Hundreds Arrested in Mortgage Fraud Sweep

But, the indictment says, three days later Tannin told investors on a conference call, "we're very comfortable with exactly where we are … the structure of the Fund has performed exactly the way it was designed to perform."

The indictment further alleges that Cioffi failed to disclose to investors on the conference call that the investment bank had requested to withdraw their $57 million from the funds.

Little said in a statement, "The subprime crisis took everyone by surprise, including the Fed and Treasury, and dozens of the largest financial institutions have lost over $300 billion to date on the same investments. Ralph Cioffi's funds lost money in exactly the same way. Because his funds were the first to lose might make him an easy target but doesn't mean he did anything wrong. Indeed, Mr. Cioffi had no motive to do anything wrong. He did not and could not have profited by doing anything the government now claims he did."

Cioffi and Tannin have also been targeted in a civil lawsuit by Barclays Investment Bank, which was a major investor in the funds, for allegedly making false representations about the performance of the funds.

A lawsuit filed by the Massachusetts Secretary of State alleges Bear Stearns Asset Management inadequately managed investors' funds by devising a set of increasingly complex deals that they did not clear with top Bear Stearns directors. The fund crumbled as the subprime credit industry unraveled.

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