Two former Bear Stearns hedge fund managers Ralph Cioffi, and Matthew tannin, now face the prospect of criminal charges, reports Bloomberg.

Given the fallout from the battering the investment bank received in the spring after bad bets on high-risk mortgages, this was always going to be inevitable. Just as Bear Stearns was too big to allow to fail, it was too big to get away without some of the players facing consequences.

This case is important. The fundamental issue here is whether the pair intentionally misled investors by saying the funds were good at a time when they were privately talking about whether these investment vehicles had what it takes to ride out weakness in the mortgage market. Cioffi might be in a lot of trouble, if The Wall Street Journal blog is anything to go by.

And if this case gets up, it will be the first criminal charges against Wall Street insiders arising from the credit crisis that turned the financial world upside down last year.

It's also significant in light of the class actions and arbitration claims already filed against Bear Stearns. This is going to get ugly.