Bear Stearns $1bn 'fraudsters' poised to face trial by email

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Matthew Tannin and Ralph Cioffi were arrested and charged with securities fraud yesterday. The indictment published by the US Attorney for New York's Eastern District accuses the pair of lying about their own financial interest in the funds, destroying documents and misleading investors who lost more than $1 billion.

The funds collapsed as the subprime mortgage debacle began to swirl. Cioffi wrote to a colleague on 15 March: "It's either a meltdown or the greatest buying opportunity ever. I'm leaning more towards the former."

Despite such doubts, they told investors to pump more money into the funds - as they withdrew theirs.

"The subprime market looks pretty damn ugly," Tannin wrote in April. "If AAA bonds are systematically downgraded then there is simply no way for us to make money - ever."

The defence will seek to argue that the pair should not be made scapegoats for the collapse of the subprime market. Mr Cioffi's lawyer told the US media: "We are shocked and disappointed that the government has seen fit to fix blame on these two decent men."

The fallout from the dot-com bust saw investigations into high profile firms and individuals that lasted years.

In all of these cases, the government was able to subpoena internal emails that suggested a large gap between what fund managers were saying to each other and what they were saying to the investing public.

Just before the Bear funds went under, Tannin crowed in an email that he had persuaded some investors to add more money, "believe it or not".