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."
Video Bayou Hedge Fund Group
Scandal
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.
Maps Bayou Hedge Fund Group
Aftermath
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).
The hedge fund filed for Chapter 11 bankruptcy-court protection in White Plains, New York, in 2006.
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.
Israel later turned himself in to federal authorities in Southwick, Massachusetts on July 2, 2008. NBC aired a Dateline segment about him on September 5, 2008.
References
External links
- https://web.archive.org/web/20070401225102/http://en.epochtimes.com/news/5-10-9/33130.html
- https://web.archive.org/web/20060508203601/http://www.onwallstreet.com/cecredits/ce_article.cfm?fp=20051001026
- Forbes.com We Wuz Robbed! Daniel Fisher with Lea Goldman, 12.12.05
Source of the article : Wikipedia
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