U.S. Department of Justice

United States Attorney Eastern District of New York

271 Cadman Plaza East

F.#2007R01328

Brooklyn, New York 11201

September 25, 2009

VIA ECF

The Honorable Frederic BlockUnited States District JudgeUnited States District CourtEastern District of New York225 Cadman Plaza EastBrooklyn, New York 11201Re:United States v. Ralph Cioffi and Matthew TanninCriminal Docket No. 08-415 (FB)Dear Judge Block:On August 18, 2009, the government moved in limineto admit certain evidence pursuant to Federal Rule ofEvidence 404(b). Cioffi opposed this motion on September 1,2009, and the government now replies. Based on the completeevidence now obtained and set forth below, the governmentasserts that the proffered evidence is direct proof of thecharged crimes. This proof will demonstrate that Cioffi andTannin used Cioffi’s investment in the High Grade StructuredCredit Strategies Enhanced Leverage Master Fund Ltd. (the“Enhanced Fund” or “the Fund”) to lie to Busey Bank tosecure a $4,250,000 line of credit, which Cioffi needed tocomplete a construction project in Longboat Key, Florida.The defendants fraudulently pledged Cioffi’s interests inthe Enhanced Fund and bound Bear Stearns Asset Management(“BSAM”) to the terms of a “Consent and Agreement” (“pledgeagreement”) knowing that BSAM refused to consent to Cioffipledging his Enhanced Fund investment. Of course, this isthe very same investment that Cioffi is charged withillegally redeeming in Count Four of the indictment, andwhich Cioffi and Tannin are charged with lying about inCounts One and Three of the indictment.As discussed below, the concealment of this fraudis direct evidence of Cioffi’s motive to commit insidertrading and both defendants’ motives to commit the remainingcrimes charged in the indictment. This evidence isalternatively admissible pursuant to Rule 404(b) of the

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By no means does the government intend to offer all ofthese facts at trial. The government provides the Court with afullsome recitation of the facts here, however, to refuteCioffi’s claim that the government has somehow “misrepresented”the facts surrounding the pledge agreement. (See, e.g.,Supplemental Memorandum Regarding The Government’s Motion ToAdmit Evidence Pursuant To Federal Rule Of Evidence 404(b), datedSeptember 22, 2009). In Section III-E herein, the governmentoutlines the proof it intends to offer during trial on theseissues.2Federal Rules of Evidence as it is directly relevant toissues of the defendants’ motive, intent, knowledge andabsence of mistake.I.The Facts

In no uncertain terms, BSAM refused to consent toCioffi’s request to pledge his investment in the EnhancedFund as collateral for a $4,250,000 line of credit fromBusey Bank. With Tannin’s assistance, Cioffi executed thepledge anyway, thereby compelling them to hide the truthfrom BSAM management and their investors.•Cioffi invested in a multi-million dollar buildingproject (“La Firenza”) in Florida that was on the vergeof foreclosure in November 2006 (email from Cioffi tobank officials acknowledging, “[y]our latest threat wasthat you would foreclose on 11/13th.” BS-SEC4220963-65). •Cioffi negotiated the use of his Fund investment ascollateral to secure a loan (the “pledge”)(11/3/06email from Cioffi to bank official indicating, “I’mprepared to secure you with my shares in my BearStearns Hedge Fund . . . As of 10/31/06 the marketvalue is $5.7M.” BS-SEC4214205).•Cioffi knew that BSAM management had to consent to thepledge (11/6/06 email BS-SEC4214846; 11/8/06 emailstating, “I’m waiting on Bear Stearns to sign andreturn to me the assignment agreement on one of my BSCaccounts that has $5.7M market value in.” BS-SEC4218189).•On or within days before November 6, 2006, Tannincontacted an attorney in BSAM’s legal department (the

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3“Attorney”) to obtain the necessary documents for thepledge. The Attorney neither approved the pledge norhad the authority to do so. Rather, as set forthbelow, he provided ministerial editing services oncertain documents.•On November 6, 2006, the Attorney notified BSAM’sGlobal Head of Hedge Funds (the “Global Head”), theChairman of BSAM’s Hedge Fund business, BSAM’s GeneralCounsel, and the Director of BSAM’s Third Party SeededHedge Funds about the pledge. He informed the seniormanagers that he had discussed the pledge with outsidecounsel, who did not think the pledge was a disclosableevent “because Ralph was maintaining a beneficialownership in the interests,” but asked if the managershad any questions. (BS-USAO 0055990)(Exhibit #1).Cioffi was not a party to this discussion.•Minutes later, the Chairman of the Hedge Funds repliedto all who were on the email questioning whetherCioffi’s outside interest in this real estate concernposed a potential conflict of interest for Cioffi.(BS-USAO 0055991)(Exhibit #2).•About 30 minutes later, Tannin emailed the GeneralCounsel and explained that La Firenza was a real estatepartnership, in which Cioffi was 40% investor. (BS-USAO 005592)(Exhibit #3).•A few minutes later, Tannin asked the General Counsel“Are we ok?” (BS-USAO 0055993). The General Counselresponded, “not yet.” Without addressing whether BSAMwould consent to the pledge, he told Tannin that Cioffiwould have to complete the “Outside Business Interest”(“OBI”) process at BSAM. The General Counsel directedTannin to inform Cioffi that “[a]nything else he hasn’tdisclosed also should be on the table.” The GeneralCounsel advised Tannin that “[s]ometimes, in times ofdifficulty, we prohibit managers from removing theirinvestment in favor of clients going first. This[pledge] arrangement has the potential to interferewith that if there was a problem and the bank seizedthe assets at an inopportune time.” (BS-USAO0056001)(Exhibit #4).•Minutes after sending the last email to Tannin, theGeneral Counsel forwarded the email exchange to theGlobal Head, stating, “FYI.” The Global Head was

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