Hedge Fund Ex-CFO Sentenced To 20 Years For Defrauding Investors Of Over $450 Million

LAWFUEL – Legal News Daily – MICHAEL J. GARCIA, the United States Attorney for the
Southern District of New York, announced that DANIEL E. MARINO
was sentenced today to 20 years in prison for defrauding
investors in the now-collapsed Bayou hedge funds of more than
$450 million. The sentence was imposed by United States District
Court Judge COLLEEN MCMAHON in Manhattan federal court. MARINO
pleaded guilty on September 29, 2005, to conspiracy, investment
adviser fraud, mail fraud and wire fraud.

In imposing the sentence, Judge MCMAHON said that she
was sending a message to the securities and other industries that
people entrusted with other people’s money have an obligation to
be truthful and forthright, at whatever cost to themselves. She
described MARINO as “the linchpin of the fraud.”

According to publicly filed documents, between 1996,
when the first Bayou fund was opened, and August 2005, when a
series of Bayou funds collapsed, the funds sustained consistent
losses. Investors, however, were regularly told that the funds
were reaping substantial gains. MARINO, who was the Chief
Financial Officer and Chief Operating Officer of Bayou, admitted
during his guilty plea that he and SAMUEL ISRAEL, III, the Chief
Executive Officer of Bayou, along with JAMES G. MARQUEZ, who ran
the first Bayou fund with ISRAEL, hatched a scheme in 1998, after
the fund sustained a second year of losses.

At that time, the three agreed that MARINO, a Certified
Public Accountant (“CPA”), would form a sham CPA firm called
Richmond-Fairfield Associates to sign off on the fraudulent
financial statements that were disseminated to future and current
investors. Thereafter, according to the Information to which
MARINO pleaded guilty, beginning in 1999, they sent out, among
other things, financial statements, in which Bayou falsely
reported profits and falsely asserted that Richmond-Fairfield
Associates was an independent auditor that had audited Bayou and
certified its financial statements.

According to publicly filed documents, the Bayou funds
collapsed in August 2005, after ISRAEL and MARINO attempted to
recoup mounting losses by investing contributions to the funds in
private placement transactions in the United States and abroad.
The private placement transactions turned out to be frauds,
according to publicly filed documents.

ISRAEL pleaded guilty on September 29, 2005, to
conspiracy, investment adviser fraud and mail fraud. He is
awaiting sentencing. MARQUEZ pleaded guilty on December 14,
2006, to conspiring to defraud Bayou investors between July 1996
and October 10, 2001. He was sentenced on January 22, 2007, to a
term of 51 months’ imprisonment, to be followed by two years of
supervised release. The Court also ordered that MARQUEZ forfeit
certain property and securities and pay $6,259,650 in restitution
to his victims.

The three guilty pleas followed the filing of a civil
forfeiture action against the remaining Bayou assets on September
1, 2005, by the United States Attorney’s Office for the Southern
District of New York. According to the Civil Complaint,
approximately $100,010,673.68 in Bayou funds were the subject of
an Arizona state court seizure order. Those were the funds that
had been transferred by Bayou in connection with purportedly
legitimate private placement transactions that turned out to be a
fraud. In connection with these transactions, Bayou transferred
investor funds through various banks — the funds moved from New
York to London to Hamburg and then back to London — and
ultimately to an account in Flemington, New Jersey, where it was
seized and forfeited pursuant to an order of the Arizona Superior

In October 2006, as a result of the submission of facts
by the Federal Bureau of Investigation sufficient to demonstrate
that the seized money was the property of the victims of the
Bayou fraud, the Arizona Superior Court issued an order directing
that the funds be transferred to the custody of the United States
Marshals, and $106,541,628.64, representing proceeds of the
fraud, along with accrued interest, was transferred to the United
States Marshals.

According to the federal civil Complaint, the United
States Attorney’s office will, upon entry of a final order of
forfeiture, request that the forfeited property be distributed
pro rata to victims of the fraud offenses.

MARINO was remanded to begin serving his sentence in a
federal prison. Judge MCMAHON also sentenced MARINO to three
years of supervised release to follow his incarceration. The
Court also ordered that MARINO forfeit certain cash, property and
interests in partnerships. A final Order of Restitution will be
issued within the next 90 days.

Mr. GARCIA praised the efforts of the Federal Bureau of

Assistant United States Attorneys MARGERY B. FEINZIG,
the criminal prosecution.
08-23 ###