Bayou Co-Founder Marquez Pleads Guilty, U.S. Says (Update4)
By David Glovin and Jenny Strasburg
Dec. 14 (Bloomberg) -- James Marquez, co-founder of Bayou Group, a U.S. hedge fund, pleaded guilty to conspiring to defraud investors of more than $10 million, prosecutors said.
Marquez admitted conspiring with Bayou's former chief executive officer, Samuel Israel, and its former chief financial officer, Daniel Marino, both of whom previously pleaded guilty, U.S. Attorney Michael Garcia said in a statement.
Marquez, Israel and Marino persuaded investors to contribute more than $10 million to Bayou funds ``by misleading them into thinking the funds were highly profitable, when in fact they were losing money,'' Garcia said.
In 2005, when Israel and Marino pleaded guilty, the Bayou case prompted state and federal regulators to call for stricter oversight of the hedge fund industry, whose assets had doubled over five years. Bayou is among the biggest hedge funds to come under scrutiny for missing money since 2000, when Michael Berger was accused of hiding $400 million of losses at his Manhattan Investment Fund.
The private pools of capital, largely unregistered, cater to wealthy individuals and institutions and allow managers to participate substantially in profits from investments.
Hedge funds control about $1.3 trillion in assets, more than double the amount they managed five years ago, according to Chicago-based Hedge Fund Research Inc.
Phony Statements
Marquez, facing as much as five years in prison, admitted that he helped formulate trading strategy and conspired with Israel and Marino to create phony financial statements from 1996 to 2001, Garcia said.
The guilty plea was entered in federal court in White Plains, New York. Marquez's lawyer, Stanley Twardy, didn't immediately return a call seeking comment.
In May, Bayou Group sought bankruptcy court protection to aid efforts to recover $250 million for investors. Lawyers overseeing the dissolution of the Connecticut-based Bayou funds listed more than $100 million each in assets and debts in its Chapter 11 bankruptcy petition.
Before Bayou, Marquez ran a hedge fund firm called JGM Management Co. in New York. Israel and Marino worked with Marquez at JGM, which closed in 1995 after losses mounted for several years.
Israel opened his own hedge fund in March 1996, in Stamford, Connecticut. He called it Bayou in reference to his New Orleans roots and recruited Marquez and Marino to join him.
Losses, Then Fraud
Prosecutors said the three hatched the scheme after the Bayou funds sustained their second year of losses. They agreed that Marino, a certified public accountant, would form a sham CPA firm named Richmond-Fairfield Associates to sign off on fake financial documents sent to clients, prosecutors said.
A second group of Bayou funds collapsed in August 2005, after Israel and Marino tried to recoup mounting losses, the government said.
Marino wrote a six-page suicide note before he was sentenced, giving details of his activities. It was recovered by the police at Bayou's office in Stamford, authorities said. Marquez helped plan the scheme to defraud investors at Bayou, Marino wrote in the note.
Israel and Marino pleaded guilty to fraud in September 2005. Israel faces as long as 30 years in prison and Marino 50 years when they are sentenced early next year, prosecutors said at the time of their guilty pleas. Marino didn't try to follow through with his suicide threat.
The case is U.S. v. Marquez, Southern District of New York (White Plains.)
