Bear Stearns Fund Manager Cioffi Departs Amid Probes

Date: Wednesday, December 19, 2007
Author: Yalman Onaran, Bloomberg

Dec. 18 (Bloomberg) -- Bear Stearns Cos. hedge fund manager Ralph Cioffi left the firm amid an investigation by U.S. prosecutors into whether he pulled his money from two funds before they collapsed in July.

Cioffi, 51, ceased to be an employee last week, Bear Stearns spokeswoman Elizabeth Ventura said in an interview today. She declined to say why he left or to comment on the federal probe. He had stayed on as an adviser to the New York-based securities firm after being relieved of his duties as a fund manager in June, when his funds' subprime mortgage investments began to unravel.

Cioffi declined to comment on his departure. He left Bear Stearns, the second-biggest U.S. underwriter of bonds backed by mortgages, because his role in unwinding the funds was completed, a person close to the firm said.

The U.S. Attorney in Brooklyn and the U.S. Securities and Exchange Commission are investigating Cioffi's withdrawal of some of his own money from the funds, three people with knowledge of the matter said. The probe is part of a broader regulatory review of the funds' implosion, according to the people, who declined to be identified because the examination isn't public. Investors in the two funds, which filed for bankruptcy in July, lost $1.6 billion of capital.

The Wall Street Journal reported the probe of Cioffi earlier today.

Cioffi pulled $2 million of his own money, one third of the amount he'd invested in one of his funds, before March so he could commit it to another fund he set up, one of the people said. The withdrawal occurred before the funds ran into trouble, the person said.

CDO Writedowns

The two Bear Stearns funds failed when prices for so-called collateralized debt obligations linked to subprime mortgages plummeted, hit by surging late payments among U.S. borrowers with poor credit histories or heavy debts. Bear Stearns said last month it would write down the value of its CDO holdings, including some seized from one of Cioffi's funds, by $1.2 billion in the fourth quarter.

Cioffi's first fund, the High Grade Structured Credit Strategies Fund, generated a 46.8 percent return between October 2003 and March 2007. The second fund, started in August 2006, earned investors about 7.5 percent in its first seven months before losing 5.4 percent in March.

A native of Burlington, Vermont, Cioffi joined Bear Stearns in 1985, selling so-called structured products such as bonds backed by mortgages or other loans. Before transferring to asset management in 2003, Cioffi was the head of structured credit products.

Bear Stearns has declined 43 percent this year in New York Stock Exchange composite trading.

To contact the reporter on this story: Yalman Onaran in New York at yonaran@bloomberg.net .