Former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin were indicted for mail fraud and conspiracy in the first prosecution stemming from a federal investigation of last year's mortgage-market collapse, according to media reports.

The two men were charged with misleading investors about the health of two Bear Stearns hedge funds whose implosion ignited the sub-prime mortgage crisis. Mr Cioffi was also charged with insider trading in the indictment, which cites a series of emails between the two men. They both face as much as 20 years in prison if convicted of conspiracy, and Mr Cioffi faces an additional 20-year term if found guilty of insider trading.

The

US government has been investigating possible fraud by banks and mortgage firms whose investments in sub-prime loans and securities plunged in value, causing losses that now total $396.6 billion. Mr Cioffi and Mr Tannin were also sued today by the Securities and Exchange Commission, the

US financial regulator.

Mr Cioffi was arrested at his

New Jersey home. Mr Tannin was arrested at the same time at his

Manhattan apartment, said the Federal Bureau of Investigation.