Ex-Bear Stearns Fund Managers Arrested by FBI Agents (Patricia Hurtado and David Scheer)

June 19 (Bloomberg) -- Bear Stearns Cos. former hedge fund managers Ralph Cioffi and Matthew Tannin were arrested at their homes this morning over their roles in the collapse of hedge funds that ignited the subprime mortgage crisis last year. 

Cioffi, 52, was taken into custody at his Tenafly, New Jersey, home and Matthew Tannin, 46, at his Manhattan apartment, said James Margolin, a spokesman for the Federal Bureau of Investigation's New York office. He said they were to be taken to federal court in Brooklyn for a court appearance later today in connection with an indictment.

{xtypo_quote_left} The indictments "signal a new chapter in the subprime debacle," Bunzel said. {/xtypo_quote_left} 

"The arrests are appropriate given the magnitude and the egregiousness of their alleged misconduct," said attorney Steven Caruso, who is representing investors in arbitration claims against the funds. Cioffi and Tannin engaged in a "gross violation of the public trust."

The charges would be the first from a federal investigation of possible fraud by banks and mortgage companies whose investments in subprime loans and securities plunged in value, causing losses that now total $396.6 billion. The U.S. Securities and Exchange Commission may sue the two men as early as today, claiming they committed fraud by telling investors the hedge funds they managed were in good condition when in fact they knew otherwise, people with knowledge of the case said.

Cioffi's lawyer, Edward Little, declined to comment. A call to Tannin's lawyer, Nina Beattie, wasn't immediately returned.

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