Reuters – Pictures of hedge fund managers in handcuffs being led away to face fraud charges on Thursday have sent a chilling message to the $2 trillion (1 trillion pound) industry. <\/p>\n
The warning was clear: mind what you say in your e-mails if you are a manager and do a lot of due diligence if you are an investor.<\/p>\n
While this is not the first time hedge fund managers have been arrested — police are searching for a convicted manager who recently faked his suicide to avoid prison — the two former Bear Stearns managers who were surrounded by a swarm of federal agents on Thursday were in a different league.<\/p>\n
Ralph Cioffi and Matthew Tannin were called savvy managers who understood the complicated credit markets and worked for a bulge bracket investment bank that promised investors strong risk controls. Bear Stearns also had deep pockets in case something went wrong, analysts thought.<\/p>\n
Much of the case against the two was based on e-mail traffic between Tannin and Cioffi, including one that included the prophetic line: "… the entire subprime market is toast."<\/p>\n