[Soultrader]

Article here: http://money.cnn.com/2008/06/19/news...ex.htm?cnn=yes

[Frank]

I don't know the details of this but this doesn't sound at first blush to be a crime. Showing confidence in the asset class you are involved in is par for the course. These guys were dead wrong --- but being wrong is not a prison-worthy offense -- the penalty is generally losing your job. Having a rosy outlook on a market, despite near-term volatility, is basically what every sales pitch on Wall Street is about.

maybe there was outright fraud that will come out of this -- but right now, this looks like a bunch of lawyers making scapegoats out of guys that just had a flaw in their 'strategy'. The flaw was that the asset class was hugely overvalued and they were obviously leveraged long. not a good place to be. throw on top of that the fact that it is/was an illiquid market. these guys should have been fired for sure. but prison? that should be reserved for outright fraud.

[thrunner]

Part of the indictment is about insider trading:

The indictment alleges that Mr. Cioffi misled investors about fund withdrawals. On April 18, 2007, Mr. Cioffi spoke to a large investor in the fund, who said it was considering redeeming a roughly $57 million investment, the indictment says. In response, Mr. Cioffi allegedly told the investor that he and other portfolio managers had $8 million invested in the funds -- failing to say he had withdrawn $2 million of his $6 million investment in one of the funds. Mr. Cioffi later neglected to tell investors of the $57 million withdrawal, the indictment alleges.

Mr. Tannin -- who had invested about $560,000 of his money in one fund, people familiar with the matter say -- also misled investors by saying he had plans to add to that personal stake, prosecutors allege.

Only a few months before the funds declared bankruptcy on July 31, Mr. Tannin told a colleague via email that he had "been able to convince people to add more money" to the funds, "[b]elieve it or not," according to the indictment

[Kiwi]

It becomes fraudulent if you show confidence about something when you can be shown to know that you shouldn't - hence, a confidence trickster.

I've noticed in Australia that the CEOs of the big minerals companies don't say good things about their companies prospects. Instead they talk up the Chinese and Indian economies. So the sucker's go "demand is good" but no one can imprison these guys next year for lying about their companies.

There are many ways to suck in the stupid.

[Frank]

so far, this is certainly not clear fraud, in my opinion.

you have to see some embezzlement or fabricated documents with a paper trail of clear intent --- an email statement like that or some verbal comments are not going to mean much in a court of law.

[Kiwi]

"In criminal law, fraud is the crime or offense of deliberately deceiving another in order to damage them – usually, to obtain property or services unjustly. [1] Fraud can be accomplished through the aid of forged objects. In the criminal law of common law jurisdictions it may be called "theft by deception," "larceny by trick," "larceny by fraud and deception" or something similar." Wikipedia

The case turns on the question of what the men knew when they told investors they were hopeful about the funds' prospects - at a time when their performance was deteriorating and some investors were trying to withdraw money. The article

"However, rather than alerting the funds' investors and creditors ... the defendants made misrepresentations to stave off withdrawal of investor funds and increased margin calls from creditors in the ultimately futile hope that the funds' prospects would improve and that the defendants' incomes and reputations would remain intact." The article

You don't seem to be questioning if there is a fraud Frank; you are only questioning whether their emails can be used to prove it. As always we shall see whether the prosecution or defense lawyers are more convincing.

You can see how the Aussie CEO's having moved to talking up the Chinese and Indian economies instead of their companies have learned from their American peers' experiences. It's still fraud at heart though. If there is a god, they will still join Bond and the Enron execs in hell for the damage they have done to the naive, greedy and stupid.