The US Government is close to bringing the first criminal charges against Wall Street executives relating to the credit crunch.

Brooklyn-based prosecutors are preparing to indict Ralph Cioffi and Matthew Tannin, two former Bear Stearns hedge fund managers, and it is understood that the two men could be charged this week.

Mr Cioffi and Mr Tannin managed two hedge funds for Bear Stearns that went into meltdown last summer under the weight of sub-prime investment losses. The US Attorney's office in Brooklyn is thought to be preparing charges that centre on two allegations: whether the men deliberately misled investors about the funds' health, and whether they intentionally overstated the value of their assets.

The case against the two former Bear Stearns managers is part of a much broader federal investigation, part of which includes a collaboration with the FBI that is looking for cases of insider trading. Bear Stearns as a company is not expected to be charged in the investigation.

If the charges are made against the two men, it would be the first time that the federal government has indicted a Wall Street executive in connection with the fallout from the housing crisis.

Any indictment would send a chill through other senior Wall Street executives whose companies have suffered severe losses as a result of the credit crunch.

The two hedge funds that Mr Cioffi and Mr Tannin ran became the first high-profile casualties of the credit crunch when they imploded last summer at a cost to investors of about $1.6 billion (£800 million). The funds' implosion in June 2007 came only a few weeks after the two men had given a positive outlook to investors.

The US Attorney's office declined to comment on the case, as did JPMorgan and Bear Stearns. Mr Cioffi and Mr Tannin could not be reached to comment, but they have declined to comment on the investigation in the past.

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