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

And in the most-interesting of them all, the NYT goes C1 with news that the feds arrested the girlfriend of Samuel Israel III, the ex-Bayou hedge-fund manager, for helping him flee after faking his suicide last week.

The girlfriend denied her role for ten days but finally folded yesterday and admitted she helped Israel carry out the ruse, which involved an RV, a motor scooter, a GMC Envoy and a dust-scrawled note saying “suicide is painless” near a bridge. Ahh, that dry New York Times wit:

When Mr. Israel’s body failed to turn up and the message turned out to be the theme song of “M*A*S*H,” authorities began to suspect he was on the run…

According to a wanted poster released by the United States Marshals Service on Thursday afternoon, the vehicle Mr. Israel is suspected of using as a getaway car was a white 2007 Coachmen Freelander…

The marshals said the public should be on the lookout for Mr. Israel in “R.V. parks, campgrounds or highway rest areas,” and added that he had been known to use the aliases of Sam Ryan and David S. Clapp.

Try outrunning the coppers in that!

Israel pleaded guilty three years ago to defrauding investors of $400 million and was sentenced to 20 years in prison a couple of months ago.

The Journal totally blows this one, with a brief, lifeless story on C2. The FT is somewhat better.

Sandy’s house of sand

Dog bites man, and Citigroup will suffer more “substantial” asset write-downs, the FT says on page one and the Journal on C2. The papers say it adds to jitters about the banking industry.

The Journal says analysts predict as much as $10 billion in write-downs in the second quarter on losses on its leveraged buyout loans and those linked to bond-insurer downgrades. The FT says Citi’s consumer businesses, including mortgages and credit cards, were likely to take hits also. The NYT in the C1 story on valuing assets mentioned above drops that its chief financial officer Gary Crittenden said the bank will use its own “internal models” instead of just market prices, since they’re so low. Here’s the Journal:

Mr. Crittenden’s remarks were the latest indication that giant banks such as Citigroup are continuing to struggle with write-downs on their securities portfolios. In recent months, some investors had bet that those losses were largely in banks’ rearview mirrors.

That rosy outlook may have stemmed in part from past comments by bank executives, including Mr. Crittenden. In April, discussing Citigroup’s first-quarter results, Mr. Crittenden hinted that the worst of the write-downs was likely over.

Whoops! He was just off by several billion bucks in a couple of months.

China flexes it muscles

The Journal and the FT front news that China raised its energy prices, a move that will dampen demand and that the papers say helped send oil prices down $4 a barrel on the day to $132.32. The Journal:

China, widely seen as the one nation most responsible for the soaring demand and price of oil in recent years, reminded the world it can nudge both in the other direction as well.

China raised its price controls for gasoline and diesel 17 to 18 percent—the biggest hike in more than ten years—and its electricity prices by 5 percent. The FT in its lede says the move could boost its “already high” rate of inflation and that before the price jump, China’s subsidies helped make its gas prices 40 percent below those in the U.S.

The NYT notes the environmental benefits of higher energy prices:

The government has come under intense pressure recently from both environmentalists and other governments to ease up on its fuel subsidies, which are blamed for distorting global markets, encouraging greater consumption and pushing oil prices higher for other nations.

Big Brother is listening

Congress agreed to “the most sweeping rewrite of U.S. domestic-spying power in three decades,” as the Journal puts it on A1 and as the NYT concurs on A1, in a move that if passed would give legal immunity to the telecommunications companies who helped the government’s eavesdropping program. The companies, including AT&T face about forty lawsuits for that activity.

The Journal:

“The deal, if adopted in Congress, would bring the activities of a National Security Agency surveillance program permanently under the law. It would permit the federal government, in certain circumstances, to listen to communications of U.S. citizens without a specific warrant. It would also expand government powers to monitor communications on topics other than terrorism. Before the Sept. 11, 2001, attacks, the government needed a warrant if it wanted to listen to any conversation involving a U.S. citizen.”

Belt tightening

The Journal on A5 says a report projects states’ spending to grow by the lowest rate in thirty-one years, adding to the woes of the economy. The report, from a budget-officers group, says spending will rise 1 percent compared to the historical average of 6.7 percent.

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.