was a group of companies andhedge fundsfounded bySamuel Israel IIIin 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 funds returns and a fake accounting firm was set up to provide misleading audited results.
In 2005, Samuel Israel III and CFO Daniel Marinopleaded guiltyto multiple charges includingconspiracyandfraud. 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.2At his sentencing Israel said I lied to you and I cheated you and I cannot put into words how sorry I am.3
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, 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. 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.4They were eventually caught, wiring US$100 million overseas.
In July 2005, a skeptical investor began asking questions about Bayous auditor and assets. Soon afterward, Israel shut down the fund. In mid-August, the investor picked up a redemption check from Marinoonly 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.5
On September 29, 2005, theCommodity Futures Trading Commission(CFTC) filed a complaint against Bayou, Israel, Marino, and Richmond Fairfield in theUnited States District Court for the Southern District of New York, alleging misappropriation and fraud.6
The hedge fund filed forChapter 11bankruptcy-court protection inWhite Plains, New York, in 2006.7
Over $100 million seized by authorities after the collapse had not yet been distributed to victims as of June 24, 2008.citation needed
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.3On 10 June 2008, it was reported by the press that Israel may have committedsuicideafter a car registered to Israel was found abandoned on theBear Mountain Bridgethat spans one of the deepest stretches of theHudson Riverin New York.8It was the same day that Israel was supposed to begin serving his 20-year prison sentence.citation needed
Israel later turned himself in to federal authorities inSouthwick, Massachusettson July 2, 2008.NBCaired aDatelinesegment about him on September 5, 2008.9
Cantrell, Amanda (September 29, 2005).Bayou founder, CFO plead guilty to fraud.
Andrew Edwards, The Wall Street Journal, Bouyous Ex-Hedge Fund Boss Gets 20-Year Sentence for Fraud, April 15, 2008, p. C3
Bayous 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. Archived fromthe originalon 2008-06-14.
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
Forbes.comWe Wuz Robbed! Daniel Fisher with Lea Goldman, 12.12.05
Capital asset pricing modelalphabetasecurity characteristic line)
Defunct financial services companies of the United States
Articles with unsourced statements from March 2018
This page was last edited on 11 October 2018, at 02:30