Bayou Hedge Fund Group
The Bayou Hedge Fund Group was a group of companies and hedge funds founded by Samuel Israel III in 1996. Approximately $450m was raised by the group from investors. Its investors were defrauded from the start with funds being misappropriated for personal use. After poor returns in 1998, the investors were lied to about the fund's returns and a fake accounting firm was set up to provide misleading audited results.
In 2005, Samuel Israel III and CFO Daniel Marino pleaded guilty to multiple charges including conspiracy and fraud. Marino was convicted of fraud and sentenced to 20 years in prison. Israel was sentenced to 20 years prison and ordered to forfeit $300 million. At his sentencing Israel said "I lied to you and I cheated you and I cannot put into words how sorry I am."
In 1996, investors gave the fund US$300 million. Investors were promised that the fund would grow to about US$7.1 billion in ten years. In 1998-1999 trading losses accumulated quickly. The company started a dummy accounting firm and hired it to audit themselves.
According to federal prosecutors, Bayou had lied about its operations since the beginning, by “overstated gains, understated losses, and reported gains where there were losses.” Court documents show that Bayou never made any money. In mid-2004, Bayou sent a letter to investors, claiming that its assets valued in excess of US$450 million.
In 2004, Samuel Israel III and Daniel Marino, the CEO and CFO, respectively, stopped trading fully and spent all resources on covering losses. Over the course of six days in July 2004, Bayou withdrew about $161 million from five bank accounts. They were eventually caught, wiring US$100 million overseas.
In 2005, it was discovered that Bayou capital was responsible for one of the most publicized hedge fund frauds in history. On September 29, 2005, the Commodity Futures Trading Commission (CFTC) filed a complaint in the United States District Court for the Southern District of New York, alleging misappropriation and fraud involving Connecticut hedge fund manager Bayou Management, LLC (Bayou Management), its principals, Samuel Israel III and Daniel E. Marino, and Richmond Fairfield Associates, Certified Public Accountants PLLC (Richmond Fairfield).
Over $100 million seized by authorities after the collapse had not yet been distributed to victims as of June 24, 2008.
On 14 April 2008, Israel was sentenced to 20 years in prison and ordered to forfeit $300 million after pleading guilty to defrauding investors in his now-bankrupt firm. On 10 June 2008, it was reported by the press that Israel may have committed suicide after a car registered to Israel was found abandoned on the Bear Mountain Bridge that spans one of the deepest stretches of the Hudson River in New York. It was the same day that Israel was supposed to begin serving his 20-year prison sentence.
- Cantrell, Amanda (September 29, 2005). "Bayou founder, CFO plead guilty to fraud". CNN.
- Andrew Edwards, The Wall Street Journal, Bouyou's Ex-Hedge Fund Boss Gets 20-Year Sentence for Fraud, April 15, 2008, p. C3
- "Bayou's Israel Gets 20-Year Term for Hedge-Fund Fraud". Bloomberg. April 14, 2008.
- "Bayou Drained Accounts in '04 Of $161 Million". The Wall Street Journal. 2005-09-01.
- "HEDGE FUND OPERATOR BAYOU MANAGEMENT, ITS EMPLOYEES SAMUEL ISRAEL III AND DANIEL E. MARINO, AND ACCOUNTING FIRM RICHMOND FAIRFIELD ASSOCIATES, ARE CHARGED WITH MISAPPROPRIATION AND FRAUD IN AN ACTION BROUGHT BY U.S. COMMODITY FUTURES TRADING COMMISSION". CFTC. 2005-09-29.
- "Bayou Investors Who Got Out Early Lose Their Bid for Pretrial Victory". The Wall Street Journal. 2007-08-11.
- "Grim Clues as Bayou Founder Goes Missing". The New York Times. June 10, 2008. Retrieved April 26, 2010.
- Hedge-fund swindler Israel surrenders Reuters
- Forbes.com We Wuz Robbed! Daniel Fisher with Lea Goldman, 12.12.05