Two former Bear Stearns hedge fund managers were arrested and charged with securities fraud this morning.

Ralph Cioffi and Matthew Tannin were taken into custody at their homes this morning over their roles in the collapse of two funds that ignited the subprime mortgage crisis last year.

The arrests are the first from a federal probe of possible fraud by banks and mortgage firms whose investments in subprime loans and securities plunged in value, causing losses that now total $396.6 billion. The Securities and Exchange Commission may sue the two men as early as today, claiming they committed fraud by falsely telling investors the funds they managed were in good condition, people with knowledge of the case said.

Cioffi, 52, was taken into custody at his Tenafly, New Jersey, home and Tannin, 46, at his Manhattan apartment, said James Margolin, a spokesman for the Federal Bureau of Investigation's New York office. The two men were processed at FBI headquarters in Manhattan, then taken out in handcuffs by six FBI agents to be transported across the East River to Brooklyn federal court for an appearance later today in connection with an indictment.

"The arrests are appropriate given the magnitude and the egregiousness of their alleged misconduct," said attorney Steven Caruso, who is representing investors in arbitration claims against the funds. Cioffi and Tannin engaged in a "gross violation of the public trust."

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