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Guilty Plea by Hedge Fund CEO

From Reuters

The founder and chief executive of Bayou Group pleaded guilty Thursday to conspiracy and fraud charges stemming from the hedge fund’s high-profile collapse, a scheme that federal prosecutors said cost investors $450 million.

CEO Samuel Israel III and the fund’s chief financial officer, Daniel Marino, entered guilty pleas in separate appearances in U.S. District Court in White Plains, N.Y.

Israel faces as many as 30 years in prison, while Marino faces up to 50 years.

The guilty pleas come more than a month after authorities disclosed they were investigating investors’ complaints that the Stamford, Conn.-based fund failed to return their cash after it told them in July that it was shutting down.

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Israel, 46, and Marino, 45, admitted in court to defrauding investors by misrepresenting the value of the fund’s assets and reporting fictitious rates of return, as well as creating a phony accounting firm called Richmond-Fairfield Associates that never in fact conducted fund audits.

The scheme began in July 1996 and ran through last month, when the fund collapsed, prosecutors contend.

Industry analysts have said the case should serve as a reminder to potential investors that hedge funds, which often promise to make money in all markets by using techniques that are off-limits to traditional mutual funds, can be risky.


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