Two Bayou Founders Plead Guilty

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Two founders of Bayou Management, the Connecticut hedge-fund firm that allegedly exaggerated results for years before unexpectedly closing shop last month without returning investors’ money, pleaded guilty to criminal fraud charges in federal court.


Daniel Marino and Samuel Israel III, who founded Bayou in the mid-1990s, admitted to several felony counts each at court hearings in White Plains, N.Y. Marino admitted conspiracy, investment advisor fraud, mail fraud, and wire fraud. Israel admitted the same underlying allegations in three counts, but not the wire fraud count. Both are expected to be released on a $500,000 bond. The most serious count, mail fraud, carries a maximum sentence of 20 years in prison. Sentencing was set for January 9.


Israel is the Stamford-based money management firm’s chief executive and chief investment officer. Marino is its chief financial officer. As part of his plea deal with prosecutors, Marino agreed to cooperate with the authorities’ ongoing investigation in a bid for leniency at sentencing. Israel didn’t agree to cooperate under his plea deal.


“I knew that what I was doing was false and fraudulent,” Israel said in an afternoon court hearing.


“I deeply regret my actions,” Marino said in an earlier hearing. “I am very sorry in more words than I can say.” As part of his plea agreement, Marino agreed to forfeit all claims on $100 million in Bayou assets seized by Arizona authorities in May, as well as his $3 million home in Westport, Conn., a bank account and all interests in two side businesses – IM Partners, a venture-capital firm he started with Israel, and IMG.


Israel didn’t agree to forfeiture, but prosecutors are seeking hundreds of millions of dollars from him.


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