Two former Bear Stearns managers were arrested today on securities fraud and other charges linked to the collapse of a hedge fund that bet heavily on subprime mortgages before the market collapsed, federal authorities said.

Matthew Tannin was taken into custody outside his New Jersey home this morning and Ralph Cioffi was arrested at his New York City home, the FBI said. They became the first executives to be charged criminally in the wake of the subprime market debacle.

RELATED: The U.S. Attorney’s Office’s Summary of the Indictment | Signed Indictment (pdf) | Feds Have Arrested Hundreds in Mortgage Fraud Probe.

An indictment unsealed in federal court charged both men with securities and wire fraud, and Mr. Cioffi with insider trading. The U.S. attorney’s office at Brooklyn planned a news conference later today.

In a separate complaint also filed today, the Securities and Exchange Commission alleges that in the first five months of 2007, Messrs. Tannin and Cioffi “deceived their own investors, as well as the fund’s institutional counterparts, by fraudulently concealing from them the full extent of the fund’s deepening troubles.”

The complaint says that in March 2007, Mr. Cioffi withdrew $2 million of his own money from a hedge fund without revealing it to other investors.

“Cioffi’s clandestine redemption caused the Enhanced Leverage Fund to pay out $2 million at a time when the markets were weak and the fund was facing another month of losses, as well as escalating margin calls and forced sales,” the SEC said.

“Although Cioffi had lost faith in the funds, as evidenced by his own redemption from the Enhanced Leverage Fund, he nonetheless falsely expressed his supposed confidence in the funds, encouraging investors to add money to the funds and attempting to dissuade them from redeeming,” the complaint said.

The complaint alleges Messrs. Cioffi and Tannin revealed their secret doubts about the survival of the funds in internal e-mails.

Tannin, the complaint says, sent one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, “Is Ralph doing what he should be doing right now?”

Around the same time, it adds, Mr. Cioffi wrote to a team economist, saying, “I’m fearful of these markets. … As we discussed it may not be a meltdown for the general economy but in our world it will be. Wall Street will be hammered with lawsuits.”

The complaint alleges violation of security laws and seeks an unspecified fine.

A law enforcement official told said yesterday that an indictment naming the men was the result of a yearlong federal securities fraud investigation.

The former executives are suspected of misleading investors about the risky subprime mortgage market, the official said, speaking on condition of anonymity because the outcome of the investigation is pending.

Tannin “is innocent,” his attorney, Susan Brune, said. “He is being made a scapegoat for a widespread market crisis. He looks forward to his acquittal.”

Mr. Cioffi’s attorney declined comment today.

The fallout from defaults on American mortgages has rattled the global economy and the American housing market.

Subprime mortgages, those issued to people with shaky credit, were repackaged as securities and sold across the globe.

The implosion of the hedge funds foreshadowed Bear Stearns’ own demise, with the Federal Reserve having to intervene earlier this year to bail out the beleaguered bank. Their collapse revealed how much damage had been done to the companies that bought, repackaged and sold the loans.

Despite positive assessments by Messrs. Cioffi and Tannin, the Bear Stearns hedge funds failed in June 2007. The funds had more than $20 billion in assets before crashing.

Messrs. Cioffi, 52, and Tannin, 46, already have been named in lawsuits brought last year by hedge fund investors, including Barclays Bank PLC, who allege they were purposely misled.

Barclays accused Bear Stearns of knowing for months that certain assets in the Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund were worth “far less” than their stated values.

The bank alleged Bear Stearns managers “hatched a plan to make more money for themselves and further to use the Enhanced Fund as a repository for risky, poor-quality investments.”

The complaint said Bear Stearns told Barclays that the enhanced fund was up almost 6 percent through June 2007 — when “in reality, the portfolio’s asset values were plummeting.”

Last month, Bear Stearns shareholders approved JPMorgan Chase & Co.’s $2.2 billion buyout at about $10 a share. Back in January 2007, before mortgage defaults began clobbering banks and draining demand from the debt markets, Bear Stearns had traded at $171 a share.