Two former hedge fund managers at investment bank Bear Stearns have been arrested after a US criminal probe into the $1.4 billion collapse of funds they oversaw. The former managers, Ralph Cioffi and Matthew Tannin, are expected to be indicted on securities fraud charges.

Cioffi and Tannin oversaw two funds whose collapse last year helped kick off the credit crisis after the meltdown of the funds stoked widespread fears about investments linked to risky sub-prime mortgages.

The collapse sparked questions about oversight and risk management operations at Bear Stearns, which was sold in March to JPMorgan Chase in an emergency takeover deal brokered by the US Federal Reserve.

The US Attorney's Office in Brooklyn, New York, has been investigating the funds' collapse, according to reports. The FBI and the Justice Department were expected to make an announcement later in the day.

The indictments are expected to cite a personal e-mail sent by one manager to the other that appeared to suggest the Bear funds were in difficulty, days before one of the managers told investors that he was comfortable with the holdings, according to the Wall Street Journal.

Meanwhile, the US Justice Department says more than 400 people have been charged in a nationwide probe of mortgage fraud which involved an estimated $1 billion in losses.

The department said fraud schemes mostly involved lending fraud, foreclosure rescue scams and mortgage-related bankruptcy schemes. The 144 cases involved individual examples of mortgage fraud, but the US Corporate Fraud Task Force established in 2002 was also 'responding to issues raised by mortgage fraud in the corporate sector'.