US case against Bear Stearns men flawed -- lawyer

* Closing summations in trial

* Jury to start deliberations on Monday

* Verdict to be closely watched for future cases

By Grant McCool

NEW YORK, Nov 6 (Reuters) - The government's allegations of fraud against two former Bear Stearns hedge fund managers were built on "hindsight bias," including emails selected out of context, a defense lawyer told a jury in closing arguments on Friday at their trial in New York.

Ralph Cioffi, 53 and Matthew Tannin, 48, have denied charges of securities fraud, wire fraud and conspiracy in a June 2008 indictment that made them the first high-profile Wall Streeters to be criminally charged in a case stemming from problems with subprime mortgage-backed securities in 2007 that fueled the market meltdown.

"This is a case that is built on hindsight bias," Tannin's lawyer, Susan Brune, told the jury in Brooklyn federal court.

She said prosecutors alleged the managers "knew what the future held and they hatched a criminal scheme to lie to investors," but they had not proven a motive.

Brune, citing emails by Tannin, said he "went out of his way" to ensure the investors, institutions and individuals, knew the risks of putting their money in hedge funds.

She said "the idea that it is proof of a fraud that someone raises a doubt and says to his boss 'let's talk about it'" is wrong.

The government's evidence focused on emails in which Tannin and Cioffi expressed their fears to each other and colleagues about what they believed were chaotic and dislocated markets at the time.

In a closing summation on Thursday, a U.S. prosecutor said the hedge fund managers told "black and white lies" about the health of the funds in the first half of 2007, even though they knew market conditions were bad. [ID:nN05364952]

The funds, packed with subprime mortgage-backed securities, failed in the summer of 2007, costing investors as much as $1.6 billion.

Cioffi's lawyer, Dane Butswinkas, in his closing argument on Thursday, attacked the government case for giving jurors a "misimpression" and "misleading sound bites" from emails that had implied conspiracy where there was none.

The two men could be imprisoned for up to 20 years if convicted by the jury, which is expected to begin its deliberations on Monday.

FUTURE CASES

Acquittals would reverberate across the industry and to law enforcement agencies investigating possible malfeasance in the bailed-out giant insurer American International Group Inc (AIG.N: 行情) and the bankruptcy of Lehman Brothers Holdings Inc (LEHMQ.PK: 行情) that shook the entire financial world just over a year ago. (See COLUMN [ID:nN29373616])

The 12 jurors were selected after answering written and oral questions about whether they could be fair and impartial in an era of lost jobs, government bailouts of banks, controversial executive bonuses and Wall Street in crisis.

Cioffi and Tannin, well-known in the world of hedge funds, but not to the general public, ran the Bear Stearns High Grade Structured Credit Strategies Master Fund and the High Grade Structured Credit Strategies Enhanced Master Fund.

The funds failed after years of consistent success. Less than a year later, Bear Stearns Cos was out of business.