Bayou Hedge Fund Group

After poor returns in 1998, the investors were lied to about the fund's returns, and a fake accounting firm was set up to provide misleading audited results.

In 2005, Samuel Israel III and CFO Daniel Marino pleaded guilty to multiple charges including conspiracy and fraud. 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. At his sentencing Israel said "I lied to you and I cheated you and I cannot put into words how sorry I am."

Scandal

Starting with $600,000 of outside money in 1996, investors eventually gave the fund US$300 million. Investors were allured by a prospectus stating there would be prudent hedge fund management leading to an anticipated value of 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; he is alleged to have "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. They were eventually caught, wiring US$100 million overseas.