A Lesson From the Bear Indictment: Trust Your Instincts

[WSJ_law_blog]

Yesterday, as we broke down the Bear Stearns fund-manager indictment, one thing stood out to us as clear, and poignant (presuming for the sake of this post that the allegations in the indictment are true): It seemed Matthew Tannin was vexed inside by competing voices.



Indicted former Bear Stearns fund manager Matthew Tannin being escorted to the courthouse. (Credit: Associated Press)


Some examples:
Tannin used his personal email, rather than his work email, to raise doubts about the market to his now-co-defendant, Ralph Cioffi.

He raised the issue of whether to approach a lawyer regarding his doubts about the market. “Who do we talk to about this?” wrote Tannin in an e-mail, sent from his private account, to co-defendant Ralph Cioffi. “Outside counsel? (And here we have to be careful because our outside counsel is [Bear Stearns Asset Management’s counsel] NOT our counsel — This is another very big issue we at least need to think about.)”

He told Cioffi they should close the fund. In the same e-mail quoted above, Tannin, a 1994 graduate of U. of San Francisco law, wrote: “If we believe the [CDOs reports is] ANYWHERE CLOSE to accurate I think we should close the funds now.” He added, “caution would lead us to conclude the [CDO Report] is right — and we’re in a bad shape.”

According to reporting by Law Blog colleague Kate Kelly, after he wrote the e-mail, he met with Cioffi at Cioffi’s home, where Cioffi told him that, while no one could ever predict market events with certainty, Tannin had reason to feel confident.

The NYT reported today that Tannin was known within his group as a worrier. Again, presuming the government’s allegations to be true, perhaps Tannin should have trusted, and acted upon, his worries, his instincts. Instead, the indictment alleges, he didn’t. (We reached out to Tannin’s representation and will let you know if we hear back.)

Legal Analysis

What does all this mean for Tannin’s case? We caught up with Friedman Kaplan’s Paul Fishman, a white collar defense attorney. “It?s not unusual at all for people who are involved in white collar or other criminal activity to have doubts,” said Fishman, not involved in the case. “And it may not even be unusual to contemporaneously express their doubts. But it is unusual for the prosecutors to have evidence of that, and that kind of evidence could support an argument that he knew what he was doing might be illegal. The government is likely to argue, based on those e-mails, that he had a choice, knew he had a choice, and made the wrong choice.”

Fishman says that, in white collar cases, where what the defendant did is often clear-cut — i.e. they sold stock at a particular time, made a statement to an investor, etc. — prosecutors are always looking for evidence of consciousness of guilt. Because fraud often turns on intent, prosecutors look at what someone did and try to make inferences based on that conduct about what the person actually intended. Because without bad state of mind, it’s not fraud.

Could evidence of Tannin’s angst work in his favor? Bradley Simon, who represented Samuel Israel’s co-defendant, James Marquez, in the Bayou fraud case and also is not involved in this case, thinks Tannin’s defense team could argue that the e-mails show “confusion, panic, that things have spiraled out of control, as opposed to being 100% committed to perpetuating a fraud.” Simon said, “I think the government would argue that it absolutely shows consciousness of guilt. But the defense would say no. It shows them panicking, and that therefore they?re not committing fraud, they?re just paralyzed by fear and circumstances that are spiraling out of control.”