To loosely quote one of our favorite media lawyers: “Do not send ANY e-mails about ANYTHING of even the slightest importance to ANYONE, ever. Because, if you do, no matter how long ago you wrote it, or how deeply you buried it, they will look for it, they will find it and you will be toast.” Speaking of toast, that assessment would probably apply to an unfortunate e-mail from one hedge funder to another musing that certain investments in complex bond securities might be "toast." As this one did.

The indictments of two former Bear Stearns Cos. hedge-fund managers are expected to cite a personal email sent from one to the other suggesting that the funds were headed for the rocks -- four days before they told investors there was little to worry about.

Fund manager Matthew Tannin emailed his more senior colleague Ralph Cioffi that he feared the market for complex bond securities in which they had invested was "toast." He suggested they discuss the possibility of shutting down the funds, according to the email, which was sent from Mr. Tannin's private account.

Federal prosecutors are set to announce the indictments of the two men in a Brooklyn, N.Y., federal court as early as Thursday on securities-, wire- and mail-fraud charges, people familiar with the matter say. Their funds' woes cost investors $1.6 billion, raised questions about Bear Stearns's internal risk controls, and helped mark the beginning of the global credit crunch. The email could be a crucial document in the case, the people say.

Mr. Cioffi's emailed response was a suggestion to meet that evening at his house to discuss Mr. Tannin's concerns. The two managers have told associates that they quickly became convinced that Mr. Tannin's worry about the markets was unfounded, and they later discussed the situation with a superior.

Four days after the Sunday-morning email, Mr. Tannin told fund investors on a conference call that he was "quite comfortable" with their holdings. Mr. Cioffi used similar language.

Federal prosecutors have spent the past year investigating, among other things, gaps between the managers' public and private discussions about the state of their funds, these people say. At issue: whether Messrs. Cioffi and Tannin deliberately misled investors about the strength and performance of their two portfolios, the High-Grade Structured Credit Strategies Fund and a riskier sister fund.

A spokesman for the U.S. Attorney for the Eastern District of New York declined to comment on the case.

Continue reading on WSJ.com

Next article » More Bank Charges This Week?

Previous article « Antler-Crashing In The Kingdom