No conviction for US prosecutors on this one.

Ralph Cioffi and Matthew Tannin, former Bear Stearns hedge fund managers, have been cleared of three counts of securities fraud and two counts of wire fraud.

Government prosecutors accused them of encouraging investors to keep their money in two of the bank’s hedge funds, Bear’s High-Grade Structured Credit Strategies Fund and High-Grade Structured Credit Enhanced Leverage Fund just before they collapsed. The funds were mainly invested in collateralised debt obligations (CDOs) backed by sub-prime mortgages and prosecutors claimed that they knew by March 2007 that the funds were in “grave condition and at risk of collapse”.

Despite their lack of warnings to investors, evidence of e-mails between the two describing the sub-prime market as ‘ugly’ and ‘toast’ and the fact Mr Cioffi pulled $2 million of his own money from his fund; there wasn’t enough for a conviction.

Both men were apparently in tears as thoughts of 20 years in the slammer evaporated.

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