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From the Bayou to the Pokey
The final chapter of the saga of the Bayou Group has now been written. A federal judge in Manhattan today sentenced Bayou founder Samuel Israel to 20 years in prison for his role in the fraud that took down the fund in 2005.
Earlier this year, Israel pleaded guilty to defrauding investors of more than $400 million in what amounted to a classic Ponzi scheme. Before the judge today, he expressed remorse in the hopes of receiving a lesser sentence. "I lied to you and I cheated you and I cannot put into words how sorry I am," he told investors, according to Bloomberg. His lawyers also hoped that Israel's back injuries and pacemaker would lead to a more lenient sentence.
But Judge Colleen McMahon didn't feel much sympathy. "He suffered from these ailments while he did the crime,'' she said. "He can deal with them while he does the time.''
His cooperation with the government's investigation did lead her to knock a decade off from the sentencing guidelines for the financial fraud, which called for a 30-year sentence.
In retrospect, the lengthy sentence shouldn't have come as much of a surprise. The same judge handed down a 20-year sentence to the former chief financial officer of Bayou in January.
It's one of the longest prison terms for a white-collar crime in recent history. Timothy Rigas, former chief finance officer of Adelphia Communications is serving a 20-year term. Enron's chief executive Jeff Skilling was sentenced to 24 years, while former WorldCom chief Bernard Ebbers got a 25-year sentence.
The Bayou scheme was particularly egregious. For years, the fund covered up trading losses by falsifying auditing records from a fake accounting firm. They kept it going by taking new investor money and handing it to older investors.
What was most astonishing was how long the fraud lasted. The fund launched in 1996 and got busted in 2005. Prosecutors said the scheme started at the fund's launch.
by Megan Barnett
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