The chief financial officer and the chief executive officer of Bayou Group pleaded guilty to federal felony fraud charges yesterday afternoon, according to an online report from The New York Times.
According to the report, Daniel E. Marino and Samuel Israel III pleaded guilty to mail fraud, wire fraud, investment adviser fraud and conspiracy to commit those crimes in Federal Court in White Plains, N.Y.
Both are free on their own recognizance, but each must raise $500,000 bail within two weeks. Sentencing is Sept. 9.
On Thursday, the Securities and Exchange Commission filed civil fraud charges against Marino and Israel, while the U.S. Attorney for the Southern District of New York filed criminal fraud charges against the two. The Commodities Futures Trading Commission also has a case pending.
Federal authorities are alleging that the two men committed fraud in excess of $300 million.
In what appears to be one of the financial services industry's more intriguing instances of shareholder deception, the Bayou Fund claimed to have more than $400 million in assets under management at one point. But according to authorities, the executives began defrauding investors as early as 1998, just a year after the fund launched. Marino allegedly penned a suicide note, recently obtained by federal authorities, detailing the fund's poor performance and plans for a cover-up.
Arizona authorities broke the case last month while investing suspicious transactions between foreign banks and a local Wachovia bank. Authorities seized $100 million and Israel sought to claim the money. It's suspected the money was used as either a scam to cover up fraud at Bayou, or a desperate attempt to quickly regain losses.
In recent months, investors increasingly lost touch with the executives and lawyers acting on behalf of Israel in the Arizona case were granted relief from case because they were unable to reach their client.
According to The New York Times, however, the executives were hardly living hand to mouth during the fund's downfall. Marino moved from his residence on Long Island to a mansion in Westbury, Conn., and drove a Bentley. Israel, meanwhile, was renting a $32,000-a-month mansion from Donald Trump. Trump told the Times on Tuesday that he evicted Israel.
"He owed two months rent," Trump remarked. "We said, 'Pay the rent and hit the road.'"
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.