SEC Charges Samuel Israel III, Daniel E. Marino, Bayou Management, and Bayou Funds For Defrauding Hedge Fund Investors and Misappropriating Investor Assets
summary
Samuel Israel III and Daniel E. Marino defrauded investors of over $450 million by fabricating profits, forging audits via a sham firm, misappropriating incentive fees, and diverting $150 million to fraudulent schemes, leading to SEC civil charges, criminal prosecution, and asset freezes.
paragraph
Samuel Israel III and Daniel E. Marino, along with Bayou Management and Bayou Funds, were charged by the SEC with defrauding investors of more than $450 million between 1996 and 2005 by falsifying performance reports and creating fake audited financial statements through a sham accounting firm, Richmond-Fairfield Associates. They falsely claimed a $43 million profit in 2003 while the funds actually lost $49 million, illegally withdrew over $150 million in incentive fees despite never generating a year-end profit, and diverted remaining assets to fraudulent prime bank note programs and unprofitable ventures after halting legitimate trading in 2004. The SEC sought asset freezes, a receiver, disgorgement, civil penalties, and injunctions—all consented to by the defendants—while the U.S. Attorney’s Office filed parallel criminal charges and the CFTC launched its own enforcement action.
narrative
Samuel Israel III and Daniel E. Marino, along with their firms Bayou Management and Bayou Funds, orchestrated a massive fraud from 1996 to 2005, convincing over $450 million in investor capital to be deposited into hedge funds that never posted a single year-end profit. To conceal their losses, they fabricated false performance reports, forged audited financial statements using a sham accounting firm called Richmond-Fairfield Associates, and falsely claimed a $43 million profit for 2003 while the funds actually lost $49 million. Despite generating no real returns, they illegally withdrew millions in incentive fees and, by mid-2004, ceased legitimate trading and transferred approximately $150 million in remaining assets to Israel and other non-Bayou entities for investment in fraudulent prime bank note schemes and speculative venture capital ventures. Even after abandoning their hedge fund strategy, they continued sending misleading statements to investors through mid-2005, maintaining the illusion of profitability. The SEC filed civil charges seeking asset freezes, a court-appointed receiver, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties—all of which the defendants consented to. Simultaneously, the U.S. Attorney’s Office for the Southern District of New York filed criminal fraud charges, and the Commodity Futures Trading Commission initiated its own enforcement action, demonstrating a coordinated multi-agency response to hedge fund fraud.
Classified ponzi(confidence 95%). EDGAR detection: forms Form D· recall 35% / precision 15%. detection rule →
Statutes
Parties
Commodity Futures Trading Commissiondaniel e. marinosamuel israel iiiSecurities and Exchange Commissionsham accounting firm richmond-fairfield associates
Keywords
fundsisraelmarinobayou managementisrael marinobayouinvestorshedge fundsechedgefundassetsmarino bayoubayou fundsmanagement
Extracted insights
Dollar amounts 4
- $450.00M $450 million $100M–$1B
- $150.00M $150 million $100M–$1B
- $49.00M $49 million $10M–$100M
- $43.00M $43 million $10M–$100M
Entities 5
- agency Commodity Futures Trading Commission
- person daniel e. marino
- person samuel israel iii
- agency Securities and Exchange Commission
- company sham accounting firm richmond-fairfield associates
Triples 15
- Securities And Exchange Commission filed civil injunctive action against Samuel Israel III and Daniel E. Marino
- Samuel Israel III defrauded investors in the Bayou Funds
- Daniel E. Marino defrauded investors in the Bayou Funds
- Samuel Israel III misappropriated millions of dollars in investor funds
- Daniel E. Marino misappropriated millions of dollars in investor funds
- Securities And Exchange Commission sought permanent injunctions for violations of federal securities laws
- Securities And Exchange Commission requested freeze of defendants' assets and appointment of a receiver
- United States Attorney For The Southern District Of New York filed criminal fraud charges against Samuel Israel III and Daniel E. Marino
- Commodity Futures Trading Commission filed action arising from the same conduct
- Investors deposited over $450 million into the Bayou Funds
- Samuel Israel III overstated the Bayou Funds' 2003 performance by claiming a $43 million profit
- Daniel E. Marino created sham accounting firm Richmond-Fairfield Associates
- Samuel Israel III stole investor funds by withdrawing incentive fees
- Daniel E. Marino stole investor funds by withdrawing incentive fees
- Samuel Israel III transferred approximately $150 million in remaining Fund assets
Extracted body text (4,970c)
SEC CHARGES SAMUEL ISRAEL III, DANIEL E. MARINO, BAYOU MANAGEMENT, AND BAYOU FUNDS FOR DEFRAUDING HEDGE FUND INVESTORS AND MISAPPROPRIATING INVESTOR ASSETS FOR IMMEDIATE RELEASE 2005-139 SEC Seeks Freeze of Assets and Appointment of Receiver Washington, D.C., Sept. 29, 2005 - The Securities and Exchange Commission today filed a 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. The SEC is seeking permanent injunctions for violations of the antifraud provisions of the federal securities laws against Israel, the founder of and investment adviser to the Funds; Bayou Management, the investment adviser to the funds; and Marino, the chief financial officer of Bayou Management. Additionally, the SEC has requested that the court freeze the defendants' assets and appoint a receiver to marshal any remaining assets for the benefit of defrauded hedge fund investors. All of the defendants have consented to the freeze of assets and appointment of a receiver. The requested relief is subject to court approval. Today, the United States Attorney for the Southern District of New York announced that it has filed criminal fraud charges against Israel and Marino. The Commodity Futures Trading Commission (CFTC) has also announced that it has filed an action arising from the same conduct. Linda Chatman Thomsen, Director of the Division of Enforcement, said, "The action filed by the SEC today, together with the parallel criminal proceedings instituted by the United States Attorney and the action brought by the CFTC, demonstrate that hedge fund managers who defraud their investors can expect a comprehensive and vigorous enforcement response." Antonia Chion, an Associate Director of Enforcement, added, "As our action demonstrates, we not only seek to hold the defendants accountable, but we will work to recover and return assets to harmed investors." The SEC alleges in its complaint that from 1996 through 2005, investors deposited over $450 million into the Bayou Funds and a predecessor fund. During that period, Israel and Marino defrauded current investors, and attracted new investors, by grossly exaggerating the Funds' performance to make it appear that the Funds were profitable and attractive investments, when in fact, the Funds had never posted a year-end profit. The SEC's complaint further alleges that, in furtherance of their fraud, Israel and Marino concocted and disseminated to the Funds' investors periodic account statements and performance summaries containing fictitious profit and loss figures and forged audited financial statements in order to hide multimillion dollar trading losses from investors. Among other things, the complaint alleges that: Israel, Marino, and Bayou Management overstated the Funds' 2003 performance by claiming a $43 million profit in the four hedge funds, while trading records show that the Funds actually lost $49 million; In 1999, Marino created a sham accounting firm, "Richmond-Fairfield Associates," that he used to fabricate annual "independent" audits of the Funds and attest to the fake results that he and Israel had assigned to the Funds; Israel and Marino stole investor funds by annually withdrawing from the Funds "incentive fees" that they were not entitled to receive because the Funds never returned a year-end profit; By mid-2004, Israel and Marino had largely suspended trading securities on behalf of the Funds and transferred all remaining Fund assets, consisting of approximately $150 million, to Israel and other non-Bayou-related entities, for investment in fraudulent prime bank note trading programs and venture capital investments in non-public startup companies; and Despite having abandoned their hedge fund strategy in 2004, Bayou Management continued to send periodic statements and financial statements to investors describing purportedly profitable hedge fund trading activities through mid-2005. In addition to injunctions against all of the defendants, the SEC also seeks disgorgement of ill-gotten gains, prejudgment interest, and civil money penalties from Israel, Marino, and Bayou Management. The SEC acknowledges the assistance and cooperation of the White Plains Division of the United States Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the CFTC in this matter. The SEC's investigation continues. Contact Persons: Antonia Chion, Associate Director Division of Enforcement (202) 551-4842 Yuri B. Zelinsky, Assistant Director Division of Enforcement (202) 551-4769 http://www.sec.gov/news/press/2005-139.htm Home | Previous Page Modified: 09/29/2005
OCR text (4,970c · plain-text · 99% conf)
SEC CHARGES SAMUEL ISRAEL III, DANIEL E. MARINO, BAYOU MANAGEMENT, AND BAYOU FUNDS FOR DEFRAUDING HEDGE FUND INVESTORS AND MISAPPROPRIATING INVESTOR ASSETS FOR IMMEDIATE RELEASE 2005-139 SEC Seeks Freeze of Assets and Appointment of Receiver Washington, D.C., Sept. 29, 2005 - The Securities and Exchange Commission today filed a 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. The SEC is seeking permanent injunctions for violations of the antifraud provisions of the federal securities laws against Israel, the founder of and investment adviser to the Funds; Bayou Management, the investment adviser to the funds; and Marino, the chief financial officer of Bayou Management. Additionally, the SEC has requested that the court freeze the defendants' assets and appoint a receiver to marshal any remaining assets for the benefit of defrauded hedge fund investors. All of the defendants have consented to the freeze of assets and appointment of a receiver. The requested relief is subject to court approval. Today, the United States Attorney for the Southern District of New York announced that it has filed criminal fraud charges against Israel and Marino. The Commodity Futures Trading Commission (CFTC) has also announced that it has filed an action arising from the same conduct. Linda Chatman Thomsen, Director of the Division of Enforcement, said, "The action filed by the SEC today, together with the parallel criminal proceedings instituted by the United States Attorney and the action brought by the CFTC, demonstrate that hedge fund managers who defraud their investors can expect a comprehensive and vigorous enforcement response." Antonia Chion, an Associate Director of Enforcement, added, "As our action demonstrates, we not only seek to hold the defendants accountable, but we will work to recover and return assets to harmed investors." The SEC alleges in its complaint that from 1996 through 2005, investors deposited over $450 million into the Bayou Funds and a predecessor fund. During that period, Israel and Marino defrauded current investors, and attracted new investors, by grossly exaggerating the Funds' performance to make it appear that the Funds were profitable and attractive investments, when in fact, the Funds had never posted a year-end profit. The SEC's complaint further alleges that, in furtherance of their fraud, Israel and Marino concocted and disseminated to the Funds' investors periodic account statements and performance summaries containing fictitious profit and loss figures and forged audited financial statements in order to hide multimillion dollar trading losses from investors. Among other things, the complaint alleges that: Israel, Marino, and Bayou Management overstated the Funds' 2003 performance by claiming a $43 million profit in the four hedge funds, while trading records show that the Funds actually lost $49 million; In 1999, Marino created a sham accounting firm, "Richmond-Fairfield Associates," that he used to fabricate annual "independent" audits of the Funds and attest to the fake results that he and Israel had assigned to the Funds; Israel and Marino stole investor funds by annually withdrawing from the Funds "incentive fees" that they were not entitled to receive because the Funds never returned a year-end profit; By mid-2004, Israel and Marino had largely suspended trading securities on behalf of the Funds and transferred all remaining Fund assets, consisting of approximately $150 million, to Israel and other non-Bayou-related entities, for investment in fraudulent prime bank note trading programs and venture capital investments in non-public startup companies; and Despite having abandoned their hedge fund strategy in 2004, Bayou Management continued to send periodic statements and financial statements to investors describing purportedly profitable hedge fund trading activities through mid-2005. In addition to injunctions against all of the defendants, the SEC also seeks disgorgement of ill-gotten gains, prejudgment interest, and civil money penalties from Israel, Marino, and Bayou Management. The SEC acknowledges the assistance and cooperation of the White Plains Division of the United States Attorney's Office for the Southern District of New York, the Federal Bureau of Investigation, and the CFTC in this matter. The SEC's investigation continues. Contact Persons: Antonia Chion, Associate Director Division of Enforcement (202) 551-4842 Yuri B. Zelinsky, Assistant Director Division of Enforcement (202) 551-4769 http://www.sec.gov/news/press/2005-139.htm Home | Previous Page Modified: 09/29/2005