Two former Bear Stearns hedge fund managers accused of misleading investors were found innocent of all charges on Tuesday, marking a blow to the first big effort by US prosecutors to bring a criminal case related to the subprime mortgage meltdown.

Ralph Cioffi and Matthew Tannin, who ran two investment vehicles whose collapse in 2007 marked the beginning of the financial crisis, were cleared of all charges by a jury in a federal court. Mr Cioffi, also accused of reducing his stake in one of the funds by $2m without telling investors, was cleared of an insider-trading charge.