Ralph Cioffi and Matthew Tannin are facing criminal charges of "securities fraud related to their management of two Bear Stearns hedge funds," an FBI spokesman said.

U.S. prosecutors focused on an e-mail allegedly sent to Ralph Cioffi, a senior portfolio manager of the two funds, by Matthew Tannin, his COO.

In the e-mail, Tannin allegedly said he was "afraid that the market for bond securities they had invested in was 'toast.' He suggested shutting the funds, the Wall Street Journal reported.

Four days later, the two managers told investors they were comfortable with their holdings, the Journal said.

Some industry observers suggest that financial firms aren't doing enough to monitor email communications between employees, despite a host of headline-grabbing e-discovery cases in the last year.

"We see on a regular basis high-profile individuals finding themselves at the center of a scandal because of communications via electronic means," says Marie-Charlotte Patterson, VP of market strategy for AXS-One, a provider of high-performance records compliance management solutions.

"This begs the question, what is going to change in firms' behavior? What are organizations doing from a governance perspective to prevent this from happening?" she says.

Patterson contends that companies should be applying more controls and training. They also shouldn't roll out new electronic communications tools to their employees unless they have a strong policy in place both on content and reviewing messages.

Cioffi and Tannin were particularly unvigilant about their communications, although this is not uncommon in the work-place, says Denise Valentine, senior analyst at Aite Group.

Valentine points out that companies' compliance departments do remind their employees that email can be used as evidence in litigation cases.

"It's common practice," she says, "and it's like saying to employees, don't put things in an email. If you want to say something to someone, walk round to them and tell them in person. Every company does this."

Still, she says, it's human nature to email and skype, and use instant messaging. "The two managers simply didn't think it through. There's been plenty in the press about e-discovery. But e-mail has become an innate tool."

Meanwhile, Celent analyst Isabel Schuaerte says Cioffi and Tanning will likely become "the poster boys for subprime-related securities fraud."

" While criminal investigations have mushroomed over the past months, this case has a special flavor – not only because of the magnitude of the financial loss. Bear Stearns stands as the prime example of how Wall Street's big bet on mortgage backed securities went wrong," Schuaerte says.

"And while there were rumblings about subprime weakness prior to the collapse of the two Bear Stearns funds, it was their meltdown that officially kicked off the market panic."

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