Bayou Hedge Fund Group

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.{{cite news| url=https://money.cnn.com/2005/09/29/markets/bayou/index.htm | work=CNN | title=Bayou founder, CFO plead guilty to fraud | first1=Amanda | last1=Cantrell | date=September 29, 2005}}

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.Andrew Edwards, The Wall Street Journal, Bouyou's Ex-Hedge Fund Boss Gets 20-Year Sentence for Fraud, April 15, 2008, p. C3 At his sentencing Israel said "I lied to you and I cheated you and I cannot put into words how sorry I am."{{cite news |title=Bayou's Israel Gets 20-Year Term for Hedge-Fund Fraud |url=https://www.bloomberg.com/apps/news?pid=20601087&sid=a7_CvbPGGC3U&refer=home |publisher=Bloomberg | date=April 14, 2008}}

Starting with $600,000 of outside money in 1996, investors eventually gave the fund US$300 million. Investors were allured by a prospectus stating there would be prudent hedge fund management leading to an anticipated value of US$7.1 billion in ten years. In 1998-1999 trading losses accumulated quickly. The company started a dummy accounting firm, Richmond Fairfield Associates, 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.”{{fact|date=February 2020}} 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.{{cite news |title=Bayou Drained Accounts in '04 Of $161 Million |publisher=The Wall Street Journal |date=2005-09-01 }} They were eventually caught, wiring US$100 million overseas.

In July 2005, a skeptical investor began asking questions about Bayou's auditor and assets. Soon afterward, Israel shut down the fund. In mid-August, the investor picked up a redemption check from Marino–only to have it bounce. When he returned seeking answers, he found an empty office and a note from Marino admitting that Bayou was a fraud.{{cite book|title=The Wizard of Lies|last=Henriques|first=Diana|authorlink=Diana B. Henriques|publisher=Times Books|date=2011|isbn=978-0805091342}}

On September 29, 2005, the Commodity Futures Trading Commission (CFTC) filed a complaint against Bayou, Israel, Marino, and Richmond Fairfield in the United States District Court for the Southern District of New York, alleging misappropriation and fraud.{{cite news |title=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 |url=http://cftc.gov/opa/enf05/opa5121-05.htm |publisher=CFTC |date=2005-09-29 |url-status=dead |archiveurl=https://web.archive.org/web/20080614014413/http://cftc.gov/opa/enf05/opa5121-05.htm |archivedate=2008-06-14 }}

The hedge fund filed for Chapter 11 bankruptcy-court protection in White Plains, New York, in 2006.{{cite news |title=Bayou Investors Who Got Out Early Lose Their Bid for Pretrial Victory |publisher=The Wall Street Journal |date=2007-08-11 }}

Over $100 million seized by authorities after the collapse had not yet been distributed to victims as of June 24, 2008.{{Citation needed|date=March 2018}}

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 him was found abandoned on the Bear Mountain Bridge that spans one of the deepest stretches of the Hudson River in New York.{{cite news |title=Grim Clues as Bayou Founder Goes Missing |url=http://dealbook.blogs.nytimes.com/2008/06/10/possible-suicide-of-fund-manager-investigated/ |work=The New York Times | date=June 10, 2008 | accessdate=April 26, 2010}} It was the same day that Israel was supposed to begin serving his 20-year prison sentence.{{Citation needed|date=March 2018}}

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.[https://web.archive.org/web/20080705203132/http://www.msnbc.msn.com/id/25495609/ Hedge-fund swindler Israel surrenders] Reuters

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{{Hedge funds}}

{{Corporate scandals}}

Category:Financial services companies established in 1996

Category:2005 in economic history

Category:Hedge fund firms of the United States

Category:Defunct hedge funds

Category:Defunct financial services companies of the United States

Category:Financial services companies disestablished in 2006

Category:Pyramid and Ponzi schemes

Category:Companies that filed for Chapter 11 bankruptcy in 2006