Chief exec of collapsed Bayou hedge funds receives sentence for inducing investments of more than $450m
The former chief executive of Bayou hedge funds has received a 20 year sentence for inducing investments of more than $450m.
Israel was also ordered to pay $300m in restitution.
In a Manhattan federal court, Judge McMahon called Samuel Israel ‘the mastermind’ of the Bayou fraud. The sentence was intended to send a message that people who commit white collar crimes will be ‘punished severely,’ he said.
‘White collar crimes are every bit as heinous, if not more so, than every other type of crime,’ the judge said.
Israel pleaded guilty on September 29, 2005, to charges of conspiracy, investment adviser fraud and mail fraud.
According to publicly filed documents and court statements Bayou funds sustained consistent losses between 1996 and August 2005 but investors were not told.
Israel admitted that he, along with his chief financial officer and chief operating officer, hatched a scheme in 1998 after the fund sustained a second year of losses.
The three agreed to create a sham certified public accounting firm to sign off on fake financial statements that were disseminated to investors. The statements falsely showed that the Bayou funds were profitable, when in fact they were sustaining substantial losses.
As a result of the funds’ collapse, investors lost approximately $300m.
The hedge fund’s CFO, Daniel Marino, was sentenced on January 29, 2008, to a term of 20 years’ imprisonment. He was also ordered to forfeit property, cash, and his interest in more than $100m of Bayou investor money.
James Marquez, the disgraced COO, was sentenced on January 22, 2008, to a term of 51 months’ imprisonment. The Court also ordered him to pay $6m in restitution.
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