Fed Hunters Bag Two Bears

The claim states that Cioffi told investors on an April 25 conference call that the fund had received "a couple of million" in redemption requests, when in fact Cioffi himself had redeemed $2 million, and he had received written notice from one of the fund's largest institutional investors, that it wanted to redeem $56 million.

The claim also includes several e-mail messages between Cioffi, Tannin and an unnamed third manager. In one, according to the claim "Tannin noted Cioffi's lack of buying discipline in a February 5, 2007 e-mail to the third manager, which read "Unbelievable. He is unable to restrain himself."

The claim also accuses Tannin of telling a Bear Stearns analyst on March 30, "believe it or not, I've been able to convince people to add more money."

The Bear hedge funds' demise were one of the first major symptoms of the credit crunch that has consumed markets since that time. Losses at the Bear funds led to wide losses at the firm, and eventually to a loss of investor confidence in it. The Federal Reserve in March rescued the firm, then on the brink of bankruptcy, by brokering a sale to JPMorgan Chase(JPM Quote).

The arrests are the first criminal charges brought against Wall Street executives in relation to the collapse of the subprime mortgage market.