The US government suffered a blow last night in its attempts to secure convictions over the financial crisis when two former Bear Stearns hedge fund managers were cleared of fraud charges.
A New York jury acquitted Ralph Cioffi and Matthew Tannin of eight charges of securities fraud, wire fraud and conspiracy after less than nine hours' deliberation. Cioffi was also cleared of one charge of insider dealing.
Prosecutors had claimed that the pair had deliberately misled investors in the run-up to the credit crunch in an attempt to protect their multimillion-dollar bonuses. They cited emails that showed that Cioffi and Tannin thought the property market was "pretty damn ugly", even as they encouraged people to invest in their mortgage-heavy funds.
But defence counsels argued, successfully, during the four-week trial that it was unfair to judge their actions in hindsight, following the biggest financial crisis since the 1930s. They also accused prosecutors of "cherry-picking" individual sentences from thousands of electronic messages.
The jury foreman declared that "the government never provided enough evidence to convict".
Another juror, Aram Hong, said that she would be happy to invest with Cioffi and Tannin if she had the money, citing evidence that the two men were exchanging emails at 4am. "If this was really a fraud case, they wouldn't have worked that hard," Hong said.
Legal experts said the acquittal may deter US authorities from bringing similar cases that rely heavily on email evidence. David Gourevitch, a Manhattan defence attorney, said: "The defence's argument, which prevailed, was that the government picked and chose what it wanted to focus on without giving a mix of information."
Before the financial crisis, the two Bear Stearns funds run by Cioffi and Tannin held $20bn (£12bn) of assets. Cioffi, the more senior manager, earned a total of $32m in 2005 and 2006, while Tannin picked up $4.4m.
After the verdict, Tannin said in a statement that he was "grateful for the jury's hard work in weighing all the evidence". Cioffi told Reuters he was "going home with the family for dinner, opening a bottle of wine and we're just going to relax".
The federal prosecutor who brought the case said he was disappointed by the result. Benton Campbell, US attorney for the eastern district of New York, said: "Honesty and integrity are the principles upon which our financial markets function. Enforcing and protecting those principles will continue to be one of the principal efforts of this office."
Cioffi and Tannin were arrested and charged in June 2008 as part of a wider crackdown on those involved in the collapse of the US mortgage market.