Ralph Cioffi and Matthew Tannin, former Bear Stearns headge fund managers, are the first two criminal indictment casualties of the subprime crisis, with the FBI having arrested them at their homes on Thursday.

The U.S. Attorney General's Brooklyn Office and the Securities and Exchange Commission have also charged the two with securities fraud, having found evidence that Cioffi and Tannin expressed concern over weakness in the secondary mortgage market to colleagues at Bear Stearns, all the while touting its resilience to investors who ultimately lost $1.6 billion in the two Bear Stearns funds.

Red flags were also set off for investigators due to the fact Cioffi redeemed $2 million of his own money invested in the Bear Stearns High Grade Structured Credit Strategies Fund in March 2007, shortly after a precipitous decline in the subprime portion of the ABX Index. Bear Stearns didn't inform investors of the crash until June.

Meanwhile, three other firms are facing possible charges by the U.S. Attorney General's office and other federal and state prosecutors. They are concerned that UBC didn't properly value its holdings, American Home Mortgage Investment Corp. conducted accounting fraud and Countrywide Financial is guilty of either securities or loan fraud.

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