NEW YORK -- FBI agents have arrested two former Bear Stearns hedge fund managers, sources familiar with the case told New York Station WNBC.

Former Bear Stearns managers Ralph Cioffi Jr. and Matthew Tannin are charged in connection with allegations they misled investors as the two hedge funds they helped run collapsed amid the subprime mortgage meltdown.

The two are scheduled to be arraigned later Thursday in Brooklyn federal court, sources said.

Investigators had been looking, in part, into statements the two men made assuring investors the hedge fund was in solid financial shape just before the funds lost more than $1.5 billion in value.

According to the indictment, Cioffi and Tannin "agreed to make misrepresentations" and "omitted material facts in communications with investors." The indictment cites internal e-mail communications between the two managers suggesting a grave financial situation even though they later would offer reassurances to investors. In March 2007, Tannin allegedly boasted "believe it or not - I've been able to convince people to add more money ..."

Susan Brune, a lawyer for Tannin, has declined to comment. Cioffi's attorney, Edward Little, referred all calls to a public relations firm. That firm is expected to issue a statement on the charges.

The collapse of the two hedge funds was among the first signs Bear Stearns was in serious trouble. The firm collapsed this spring and was taken over by JP Morgan.

Prosecutors said while Cioffi was busy reassuring investors, he transferred $2 million of his own money out of one of the funds called the "Enhanced Fund."

Investigators said the two even misled other Bear Stearns asset managers. "On April 24, 2007, Cioffi, tannin and others told senior BSAM personnel that they were confident that the funds were in good shape and would continue to be successful," the indictment states.

The Securities & Exchange Commission and the FBI continue to examine the actions of other investment bankers at other firms to see if any intentionally misled investors the value of mortgage backed securities. Hundreds of billions of dollars have been lost amid the mortgage crisis.