Choice for Bear Trial Jury: Two Clashin Stories

When the noted litigator Brendan Sullivan represented former Senator Ted Stevens of Alaska in his public corruption trial last year, Mr. Sullivan told the jury that when prosecutors “look at life through a dirty glass, then the whole world looks dirty.”

In the case of two former Bear Stearns hedge fund managers, that line was reprised on Thursday by a defense lawyer — none other than Mr. Sullivan’s law partner, Dane Butswinkas. “When you look at the world through dirty glasses, everything looks dirty,” said Mr. Butswinkas, who stepped in to represent Ralph Cioffi, above, one of the defendants.

Mr. Sullivan backed out of the case to focus on the representation of Henry T. Nicholas III, the Broadcom co-founder who was indicted last year on charges of fraud and drug-related crimes, among others. In bringing out his mentor’s famous line, Mr. Butswinkas was referring to what he argued was the government’s strategy in the case.

But perhaps he should have tweaked it to a less catchy but more accurate formulation: When you look at the world through a microscope, everything looks dirty.

That, essentially, is the defense’s characterization of how the government has played its hand in the prosecution — by taking seemingly damning comments made in e-mail messages and phone calls and presenting them to a jury without mentioning the supposedly exculpatory context. Mr. Butswinkas called “the credibility of the prosecution’s case into question.”

Mr. Cioffi and his former Bear Stearns colleague, Matthew Tannin, are on trial on charges that they defrauded investors in two Bear hedge funds. Closing arguments are scheduled to conclude on Friday. The jury will begin deliberations next week, perhaps as early as Monday.

For its part, the government insisted that this was not a case about investment strategies gone awry, the risk-taking inherent in hedge fund management or the market turmoil of 2007. Rather, as a prosecutor, Ilene Jaroslaw, argued in her closing remarks, it’s a case about “black and white lies.”

Mr. Cioffi and Mr. Tannin misled their investors on two pieces of important information, she said: the defendant’s so-called skin in the game — or the money they personally invested in their funds — and the amount of investor redemptions leading up to the funds’ collapse.

“They had a duty to investors to speak the truth,” she argued. “They cannot tell half truths, make misleading statements or intentionally omit an important fact. They cannot lie. They had that duty in up markets and down markets.”

Both sides have weaknesses. The defendants did in fact make comments to investors regarding both redemptions and their personal investments in the funds that appear to be at odds with reality. As for the prosecution, its case is weak on motive evidence. The government alleged in its opening statement that Mr. Cioffi and Mr. Tannin lied to salvage their bonuses and reputations. But if, as the government says, they knew the funds were going to collapse, it is doubtful there would have been bonuses to collect.

In any event, when the jury begins deliberating next week, it will be left with two stories to choose from:

Narrative A: After successfully operating their funds for over three years, the defendants decided to go criminal when the going got rough. They lied to investors, telling them only what they wanted to hear to keep them in the funds.

Narrative B: The defendants were professional risk-takers with solid track records. As such, they analyzed every angle before coming to the conclusion — justifiable at the time — that they could continue making money regardless of whether the subprime mortgage market turned to “toast.” In the end, their prediction was wrong. But making a bad bet isn’t a crime.

http://dealbook.blogs.nytimes.com/2009/11/06/choice-for-bear-trial-jury-2-clashing-stories/?ref=business