn Assistant U.S. Attorneys had to obtain from Google because Tannin deleted his account in March 2008 -- were direct evidence of Tannin's "knowledge and intent." (In an e-mail to himself that prosecutors quote, Tannin said, "Spreads are tight and credit is only deteriorating. I was worried that this would all end badly and that I would have to look for work.") According to Bloomberg, Judge Block said at an Oct. 8 hearing that he will likely allow prosecutors to introduce the e-mails obtained from Google as evidence.
His decision follows an ugly exchange of accusations between prosecutors and Tannin's defense lawyers from Brune & Richard. The Brooklyn AUSAs argued that Tannin's lawyers had a conflict of interest because they would have to appear as witnesses to testify about their client's alleged e-mail destruction. In a Sept. 25 letter to Judge Block (pdf), they requested a hearing to determine if Brune & Richard should be barred from representing Tannin. "Ms. Brune may have personal knowledge of the circumstances surrounding defendant Tannin’s deletion of the g-mail account," prosecutors wrote. "If so, then she may be a potential trial witness."
Lead Tannin counsel Susan Brune responded in a Sept. 29 memo (pdf). First, she argued, there was nothing improper about Tannin's closing of his Google e-mail account, which was done "pursuant to counsel's advice," with "relevant documents, if any" preserved. Moreover, she contended, Tannin would assert his Fifth Amendment rights if the government were permitted to argue at trial that he improperly destroyed the e-mails. So even if Brune & Richard were disqualified, "the evidence about the closure of the [Google] mail account still could not be admitted," she wrote.
Brune said at the Oct. 8 hearing that the government had committed prosecutorial misconduct by suggesting Tannin attempted to destroy evidence. "We have ... been consumed for the last ten days with a series of very, very ugly briefs in which the government has impugned my firm," she said, according to Bloomberg. "They have impugned Mr. Tannin's good name."
Judge Block seemed to put the controversy over Brune & Richard's representation of Tannin to bed at the hearing Thursday. Though he said he will probably permit prosecutors to present the Google e-mails to jurors, he also said the Assistant U.S. Attorneys could not argue that Tannin deleted the account and rejected their calls for a disqualification hearing. (We called Brune and the prosecutors for comment; Brune declined comment because she's preparing for trial and prosecutors didn't call back.)
When trial starts Tuesday, Tannin will have Brune & Richard at his side. Cioffi is represented by Williams & Connolly and Hughes Hubbard & Reed.
This article first appeared on The Am Law Litigation Daily blog on AmericanLawyer.com.
