Two former managers in charge of Bear Stearns hedge funds that invested in subprime bonds and derivatives were found not guilty of fraud charges Tuesday afternoon in New York.

A jury in Federal District Court in Brooklyn acquitted former Bear executives Ralph Cioffi and Matthew Tannin, believing the two men did not lie to investors by presenting an upbeat picture without disclosing that the two funds they managed were plummeting in value.

In particular, Cioffi was found not guilty of insider trading charges on accusations that he moved $2 million he had invested in one of the failing subprime hedge funds to another less risky fund while telling investors he was adding to his position. The government accused them of defrauding at least 300 investors out of $1.6 billion.

The two had been charged with three counts of securities fraud and two counts of wire fraud. They still face civil damages in regard to the hedge funds. Massachusetts sued Bear Stearns Asset Management, accusing Cioffi of making hundreds of trades on behalf of the hedge fund with the approval of the fund's independent directors.

In late 2007, Bear disclosed in an Securities and Exchange Commission filing that the funds were the subject of a criminal investigation. Bear, which collapsed in early 2008, was a major player in the subprime mortgage market, operating a trading desk, warehouse unit, and even owned a mortgage banking firm called Encore Credit.

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