When it comes to nailing Wall Street’s bad actors, Uncle Sam may soon decide it’s better off taking the civil approach.
Experts say the government went too far in bringing a criminal case against two former Bear Stearns hedge fund managers. On Tuesday they were acquitted on charges they lied to investors about the health of their funds, which imploded in the subprime crisis.
The Brooklyn jurors who cleared Ralph Cioffi and Matthew Tannin on all charges, including securities and wire fraud, said they weren’t convinced beyond a reasonable doubt.
“I think this verdict should cause the Justice Department to step back and analyze how they are proceeding,” said Brad Simon, a former federal prosecutor in New York.
“We of course respect the criminal verdict. But at this time we expect to go forward with litigating our civil action,” said John Nester, SEC spokesman.
Similar cases could be shunted to the Securities and Exchange Commission. The SEC can only press civil charges, but those cases come with a lower burden of proof.
“Beyond a reasonable doubt is a very high standard of proof,” said Treazure Johnson, a securities lawyer in Washington and former enforcement official with the commission. “They might re-look at some of those cases and decide they would have better luck bringing civil charges.”
Others who have been accused of failing to warn investors of the impending losses include Angelo Mozilo, former CEO of Countrywide Financial, and Dick Fuld, former CEO of Lehman Brothers.
The SEC has a civil suit pending against Mozillo, who’s been accused of lying about the health of his mortgage company. As in the Bear Stearns case, the agency plans to rely heavily on e-mails showing the once high-flying executive fretting privately about the state of the market while presenting a rosier picture to investors.
No charges have ever been brought against Fuld over Lehman’s collapse.