Prime Bank Fraud- Bayou Funds
In what must be a classic case of shutting the barn door after every animal has been stolen, the SEC announced that both Samuel Israel III and David E. Marino have consented to order barring them "from future violations of the general antifraud provisions of the federal securities laws". It will be recalled that in 2005, the SEC "filed an civil injunctive action against Samuel Israel III of New York and Daniel E. Marino of Connecticut, the managers of a group of hedge funds known as the Bayou Funds (Funds), based in Stamford, Conn. The SEC's complaint alleges that, beginning in 1996 and continuing through the present, Israel and Marino have defrauded investors in the Funds and misappropriated millions of dollars in investor funds for their personal use."
According to this story, "Bayou sent out quarterly reports, annual reports and weekly newsletters to mislead investors about the funds, which drew $450 million in investor money between 1996 and the collapse this summer [in 2005]." (my emphasis).
How is it possible that $450 million can be stolen from sophisticated investors over a period of approximately 10 years? How did their due diligence fail? Why was this scam allowed to run for almost ten years?
Technorati Tags: collapse, marino, defrauded investors, sec, israel, investor funds, hedge funds, investor money, annual reports, weekly newsletters, mislead, stamford, conn
Fake newsletters don't cut it as an explanation. The New York Times published a story entitled "Clues to a Hedge Funds Collapse", which suggested that the principals concocted the idea of false reporting as early as 1998. But how could they falsely report for almost seven years, given that very sophisticated funds were investing?
The New York Times story claims "Mr. Israel did not charge his investors the traditional hedge fund management fees of 1 percent to 2 percent of assets. Instead he restricted his pay to 20 percent of the funds' gains. In addition, the minimum investment Mr. Israel required of his clients - $250,000 - was much smaller than is typical among hedge funds." But does this really explain why investors failed to detect this scam? What was wrong with their due diligence?
I don't know the answer to this problem, but in the end Israel and Marino were as desperate as any mark and tried investing their remaining $100 million in a "prime bank fraud". Now does anyone really believe that Israel and Marion "lost" all $350 million of their hedge fund without retaining some of the trading profits? Please put your hand up, email me and send me your social insurance number so that I can verify your story.
Technorati Tags: collapse, marino, defrauded investors, sec, israel, investor funds, hedge funds, investor money, annual reports, weekly newsletters, mislead, stamford, conn
