NEW YORK - A former Bear Stearns Cos hedge fund manager accused of insider trading urged a federal judge to reject evidence suggesting he improperly tried to use money as collateral to build a condominium and repeatedly ignored conflict-of-interest rules on in-house trades.

The request was submitted Tuesday to the Brooklyn, New York, federal court by lawyers representing Ralph Cioffi, who along with former colleague Matthew Tannin faces multiple criminal fraud charges over the 2007 failure of two hedge funds.

That failure cost investors $1.4 billion and helped trigger the global credit crisis and eventual sale of Bear to JPMorgan Chase & Co (JPM.N).

Cioffi's lawyers said it would be unduly prejudicial to show their client tried to pledge $2 million of his stake in one Bear fund as collateral for a Sarasota, Florida, luxury condominium he was building with his brother.

They said several top Bear asset management officials knew of and did not object to the proposed pledge, negating the government's contention that in all likelihood the officials would have vetoed the pledge.

As to principal trades between the funds and Bear itself, the government wants to admit evidence that Cioffi rarely adhered to conflict-of-interest rules requiring approval of funds' directors for such trades. Prosecutors said this led to a moratorium on such trades.

Cioffi's lawyers said there is no requirement for Cioffi to obtain similar approvals for transactions such as the $2 million pledge for the condominium.

They said the government made up out of whole cloth the idea of applying this principal trade requirement to personal investments of a hedge fund employee.

Margaret Keeley, a partner at Williams & Connolly LLP representing Cioffi, wrote that admitting the government's proposed evidence would confuse the jury and create time-consuming minitrials on irrelevant side issues.

U.S. District Judge Frederic Block is expected to rule on the government motion prior to trial, which is scheduled to begin on Oct. 13.

The case is U.S. v. Cioffi and Tannin, U.S. District Court, Eastern District of New York (Brooklyn), No. 08-415. (Reporting by Jonathan Stempel; editing by John Wallace)

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