Ralph Cioffi, After the Fall

“My entire family, we try not to dwell on or think about the events of the last two or three

“My entire family, we try not to dwell on or think about the events of the last two or three years,” Ralph Cioffi, the former Bear Stearns hedge fund manager, said on a recent weekday. He was sitting in a low-rise office complex next to a car wash in suburban New Jersey. “I guess if you dwell on it, you get very bitter.”

It has seemed throughout this Wall Street debacle that the most powerful have eluded disgrace. John Thain, whose problems at Merrill Lynch were not limited to a $68,000 credenza, was put in charge of the giant lender CIT this February, for example. A month later, Jon Corzine, pushed out of Goldman Sachs, was made CEO of a brokerage. And last week, Robert Rubin, whose years at the Treasury and then Citigroup made him a symbol of deregulation and excess, and whose affair with a former trader was detailed this spring on the Huffington Post, announced his new investment-bank job. Even Steven Rattner, the private-equity guru caught in New York State’s massive pension fund scandal, is writing a book and awaiting his comeback.

Mr. Cioffi is not.

Once a legitimate heavyweight of the hedge fund world, he was arrested just after dawn on a summer morning two years ago, handcuffed between two F.B.I. agents. In what is still the only serious criminal case of the financial crisis, Mr. Cioffi and a colleague were put on trial for defrauding investors, who lost $1.6 billion when the subprime bubble burst.

‘I’m not in a bad place. I’m in a good place,’ he said. ‘I mean, I certainly would have liked my career to have ended differently. But there’s a lot of pain in this world.’

As the newspapers put it, the collapse of his funds, which he had told clients were in fine shape, set off a chain reaction that eventually swallowed Bear Stearns itself. Mr. Cioffi was also charged with insider trading, having moved some of his own money from the funds before the end.

Last November, they were both found not guilty. “The entire market crashed. You can’t blame that on two people,” a juror said afterward. “How much can two men do?”

In his first public comments since then, Mr. Cioffi, 54, described his life after the fall. He and his family have sold off their New Jersey house and are renting nearby, but plan to move to Naples, Fla., near his parents. He cannot find work, but he has set up shop managing his own money in the two-floor office complex. “I’m not in a bad place. I’m in a good place,” he said. “I mean, I certainly would have liked my career to have ended differently. But there’s a lot of pain in this world.”


FOR THE FIRST 40 months that Mr. Cioffi ran his two hedge funds, neither of them had a losing month. Investors had to phone up his friends at Bear Stearns to get attention, Reuters reported. He had been one of the firm’s pioneers of CDOs, securities created from sliced-up and repackaged assets, like subprime mortgages. In fact, his first fund, started in 2003, and the more leveraged fund that followed, which actually had “Leverage” in its name, were built from them.

In early 2007, when the subprime market began its spectacular fall, Mr. Cioffi told his clients they would be fine. “This is not a systematic breakdown,” he said on an April investor call, when he insisted there was “no basis for thinking this is one big disaster.” At the same time, he and his colleague admitted to each other in emails that their world may be “toast.”

During last year’s trial, where those emails were read, Mr. Cioffi wasn’t rattled, he said. “I felt very comfortable with where I stood. I knew I had done nothing wrong. I knew I was innocent. And I had faith in the system.”

By the time the trial began, his old firm had been shuttered for a year and a half. “Keeping in mind that I had a lot going on at the time, I really wasn’t thinking so much about [it],” he said. “I obviously felt badly that Bear Stearns no longer existed, but I didn’t feel like what happened at the hedge fund contributed to the demise, nor caused their demise.”

The notion that the implosion of his highly leveraged funds badly damaged his firm’s finances and reputation, he said, is mistaken. “I didn’t have any feelings of guilt. I mean,” he said, and then paused. “I didn’t have any feelings of guilt. Over what?”

Instead, he is resigned to the fact that people need scapegoats in the wake of a disaster. “Look, I think it’s just human nature. People want to have a bogeyman,” he said. “People don’t want to take responsibility for their own actions.”


BEFORE THE TRIAL, he unloaded his house in Southampton, along with the New Jersey home. “We sold them from a position of weakness,” he said. “People knew.” He kept his house in Vermont, where he was raised, but couldn’t close on a luxury apartment at the iconic Stanhope on Fifth Avenue, where he lost his deposit. “Believe me, that was kind of our dream, and unfortunately it ended badly.”

His choice of automobile has changed, too. “All young men growing up want to see the day when they can afford a sports car of some sort. I was lucky enough to achieve that,” he said. “Now it’s just a phase of my life that’s over.” He says he enjoys driving his wife’s Honda Pilot. “I would recommend it to everyone, downsizing and simplification. One thing you learn is that one can get by with a lot less than one thinks we need.”

Every morning, he drives to the office with his 2-year-old poodle-spaniel, and his two sons, who are both around 25. “They like the market, they like trading, so it’s a good opportunity. And it was a great situation for me as well.” They get there by 8, and leave by 5, and then he works out, does research and watches the Yankees. “I’ve tried to create a routine,” he said. “I think it’s important to have a regular schedule. I don’t consider myself retired; I consider myself self-employed.”

His acquittal did not end the S.E.C.’s separate investigation. “So I’ve been unable to find work back on the Street,” he said. His personal setup, which he calls Ralph Cioffi Asset Management, does equity investing and some trading. He enjoys it. “I’m lucky that I have this ability to still work, granted on a much smaller scale, managing what I have left.”

But if he’s opening up a new brokerage account, or out around town, sometimes he worries that his reputation has preceded him. “Maybe I’m imagining that,” he said. “It’s just one of those things you feel.” People don’t necessarily know his face, though pictures of him in handcuffs were in the papers. “Even though one’s found innocent, you still have that stigma. It never goes away,” he said. “I guess at some point in time all of that will fade.”

In another New Jersey suburb, Howie Hubler, the Morgan Stanley mortgage trader who lost his bank billions of dollars, is also back at work, building up a firm called the Loan Value Group. The two men used to do a bit of business together. “I’m happy that he’s moved on and has found something to do with his life,” Mr. Cioffi said. “I don’t think he was a villain.”

He plans to leave the Northeast relatively soon. “I can honestly tell you I am very much at peace. I am very happy with my new life, I am very happy with my self-employment,” he said. “I’d love to be able to get back to a more normal, traditional job. But, obviously, I don’t think that’s a possibility.”


Correction: Howie Hubler worked for Morgan Stanley, not Merrill Lynch Ralph Cioffi, After the Fall