New York  - Two former hedge fund managers of crippled financial firm Bear Stearns were arrested Thursday relating to their roles in the company's spectacular collapse earlier this year.

Ralph Cioffi and Matthew Tannin were arrested at their homes in New York and New Jersey, a spokesman for the Federal Bureau of Investigation said.

The two are alleged to have misled investors on the stability of two hedge funds they managed, which collapsed in June 2007, helping spark the wider subprime mortgage crisis that has cost financial institutions nearly 400 billion dollars in writedowns of mortgage- related assets.

Cioffi and Tannin are the first executives arrested in connection with the credit crisis. The Securities and Exchange Commission has been conducting an investigation into possible banking fraud that may have added to the severity of the country's financial woes.

Bear Stearns was nearly forced into bankruptcy in March, but was rescued by a buyout offer by rival JPMorgan Chase that was bankrolled by the US Federal Reserve.

The value of mortgage-backed securities has plummeted across the financial industry, as a sharp drop in US housing prices since early 2007 led to a record number of foreclosures by US homeowners. (dpa)