Issue of the week: A crackdown on corporate crime

During the past week, the Feds have arrested hedge fund managers, bankers, lawyers, real estate brokers, and other alleged perpetrators of financial fraud.

It was an amazing week for Wall Street,” said John Cranford in First, two former Bear Stearns executives were charged with defrauding investors in two hedge funds stuffed with subprime-mortgage securities. Then a top executive of Swiss bank UBS pleaded guilty to helping a wealthy American client evade U.S. taxes. And around the nation, 406 lawyers, real estate brokers, and mortgage company personnel “were charged in a Justice Department sweep aimed at cracking down on mortgage fraud.” The various law-enforcement actions, though unrelated, are “reminiscent of past episodes of financial meltdown.” The Feds moved in as soon as the dust settled, arresting alleged wrongdoers and rewriting regulations—just as they did after the 1987 market meltdown, the late-1980s thrift crisis, and the Enron implosion.

Former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin can now claim a dubious distinction, said Matthew Padilla in the Orange County, Calif., Register: They are the first Wall Street executives to face criminal charges stemming from the credit crisis. Both stand accused of misleading investors about the health of two funds, whose collapse last summer was an early sign that the mortgage market was on unstable ground. Cioffi is also charged with insider trading. “He allegedly took money out of one of the funds when he knew it was in trouble but before telling investors the extent” of its losses. Cioffi and Tannin exchanged e-mails that are now a key part of the government’s case, said Kate Kelly in The Wall Street Journal. In one e-mail, Tannin warned Cioffi that “the funds were headed for the rocks—four days before they told investors there was little to worry about.”

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