That's against federal law. Remember the Cincinnati Banker from a prominent family who borrowed from a bank and lied about his net worth? He went to jail in a clean case.
We can see the derivatives world using this approach, even if it involves German banks, apparantly.
The article just this afternoon:
By REUTERS
Published: June 25, 2008
Filed at 5:22 p.m. ET
Skip to next paragraph NEW YORK (Reuters) - Prosecutors are looking into whether two former Bear Stearns hedge fund managers, who were indicted last week on conspiracy and securities fraud charges for misleading investors, also broke the law in their dealings with banks, BusinessWeek reported on Wednesday.
Investigators are gathering evidence about possibly misleading comments that Ralph Cioffi and Matthew Tannin made to major lending and trading partners, BusinessWeek reported in its online edition, citing people close to the probe.
The report named Bank of America
Cioffi and Tannin pleaded not guilty after being charged last week for touting the financial health of two large hedge funds they oversaw to investors even as they knew the funds were about to collapse. The collapse helped kick off the widespread credit and sub-prime mortgage crises.
Prosecutors are focusing on a $4 billion collateralized debt obligation that the pair got Bank of America to guarantee and sell in the spring of 2007 when the market for risky mortgage-backed securities teetered on the brink of collapse, the report said.
The current indictment alleges that Tannin lied to a bank lender by understating the number of investors who wanted to pull their money out of the funds in May 2007, shortly before the collapse.
That lender was Germany's Dresdner Bank, BusinessWeek reported, citing people familiar with the matter.
The prosecution team is also talking to Merrill, another big lender to the Bear funds, the report said.
Allegations in a civil lawsuit filed by the U.S. Securities & Exchange Commission against Cioffi and Tannin also could point to additional criminal charges, the report said.
The SEC claims that the ex-Bear executives persuaded Barclays to sink an additional $100 million into one of the ailing funds in February 2007. That suit contends that the hedge fund managers provided the British bank with false performance figures for the portfolios.
Barclays, in a lawsuit it filed against Cioffi and Tannin in December, said it was the victim of "a series of misrepresentations," BusinessWeek reported.
Andy Merrill, spokesman for Cioffi and Tannin, declined to comment to BusinessWeek and could not immediately be reached by Reuters for comment.
The U.S. Attorney's office in Brooklyn, where the criminal case was filed, declined to comment on the BusinessWeek report.
(Reporting by Bill Berkrot, editing by Richard Chang)
