Business exec impressed by Cioffi

Oct 16, 2009 (The Record - McClatchy-Tribune Information Services via COMTEX) -- BSC | Quote | Chart | News | PowerRating -- A Bergen County business executive told a federal court in Brooklyn Thursday that he was persuaded by Ralph Cioffi's comments and reputation to invest $3 million in the Bear Stearns hedge fund in 2006 -- and lost it all when the fund collapsed.

Howard L. Brown, the former chairman and chief executive of Allied Office Products, said he made the investment after he met Cioffi, 53, of Tenafly, manager of the fund that was soon to open.

Cioffi, a former senior portfolio manager at Bear Stearns, is on trial for allegedly lying to investors about the declining health of the fund, and another one he ran. Prosecutors say that he and co-defendant Mathew Tannin, of New York deceived investors so they could keep the funds open and protect their multi-million-dollar bonuses.

Investors lost $1.6 billion when the funds collapsed in July 2007, prosecutors say.

Brown said he used part of the $80 million he earned from the sale of Clifton-based Allied to Office Depot that year to make the investment in the fund, the High Grade Structured Credit Strategies Enhanced Master Fund. He said he was impressed with the fact that Cioffi was putting his own money in.

"He [Cioffi] said he was putting several million dollars there," said Brown, now CEO of Waltham, Mass.-based Rentacrate, which has an office in Moonachie. Brown, a philanthropist, also sits the board of Holy Name Hospital in Teaneck

Attorneys for Cioffi and Tannin argued in opening statement that they did not mislead investors, because they genuinely believed the funds would soon recover.

The fund was one of two headed by Cioffi, with Tannin's assistance. Both funds invested heavily in sub-prime mortgage securities and suffered when the market declined.

Cioffi and Tannin are charged with conspiracy, securities fraud and wire fraud. Cioffi also is charged with insider trading for allegedly using non-public information in his decision to withdraw $2 million of his money from one of the funds.

The two men face 20 years in jail if convicted of securities fraud, the most serious count.

Defense attorneys say investors were fully informed of the risks of investing in the funds, as were many people at Bear Stearns, and that too many people knew what Cioffi and Tannin were doing for there to have been a conspiracy.

Prosecutors allege that Cioffi's withdrawal of his money shows that he knew it was in trouble. But they say he never told investors about the removal for fear they would pull their money out too.

Brown said Cioffi never told him of that he had taken his own money out.

Brown said he didn't closely read the memorandum outlining the terms and risks of his investment, although he signed it. He said he bases his investment decisions on who he is dealing with.

"I usually invest in people," he told the court. "I size up the person and if the person has a good reputation, usually that's good enough for me to put my money in there."

He said he know Cioffi vaguely from living in Bergen County and would occasionally bump into him on the golf course.

Brown said the first he knew that the fund was in trouble was in June 2007 when he received a monthly statement for March, showing that his investment had fallen by $178,000 that month.

Brown said he was upset because he believed that he would earn 8 to 10 percent a year. He said he called Cioffi, who said the fall was "a blip ... that it was an unusual one month event." Cioffi also said "he thought that the worst was over."

The trial resumes Friday.

E-mail: morley@northjersey.com

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