WHITE PLAINS, N.Y. (HedgeWorld.com)–Samuel Israel III and Daniel E. Marino pleaded guilty to criminal fraud charges in federal court today as the prosecution upped the tally of hedge fund collapse to US$450 million.
Mr. Israel admitted in court that he conspired with Mr. Marino to defraud investors by distributing fake financial statements that told investors of substantial gains that didn’t exist.
Between 1996 and 2005 the funds sustained consistent losses. Mr. Marino said in his guilty plea that he along with a former employee and co-founder of the Bayou funds came up with the scheme after the funds started to rack up losses. They went as far as to create a public accounting firm called Richmond-Fairfield Associates to distribute false returns to existing and potential investors.
The third co-conspirator was not named by prosecutors.
Both Messrs. Israel and Marino waived indictment and pleaded guilty. Mr. Israel pleaded guilty to conspiracy, mail fraud and investment adviser fraud, while Mr. Marino pleaded guilty to conspiracy, mail fraud, wire fraud and investment adviser fraud. The pair could end up serving up to five years for each of the conspiracy and investment adviser fraud charges and another 20 years on mail fraud charges, and Mr. Marino could get another 20 years for the wire fraud charges.
Maximum fines would total US$250,000 for each count or twice the gross gain or loss resulting from their crime in addition to restitution and the forfeiture of the proceeds from the scheme.
For Mr. Israel, times are already tough as he reportedly is already behind on the rent of his Westchester mansion. His landlord, real estate mogul Donald Trump, has reportedly asked Mr. Israel to move out.
Of the more than US$450 million that Bayou once had in its coffers, only US$100 million has resurfaced. Those funds had been transferred in connection with purportedly legitimate private placement transactions that were said to produce 100% per week.
The New York State Attorney General’s office and provisional liquidators from the Caymans claimed the assets in separate forfeiture cases, on top of an initial forfeiture case in Arizona.
Other civil lawsuits against Bayou and its founders include that of fund of hedge funds South Cherry Street LLC; it has another court date set for Oct. 25; the Jewish Federation of Metropolitan Chicago, a foundation that invested US$4 million with Bayou; and Multi-Dimension Fund, a fund of hedge funds that took a US$1.9 million stake in Bayou.