The Bear Stearns Two got their perp walk yesterday after a federal grand jury indicted them on criminal fraud charges, the first of the credit crisis on Wall Street, saying they lied to investors and destroyed evidence.

The New York Times puts the news on A1, while The Wall Street Journal goes C1, and the Financial Times splashes on page one a four-column picture of hedge fund manager Ralph Cioffi, who moved $2 million of his own money out of the funds just before they collapsed and was also charged with insider trading, being led to court with his hands behind his back.

The NYT reports that the second manager charged, Matthew Tannin, sent an email saying the market was “toast” and that they should close down the funds, as the Journal reported yesterday. The new, fascinating detail is that Tannin apparently had enough foresight to send the email to Cioffi’s wife. Unfortunately for him, the feds subpoenaed the duo’s personal email accounts, too. Might as well start forging their leg irons.

Cioffi told a Bear broker the market was an “awesome opportunity” even as he privately said the market was in a “meltdown.” Bloomberg:

“This one is a shotgun of all sorts of facts,” said former federal prosecutor William Mateja. “They’ve got a lot of evidence to establish a securities fraud against hedge fund managers. Not having heard the other side of the story, it appears that they have a strong case.”

The two face 20 years in the clink, and the WSJ and Bloomberg report they also were sued by the Securities and Exchange Commission, in the SEC’s classic “me-too” style.

The Times in a C1 story looks at how the case illustrates the problems in valuing these complex assets Wall Street has invented.

Going after the small fish

The Journal on A2 and the Los Angeles Times on A1 report that the feds are stepping up their investigations of the mortgage scams that helped bring on the housing bust, with sixty people arrested on Wednesday alone. The Journal leads with the FBI saying its looking at nineteen companies, including some that are “relatively large.”

More than 400 in the real-estate industry have been charged with fraud in the comic-bookish Operation Malicious Mortgage (the feds also have a SCAM task force for Southern California Mortgages), and there are 1,400 ongoing investigations. The NYT says the feds are focused on “lending fraud, foreclosure-rescue frauds and mortgage-related bankruptcy schemes.”

The LAT has our “Yes, But”… Quote of the Day:

Robert Gnaizda, policy director for the Greenlining Institute in Berkeley, said he feared the government would seek to make examples of mortgage brokers when the true culprits were the lenders and Wall Street firms he said had provided loans they knew were unaffordable in the long run.

“Mortgage brokers only did what financial institutions allowed them to do,” Gnaizda said.

He’s right: it doesn’t make it okay, but the big fish are still swimming around free.

Swiss cheeseball

In other white-collar-criminal news, ex-UBS banker Bradley Birkenfeld pleaded guilty to federal charges of helping a billionaire evade $7 million in taxes—something the Journal on C1 says will help the feds investigate the bank’s tax practice. He faces five years in prison.

Prosecutors say UBS “trained its private bankers in techniques to avoid detection by U.S. law enforcement, including to “falsely state on customs forms that they were traveling to the United States for pleasure and not business…”

The FT gives a peak inside the rarified world of Swiss private banking:

Mr Birkenfeld said he and others also advised US clients to place cash and valuables in Swiss safety deposit boxes, and purchase jewels, artwork and luxury items using the funds in their Swiss bank account while overseas, prosecutors said.

The idea was to avoid declaring these items. And Bloomberg adds some nice color:

In one case, Birkenfeld even agreed to buy diamonds for a U.S. client using Swiss funds and “smuggled the diamonds into the United States in a toothpaste tube,” Birkenfeld said.

More from the police blotter

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.