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Caleb Newquist: June 9th, 2008. The Bear Mountain Bridge, about 40 miles north of New York City. A white GMC envoy sits abandoned along the shoulder. Inside are the keys and a bottle of pills. Its owner is nowhere to be found, but there's something written on the hood, traced in a thin layer of dust and pollen, like someone did it with a fingertip before walking away. Suicide is painless. The responding officers know exactly what [00:00:30] they're supposed to think happened here. The abandoned vehicle is sitting beside a bridge over the Hudson River and its owner, Sam Israel the third, was supposed to report to federal prison that morning to begin serving a 20 year sentence. So authorities began looking for a body. But there was one problem. They couldn't find one in Sam. Israel had already spent more than a decade convincing people to believe things that were not true.

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Caleb Newquist: This is Oh My Fraud, a true crime podcast with a twist. Never involve a knife. I'm Caleb Newquist. Okay. How's it going? [00:01:30] What is happening? I don't know if you know this or not, but the dog days of summer are officially over. Apparently, August 11th is the last dog day of summer. And so I'm recording this more than a week later. And, you know, we made it. We can we can relax now. We can take it easy knowing that from here until basically November, it will just be unseasonably hot. You know. No more [00:02:00] dog days. Speaking of, um, unseasonably, I was at my local watering hole the other night, and I noticed that there was an NFL game on and I had to ask my my sports, my sports interested friends if it was real and not a rerun or something. And, you know, they're like, no, it's preseason. And look, you know, no one was watching this game even. It was it was the local team who I'm not going to mention. Figure [00:02:30] it out for yourself anyway. The point is there were like exactly two people sitting on the corner of the bar watching this TV, watching this game. And look, if you know, if if that's your thing, no judgment. Enjoy the sports. Enjoy it all you like. I have plenty of friends who enjoy the sports. I don't judge them. Not out loud anyway. Okay. Occasionally I'll say something out loud. The point is. The point is, the NFL in particular is just not something I enjoy [00:03:00] anymore.

Caleb Newquist: And I haven't really for a long time. You know, I know that puts me in kind of a small group in this country, in the minority at least. And I'm fine with that. You know, I'd rather do many other things. But, you know, if I may make an observation, it just kind of feels like sports is, you know, I would say American football in particular. It's just not as good as it used to be. And I'm not talking about the athletes. I think the athletes are probably [00:03:30] better than they used to be. Um, I'm just kind of talking about sports and the fact that it's a product in our hyper capitalist commercial culture. You know, if you think about it, that if you think of it as a product, the games that you watch on TV or the experience that you have going to a game, I don't think there's any question that NFL and college football for that matter. Are far, far worse. I'm not [00:04:00] getting into the college football bit, but I think both of those things, um, are far worse than they used to be. And maybe I'm nostalgic for my youth, I don't know, but the games are too long, and that is largely due to just how much advertising accompanies these broadcasts. And, and it's made even more worse by the fact that more and more of those advertisements are related to sports gambling. [00:04:30]

Caleb Newquist: And yes, we've talked about sports gambling many, many times on this show or gambling in general. Okay. Sports gambling is just, you know, a small piece of the big gambling world. Okay. And again, no judgment if you like to gamble, as long as you're not hurting yourself or other people. Enjoy. Okay. The Washington Post, they did an analysis recently. I found this while I was thinking all this through. But anyway, [00:05:00] I found this analysis at the Washington Post did. And they looked at 50 hours of sports TV. Okay. And they used AI to do the analysis and they found, quote, a reference promotion or commercial every four minutes on average during the segments of professional and college games. Every one of the sporting events had a reference to betting. So every four minutes. Now it's not just the commercials during the broadcast, which, as I understand [00:05:30] it, are actually capped. I think in the NFL, they can't have more than six ads per game. I don't know, somebody else maybe can verify that. But that's what I found. It was reported in several places, credible places. Okay. But that's not the only place you see this stuff, right? So or hear this stuff about sports gambling. There are logos everywhere behind the goal posts in the football stadiums on hockey jerseys on the backboards at basketball games promo the [00:06:00] the broadcasters get in on it. They read promos. And then of course, on virtually every channel that has sports, there's point spreads just scrolling across the bottom of the screen now.

Caleb Newquist: And you know, this analysis included sports that aren't football. And in fact, it was kind of funny to learn that women's basketball and hockey had the most mentions in the analysis, which is kind of, I don't know, unexpected. But anyway, the point is that sports is being completely saturated [00:06:30] with gambling. And I don't know, it just kind of makes things easier. And then, of course, you're hearing all these more and more stories about athletes getting caught up in various scandals, and it's only going to get worse. All right. How about a review? Uh, this one's from Apple Podcasts titled LA fraud five stars. The detective was very knowledgeable and was a good storyteller. He should come back again. [00:07:00] Yeah. I don't know if we'll have Chris back again. We've never done a repeat guest and, um, you know, but it. I'm glad you enjoyed it. Um. Decker 92887. That's who wrote it. I'm glad you enjoyed it. Chris was great. He's, uh. I'm sure he's got plenty of stories. I don't know how comfortable he would be telling some of the stories, you know, and I understand, uh, just to balance things out, here's a bad review from Matt underscore B underscore W, [00:07:30] who gave us one star and said unlistenable. Why not just tell good stories? Why try so hard to be funny? And I would answer your question with a question, which is do you not like funny? Do you not like funny? Okay, look, I understand I'm not everybody's cup of tea, but, you know, funny is funny.

Caleb Newquist: I don't know what I'm saying other than that, but there you go. There's [00:08:00] a couple reviews. Apple podcasts. Leave us a review, please. We like reading them. We like getting them. It helps people find the show. Okay. If you have comments, questions, or see a good story either for a mention or even for an entire episode, we've gotten a couple of good ones lately, so stay tuned. Those are coming eventually. Someday. Email us at omnifrog at earmark cpe.com. And yeah, rate the show, rate the show wherever you listen to podcasts, rate the show, write a review. If you can do [00:08:30] that, it helps us out. All right. Okay, that's enough business time for some fraud. Sam Israel the third didn't just come from money. He came from the kind of money where people who'd never met him Still recognized his name. His grandfather, the O.G. Samuel Israel, built a coffee importing [00:09:00] business into a commodity trading powerhouse that eventually became a CLI international. A CLI was later acquired by the investment bank Donaldson, Lufkin and Jenrette for $42 million in September 1981. And just in case you're curious about what happened to Donaldson Lufkin, they were acquired by Credit Suisse in 2000 [00:09:30] for about 11 billion, and Credit Suisse was later acquired by UBS in 2023 to avoid bankruptcy.

Caleb Newquist: So that's your provenance. Can we call that provenance? I don't know, but that's what happened. Anywho, the Israel's already well known in New Orleans for their massive success in business. They became prominent philanthropists as well. So really important people to that community. So [00:10:00] when Sam the Third went looking for a career, he had the advantage most people never get, which is a name and reputation that opened doors on Wall Street without saying a word. Too bad he had no idea how to live up to it. After graduating from Tulane, Sam went to Wall Street in 1982, and for much of his career he was a low level order taker, bouncing between obscure firms, [00:10:30] a far cry from the third generation trader with 20 years experience, he would later claim the closest he came to making a true name for himself was a stint at Omega Advisors. That's the hedge fund run by Leon Cooperman, a Wall Street legend. When Israel later went looking for investors, he told them that he'd been Omega's head trader, managing more than $400 million. But when someone called Leon Cooperman to check the [00:11:00] claim, he corrected the record slightly. And that correction was that Sam Israel had worked for him for about 18 months and had no trading discretion at all. Nevertheless, in 1996, Sam the third started Bayou Hedge fund group, and according to a book entitled octopus, written by Canadian journalist Guy Lawson, Israel's strategy centered around something called forward propagation.

Caleb Newquist: I [00:11:30] don't know what that means, but apparently it was a proprietary trading system that Israel claimed could spot patterns in the market that were invisible to everyone else. And I'm pretty sure that that is the strategy of every hedge fund ever. Israel was not alone in his venture. His co-founder, James Marquez, helped run BYU's early funds and develop its trading strategy, [00:12:00] and alongside them from the beginning was a guy by the name of Dan Marino. No, not the guy from the Miami Dolphins. Why would he work at a hedge fund? He had all that. Isotonic gloves money, right? Glove money. You don't need a hedge fund anyway. No. This Marino went by, Daniel. And as far as I can tell, he was a CPA that Israel had known since the two had met in 1990. Now, BYU's pitch was not. Give us your [00:12:30] money and we'll double it by Christmas. It was actually, you know, smarter than that by. You promised investors steady returns without all the annoying parts of investing, which is like volatility, panic and, you know, losing money. That proprietary trading system, you know, the forward propagation that was supposed to spot opportunities that other traders missed and move in and out of the positions quickly enough to protect investors when the market turned. [00:13:00] Unfortunately, there was a flaw, a small one in this strategy, and that is it didn't work. One early investor told The New York Times that he put $150,000 into Bayou in 1996, and at first, Sam Israel sent regular letters explaining what was happening in the markets and how the fund was doing.

Caleb Newquist: Then Bayou started losing money, and the letter [00:13:30] stopped. Israel eventually admitted that the fund was down by the end of the year. The investor said his investment was down 14%. So he got out and he was lucky because Bayou was still reporting real numbers at that time, but that would not last. On the final trading day of 1998. Israel called Daniel Moreno and James Marquez into a conference [00:14:00] room. By that point, BYU's losses had been piling up for a while, and they reasoned if they told investors the truth about the losses, people would pull their money out, new investors would stay away. And Sam Israel would have to admit that his brilliant trading system was not particularly brilliant. So Israel and Marquez proposed another option. Bayou would report results it had not actually earned. [00:14:30] But how do you do that? The plan, according to Moreno, was to create a phony audit showing that Bayou had made money. Then they'd raise more capital and trade their way out of the hole. The following year, All that had to happen was for the winning trades to catch up to the losing ones, and then the lie could just disappear into the books. But yeah, in the meantime, they had to hide those losses [00:15:00] long enough to, you know, make some winning trades, you know. And then, you know, not keep taking people's money.

Caleb Newquist: No problem. Right. Now, of course, Bayou could not simply hand its real auditor a set of fake numbers and ask for a signature. A legitimate audit firm might do something inconvenient, like examine the underlying details. So Bayou needed a new auditor. And that [00:15:30] auditor was Richmond. Fairfield Associates. Richmond. Fairfield sounded like the kind of firm that had been around for 100 years and that nobody would think twice about. But it had not. Richmond. Fairfield was controlled by Daniel Moreno, who, remember was already BYU's CFO. He helped prepare BYU's financial information, and now he controlled a firm that was going to audit that [00:16:00] same information and issue an independent audit opinion. And some of you know this, but I'll just state it out loud for everyone else. That's not how any of this works. None of that's allowed. This isn't a case where the auditor failed to catch the fraud. The auditor was the fraud, or at least a fraud as a part of a larger fraud. And so with this fake audit [00:16:30] in place by you reported that it had earned a return of 17% in 1998, including a 3% gain in December. Those returns had the desired effect. They were good enough to keep current investors from leaving and attractive enough to help bring new ones in. What else made Bayou? Attractive was that its minimum investment was $250,000, which was much lower than many hedge funds, and it did not charge the usual management fee [00:17:00] of 2%.

Caleb Newquist: Instead, Bayou simply charged a 20% fee of the funds reported profits. Bayou also routed most of its trades through an affiliated brokerage firm, Bayou Securities, which Israel controlled. Now, this arrangement wasn't unheard of, but it was still not typical. And what it meant was that the hedge fund generated commissions for another business, a business [00:17:30] controlled by Sam Israel, every time it traded. According to the Wall Street Journal, Bayou Securities earned nearly $3.3 million in commissions from Bayou Fund activity between 1997 and 2000. Byu's reported returns were strong, steady and most importantly, not so ridiculous that they immediately invited skepticism. They [00:18:00] were offering the kind of performance investors desperately wanted to believe exists. That is, the kind that beat the market, had low volatility, and came year after year with a manager who knew exactly what they were doing. But as we all know, this kind of performance does not exist. It is a fantasy. According to The New York Times, BYU's marketing materials claimed the fund had gained more than 30% during its first year and more than 38% [00:18:30] between June 1998 and September 1999. Another chart in their marketing materials showed that $1,000 invested in Baiju in 1997 would have grown to more than 3500 by April 2004, while $1,000 put into the S&P 500 would have come to a little more than $1,500. The Securities and Exchange Commission would later say that Bayou never posted a genuine year end profit. [00:19:00]

Caleb Newquist: Now, remember those frequent letters discussing the markets that Sam Israel sent? Several investors later described this reporting as unusually regular and detailed. That kind of transparency probably felt refreshing to an industry where managers sometimes treat basic questions about your money as an assault on their integrity. But receiving a lot of information is, of course, not the same thing as receiving accurate [00:19:30] information. Bayou was extremely transparent about the version of Bayou it had invented. By 2001, Bayou was beginning to attract the kind of investors and advisers whose involvement made the fund appear even more legitimate. According to documents obtained by The Times, several firms received as much as 3% of the assets they raised, and those payments continued every year. The money remained invested. [00:20:00] Now, that didn't mean these marketers knew Bayou was a fraud, but it did mean that they kept earning money as long as their clients stayed in the fund, which is the kind of arrangement that is sometimes known as a potential conflict of interest. Oh, and one more thing. In 2002, Bayou reportedly identified Grant Thornton as its auditor. Even though Grant Thornton later said it had [00:20:30] not worked for Bayou since the late 1990s. To be fair, a few investors asked hard questions. Tremont Capital Management, for example, withdrew its money after Bayou could not explain why. Related. Bayou funds were reporting different returns, according to The Times, Bayou claimed that profitable trades had been shifted into its offshore funds to improve their performance and make them more attractive to new investors.

Caleb Newquist: And wow, that [00:21:00] is that explanation that is actually worse than the thing being asked about. It's like if an investor comes into your office and says, hey, I really like that painting you've got there, and you respond, thanks. I bought it from a guy who stole it from the Louvre. Plenty of investors stayed, though. Bayou had the reputation clean audits, an impressive performance track record, and professional advisors still recommending it. As one investor later told The Times it was not just [00:21:30] a lie. It was a very good and elaborate lie, and the people running that lie were living like the numbers were real. Daniel Marino went from living with his mother on Staten Island and driving a leased Nissan Maxima to owning a $2.9 million home in Westport, Connecticut, and driving a Bentley. Sam Israel, meanwhile, rented a stone estate in Mount Kisco for $32,000 a month. Fun fact about that stone estate. [00:22:00] It had originally been built for Henry J. Heinz and was later owned by Heinz's distant cousin, Donald J. Trump. Here's something else fun. Reportedly, BYU's high tech trading floor included pet snakes in aquariums. And isn't that just perfect? Behind the curtain, things inside Buyou were getting much darker. Daniel Marino later described Sam Israel [00:22:30] as demeaning, threatening and even claimed that during one confrontation in 2002, Israel held a gun to his chest after Marino refused an order. By 2003. Baillieu had a problem that fake audits alone could not solve.

Caleb Newquist: The fund was getting bigger, but the hole was getting bigger, too. So what did they do? [00:23:00] The most obvious thing in the world. They created four new funds because when one fraudulent hedge fund is not making money, it's time to quadruple down. The new funds attracted more than $125 million in investment in 2003, but sadly, none of this improved Sam Israel's trading, according to the Securities and Exchange Commission. Biu told investors that the four funds earned a combined profit of $43 [00:23:30] million that year. The actual trading records showed a loss of 49 million. That is a $92 million disagreement over which way the money went. And because Israel and Mourinho were paid incentive fees based on BYU's supposed profits, they were not just reporting imaginary gains. They were paying themselves 20% of those imaginary gains with real investor money. The [00:24:00] SEC later alleged that they withdrew millions of dollars in incentive fees they had never earned, because Bayou had never produced a genuine profit. And so by the spring of 2004, Bayou claimed to be managing more than $350 million. But eventually, even pretending to trade became too expensive. It was around this time, spring of 2004, that the SEC said Bayou had stopped almost all securities trading without without [00:24:30] telling its investors. This supposedly sophisticated hedge fund was now mostly a collection of fabricated statements. Private investments and increasingly desperate attempts to find a way to replace the missing money.

Caleb Newquist: Yes, Sam Israel and Daniel Marino had begun putting investor funds into private start up businesses and venture capital investments, sometimes held in their own names [00:25:00] or through partnerships they controlled. Remember, investors had signed up for a hedge fund trading public securities. They had not signed up to become silent partners in whatever private company Sam Israel had discovered that week. By mid 2004, with roughly $150 million left, Israel moved nearly all of it out of the funds and into what government filings described as prime bank trading programs. And if the phrase prime [00:25:30] bank trading program sounds legitimate to you, then good. It was supposed to. These programs usually involve getting access to little known financial markets, where elite institutions trade special bank instruments unavailable to ordinary investors. The returns are enormous, the risk is minimal, and the details can't be independently verified because everything is confidential. Now, there is generally one minor complication with these [00:26:00] prime bank trading programs, and that is they do not exist. Israel later described these programs as the opportunity that might finally rescue Byou. He said that as the losses mounted, what he viewed as divine intervention had arrived in the form of these supposed investment programs. At this point, Sam, Israel's financial strategy was starting to sound a lot like a prayer [00:26:30] with wire instructions. It's at this point in the story when a man named Robert Booth Nichols enters the picture, Nichols presented himself as someone with access to a hidden international network of bankers, intelligence officials, organized crime figures and enormous pools of secret money.

Caleb Newquist: Israel would later claim that he believed Nichols could place BYU's remaining assets into a private trading program and produce returns large enough [00:27:00] to fill the hole. Can you smell the desperation through your ears? Wait. That doesn't. Never mind. This part of the story becomes complicated, partly because Israel later had every incentive to portray himself as a victim of another fraud. What is clear from government records is that BYU's money was moved through a collection of intermediaries and entities in pursuit of returns that were fantastical, [00:27:30] even by hedge fund standards, according to The Wall Street Journal. Approximately $100 million, eventually reached a small new Jersey money management firm run from its owner's home. The man controlling it, Carl Johnson, reportedly gave financial institutions several explanations for where the money came from. Authorities said he claimed at different points that it belonged to the Maloof family, then the owners of the Sacramento Kings, or that it had [00:28:00] been a loan backed by an Arizona gold mine. Arizona authorities seized nearly $101 million in May 2005 because they believed the money was being used in a fraudulent prime bank instrument scheme. In other words, money from one fraud was frozen because regulators thought it might be involved in a different fraud before the victims of the first fraud even knew it was missing. Got [00:28:30] all that, and then BYU's own lawyers made the situation worse.

CLIP: And so, ladies and gentlemen of the jury, I rest my case.

CLIP: Mr. hunt, do you know you're not wearing any pants?

CLIP: What AHH.

Caleb Newquist: To recover the seized money. Israel's attorneys had to argue that it belonged to BYU's investors. So naturally, they had to show and submit documents tracing the money back to Sam, [00:29:00] Israel and Bayou. The effort to reclaim the money helped create a paper trail showing where a large portion of BYU's remaining assets had gone in the first place. For years, Israel and Mourinho had survived because they controlled the records. They decided what performance the investor saw, what the fake auditor verified, and how much money Bayou supposedly held. But once there was $100 million sitting [00:29:30] in an account frozen by the state of Arizona, The lie was no longer contained. Just to buy you. By July 2005, Bayou claimed to manage $440 million. The SEC later said investors had deposited more than $450 million into Bayou and its predecessor fund over the life of the scheme. As we said before, professional advisors helped fuel that growth. For example, Hennessee Group recommended Bayou [00:30:00] to approximately 40 clients who invested more than $56 million between 2003 and 2005, and Sam Israel still tried to reassure his investors. It was that same month, July 2005, that he announced that Bayou would close and return their money. He blamed the decision partly on his divorce and a desire to spend more time with his children. On August 11th, Bayou told investors that approximately 90% of [00:30:30] their money would be returned within a week. That week passed. Checks did not arrive. One investor had been promised. Millions started calling by you.

Caleb Newquist: Then the lawyer started calling. And soon law enforcement was asking questions too. And inside BYU's Stamford office, Daniel Moreno was writing a six page confession. On [00:31:00] August 16th, 2005, Eric Dillon, a principal at Silver Creek Capital, a Seattle investment firm that invested with Bayou, flew to Connecticut to find out where his firm's money had gone. Dillon arranged a meeting with Daniel Moreno at BYU's office in Stamford in a cream colored cottage on the Connecticut waterfront. Dillon arrived by limousine and knocked on the front door, but nobody answered. So he kept knocking and no [00:31:30] one answered. And then he noticed that the back door was open. Dylan walked inside and found the office empty. On Mourinho's desk was a typed six page letter. The first sentence read this is my suicide note and confession. According to the Wall Street Journal, the letter said Mourinho, Israel and James Marquez had, quote, defrauded all these investors from approximately 1998 until the present. Elsewhere, Mourinho also wrote, quote, [00:32:00] if there is a hell, I will be there for eternity. And Eric Dylan called 911. Stamford Police eventually located Mourinho and asked him to return to the office. The responding sergeant later said Mourinho seemed relieved when he arrived. Police took him to a hospital for psychiatric evaluation. He had not attempted suicide, but his letter immediately became one of the most important pieces of evidence in [00:32:30] the growing investigation. The confession laid out the early losses. The December 1998 meeting, the phony audits and the effort to raise new money and trade out of the hole.

Caleb Newquist: Marino claimed that lower level Bayou employees had not known about the scheme because he and Israel controlled access to the real financial information. In one passage quoted by The New York Times, Marino wrote, quote, if anyone got near anything, I would browbeat them away. Sounds [00:33:00] typical. Sam Israel, meanwhile, was not answering phone calls. A note appeared on the front door of his house telling investors to be patient and insisting, quote, Bayou is not insolvent. Which isn't exactly the kind of reassurance you'd be looking for. We're talking about a hedge fund that went from sending detailed investor letters that discussed market trends and economic conditions to one sentence on a sticky note whose tone can only be described as remarkably [00:33:30] unconvincing. On September 1st, federal prosecutors filed a civil forfeiture case seeking BYU's remaining assets. The complaint described a fraud involving more than $300 million and closely followed the account Marino had provided in his letter. Less than a month later, Israel and Marino appeared in federal court. Israel admitted that Bayou had issued fraudulent performance reports and financial statements. Marino admitted his [00:34:00] role in creating the fake accounting firm and bogus audits. Both pleaded guilty to conspiracy and fraud related charges. James Marquez, who had left Bayou years earlier, later pleaded guilty as well. He received a sentence of 51 months and was ordered to pay more than $6 million in restitution.

Caleb Newquist: Israel and Marino remained free while awaiting sentencing, which dragged on for more than two years as prosecutors tried to recover assets and Israel cooperated with the [00:34:30] investigation. Marino's Westport mansion went up for sale, and Israel left the Mount Kisco estate for a much more modest house in Armonk in April 2008. The sentence came down. Both Israel and Marino got 20 years for Sam Israel. The Beaulieu fraud was finally over. He had admitted what he had done. The money had been traced. The judge had imposed a sentence. All [00:35:00] that was left was for him to report to prison. Which brings us back to the Bear Mountain Bridge, June 9th, 2008. Sam Israel was supposed to report to the Federal Medical Center in Devens, Massachusetts, to begin serving his 20 year sentence, but he never arrived. Israel left the Armonk home he shared with his girlfriend around 930 that morning, supposedly headed for prison about [00:35:30] three hours later. Police found the white GMC envoy abandoned near the Bear Mountain Bridge. The keys and a bottle of pills had been left inside. Written in the dust on the hood were the words suicide is painless. Strange thing about that phrase. You may or may not know it is the name of a song from the Robert Altman film Mash. The melody was later used as the theme song for the TV show based on the movie, too. But [00:36:00] you know, that's beside the point. The point is that in the movie, the song is sung by one of the characters.

Caleb Newquist: When another character believes that he is committing suicide by taking a poison pill that he has provided, when in reality, it's just a sleeping pill. Long story short, he wakes up the next morning and everything's fine. So yes, it was a faux suicide, you know, aka Pseudocide. So anyway, [00:36:30] back to the abandoned GMC envoy. At first, authorities had to treat the scene as a possible suicide. They searched the Hudson River and began looking for evidence that Sam Israel had gone over the bridge. But this particular setup also had a certain Sam Israel quality to it. This is a guy who had spent years creating false documents, false prophets, false [00:37:00] accounting firm, and an entire false version of himself. Now, on the morning he was supposed to surrender, he had left behind a message telling police exactly what conclusion to reach. The United States Marshals Service quickly began treating Israel as a fugitive, and his wanted poster described him as armed and dangerous. This was Slightly awkward for Israel's attorneys, who had recently [00:37:30] assured the judge that there was, quote, no question that Sam is neither a flight risk nor a danger to the community. His disappearance was especially strange because he had spent the months before his surrender cooperating with investigators and helping them recover assets. He also had serious medical problems, including chronic back pain, a pacemaker and an implanted device that sends electrical currents through his body to manage the pain.

Caleb Newquist: His lawyers had used those conditions [00:38:00] to persuade the court to let him surrender voluntarily to a federal medical prison. In other words, the government had entrusted Sam Israel to drive himself to prison. According to the New York Times, Israel's girlfriend, Deborah Ryan, told investigators that he left home that morning, saying he was headed to Massachusetts. Federal prosecutors said that the night before Israel was due to surrender, Ryan followed him while he [00:38:30] drove an RV loaded with his belongings to a highway rest stop. Israel left the RV there and Ryan drove him home. The next morning, Israel drove to the Bear Mountain Bridge, staged the apparent suicide, and later retrieved the RV himself. The fake suicide did not fool everyone, one former Bayou investor told the times, quote, Knowing Mr. Israel, he probably faked this. Everything about him was phony. [00:39:00] Deborah Ryan initially misled investigators about what she knew. She later pleaded guilty to aiding Israel's failure to surrender and received three years probation, including four months of home confinement for roughly three weeks. One of America's most wanted financial criminals hid in and around a white RV while federal agents searched for him. Sam Israel had not escaped to Switzerland or the Cayman [00:39:30] Islands or to some secret compound accessible only through Robert Booth, Nichols and the International shadow banking system. He remained in the northeastern United States, dealing with serious pain and reportedly dependent on medication while hiding in an RV. You know, essentially a studio apartment with cupholders.

Caleb Newquist: Israel later told the court that two days before surrendering, he swallowed a large amount of pain medication in [00:40:00] a genuine suicide attempt. He said that when he survived, he took it as a sign that God wanted him to turn himself in. His mother had also been publicly pleading with him to surrender, but Israel had already staged one fake suicide, and there was no clear way to verify this second account. He was alone, and there does not appear to be any record that he sought medical treatment or was hospitalized afterward. So [00:40:30] this may have been a real attempt, or just another story designed to make his surrender sound more sympathetic. On July 2nd, he called authorities and surrendered at a police station in Southwick, Massachusetts. I don't know if you guys pronounce it Southwick. You guys got you just can't trust those Massachusetts towns, you know. You know, like Worcester doesn't look like Worcester. But that's how they all say it anyway. Not the point. [00:41:00] Reports said Israel had been staying at a nearby campground. He arrived at the police station on a motorized scooter. Not the typical ending for an international manhunt, but it definitely earns points for Dumb and Dumber ness. Israel got an extra two years for that little stunt on top of the original 20. The bridge permanently transformed the ending of the Balu story. Without the fake suicide, [00:41:30] Israel would have been remembered as the hedge fund manager who created a fake accounting firm to hide hundreds of millions of dollars in losses.

Caleb Newquist: That was already enough, but now he became the hedge fund manager who created a fake accounting firm, chased imaginary bank programs, disappeared on the moon. Instead, he became the hedge fund manager who created a fake accounting firm, chased imaginary bank programs, disappeared on the way to prison, staged his own suicide, and [00:42:00] spent three weeks hiding in an RV for most fraudsters. The conviction is where the line stops. Sam Israel tried to invent the ending to. Sensing Sam Israel and Daniel Marino did not put the missing money back into investors accounts. The court ordered each man to pay $300 million in restitution, but restitution orders [00:42:30] against people who have already lost, spent, transferred or hidden the money tend to be more impressive on paper than they are at the bank. Still, investigators recovered a significant amount. The $101 million seized in Arizona. We mentioned that earlier. That was the largest piece. Federal authorities also pursued bank accounts, securities, private investments, real estate and assets that had been moved overseas. In 2008, more than $150 [00:43:00] million was returned to victims. Five years later, the Justice Department distributed another 31.8 million, including money recovered from accounts in Singapore and the United Kingdom. Unfortunately, federal prosecutors estimated the total investor loss at approximately $300 million. Even after years of tracing assets across multiple countries, a large portion of it was still gone. But the strangest part of the aftermath involved [00:43:30] investors who had already gotten their money out when Baiju was operating.

Caleb Newquist: It generally honored redemption requests, sometimes using newer investors money to pay people who left earlier. That helped preserve the illusion that the fund was healthy. After the collapse, BYU's bankruptcy estate filed approximately 95 lawsuits seeking to recover more than $135 million in redemption payments made during the final 14 months of the scheme. So just [00:44:00] imagine being an investor who got suspicious, asked for your money, received it, and believed you narrowly avoided disaster. Then, years later, a bankruptcy lawyer arrives to explain that avoiding the disaster may have given you an unfair advantage over everyone who stayed. The fictional profits were the easier part because investors had never earned them. The harder question was whether someone who withdrew in good faith could also be forced to return. Principal. [00:44:30] The courts focused on whether investors or their advisers had seen enough warning signs that they should have investigated further. Dozens of the cases were eventually resolved, and the government held back part of the recovered money so that investors forced to return redemptions could still participate in the restitution process. Bayou also produced consequences for one of the professional advisers that had helped deliver investors to the fund. In 2009, the SEC brought an [00:45:00] enforcement action against Hennessee Group and its principal, Charles Gradante, accusing them of failing to perform important parts of the due diligence they had advertised to clients. Hennessee and Gradante settled without admitting or denying the findings, and agreed to pay more than $814,000 in disgorgement and penalties.

Caleb Newquist: Okay. Uh, what did we learn? Did we learn anything? Yes, [00:45:30] I suppose a few things. Um, here's the uncomfortable thing about Bayou. Uh, on paper, some of these investors, they did a lot of things right. They checked his background, his reputation, uh, or they hired people whose job it was to, you know, look for red flags, you know, made sure they pass the smell test. But, you know, it obviously didn't work. You know, some of these some of these red flags were in plain [00:46:00] sight. You've got a CFO who has this made up accounting firm which could have easily been discovered. You know, Bayou, they traded through a brokerage that was controlled by its founder. Um, they they said Grant Thornton was their auditor long after the firm had stopped working for them. But anyone who would have looked into that stuff, they just didn't [00:46:30] do that stuff. And I don't know, some of that stuff is pretty simple. As we just said, in 2009, the SEC brought an enforcement action against Hennessy Group. They were one of those advisers, right, that were recommending hedge funds to their wealthy investors. And they had advertised like this rigorous due diligence process. And when it came to Bayou, they obviously failed to perform much of that due diligence [00:47:00] process, including the phony accounting firm. Right. The SEC also said that Hennessy received information suggesting that Daniel Marino might be connected to that firm, and they didn't resolve that.

Caleb Newquist: You know, Bayou told Hennessy that it had outgrown Richmond. Fairfield, the phony firm, and they were selecting Hertz Hirson to do the audit next. But they didn't confirm that [00:47:30] either. I mean, Richmond, Fairfield wasn't confirmable because that wasn't a real firm. But Hertz Hirson was and is a real firm to this day. And they didn't even check that out. So that's not good. Not good. And so yeah, this the deeper failure was, you know, these people who say that they check all this stuff so that you don't have to. They didn't do the checking. Um, [00:48:00] the same principle applies to Sam Israel's resume, his supposed status as Omega advisor's head trader. Um, you know, one person did call, but other people didn't that. And, you know, just making that call doesn't require any kind of special expertise. It just requires making a phone call, professional titles, you know, recognizable names, [00:48:30] prestigious resumes that I mean, that kind of authority that conveys authority very quickly. But as we've discussed many times, you know, it's kind of pointless unless you verify those details. Also, more communication does not necessarily mean more transparency. The letters, the conference calls, the performance that made it feel very open, [00:49:00] but it was all part of the facade. So the important question is whether the information can be reconciled to the records. The manager does not control bank and custodial statements, brokerage records, trading data, you know, stuff that a legitimate auditor would do.

Caleb Newquist: Okay. And underneath all this is the thing that started our story, a [00:49:30] name Sam Israel didn't need people to verify every part of his background because his family's reputation had already done some of that work for him before he did anything. You know, that's not a that's not a lesson about hedge funds. It's just how trust works. For better or for worse, we extend it based on things that feel like evidence. Feel like credibility. But they're not. Bayou [00:50:00] operated through a credibility supply chain where every link assumed the previous link had already done its job. It took nine years, one confession letter, one staged suicide, And roughly $300 million to discover that too many of them had not. Okay, that's it for this episode. And remember, if you're going to fake taking your own life. Suicide is painless [00:50:30] is a little too on the nose. If you have questions, comments, or suggestions for stories, drop us a line at omnifrog@cpe.com. This episode of Oh My Fraud was written by Zack Frank and me, Caleb Newquist. Fraud is created, produced and hosted by me, Caleb Newquist. Zack Frank is my co-producer, audio engineer, and music supervisor. Laura Hobbs designed the logo. Rate, review and subscribe to the show. Wherever you listen to the podcast. If you listen on earmark, you can earn CPE there. Join [00:51:00] us next time for more address swindlers and scams from stories that will make you say oh my fraud!