Ex Bear Stearns Hedge Funders Acquitted

NEW YORK (TheStreet) -- Two former Bear Stearns hedge fund managers were acquitted Tuesday of misleading investors about the state of the fund, which had been heavily leveraged to subprime mortgage-backed securities.

The fund, which lost $1.6 billion for about 300 investors, blew up in 2007, and its failure has become, in hindsight, the proverbial canary in the coal mine, one of the early warning signals that something fatally toxic had contaminated the world financial system. Bear Stearns itself succumbed a few months later when its near-bankruptcy pushed the firm into the arms of JPMorgan Chase(JPM Quote).

Tuesday afternoon, culminating a federal criminal trial in Brooklyn that lasted a month, a jury acquitted Ralph Cioffi and Matthew Tannin of all charges, including securities fraud, wire fraud and, in Cioffi's case, insider trading.

The case represented one of the first attempts by federal prosecutors to seek specific redress against Wall Street professionals alleged to have played a role, however limited, in the broader financial collapse.

The prosecution's argument rested on a series of emails that purported to show that the two men conspired to keep investors in the dark about the fund's collapse as bets on high-risk financial instruments backed by subprime debt rapidly went sour.