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Another Hedge Fund Bites the Dust??
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At Defunct Fund, Close Ties to Auditor.

By GRETCHEN MORGENSON
Published: August 29, 2005
Investors who are worried about the fate of the money they turned over to the Bayou Group, a Connecticut firm that is under investigation by federal and state authorities, will not be happy to learn that there were close ties between the firm and the auditor of its hedge funds.

Alan Zale for The New York Times
The office of the Bayou Group in Stamford, Conn., which appeared to be mostly empty this weekend.


Gretchen Morgenson: A Hedge Fund Falls Off the Face of the Earth (August 28, 2005) Public documents show that the chief financial officer and head of compliance for the Bayou Group was also a principal in an accounting firm that audited the hedge funds' books.

Daniel E. Marino was the No. 2 man at Bayou, a hedge fund company founded in 1996 by Samuel Israel III that appeared to have $411 million in assets at the end of last year. Mr. Marino is also listed as a registered agent at Richmond-Fairfield Associates, the accounting firm that signed off on the Bayou funds' financial statements in 2004 and earlier. Such a dual role could cast doubt on the accuracy of Bayou's financial statements.

Officials at the Federal Bureau of Investigation, the United States attorney's office and the Connecticut Banking Department are investigating Bayou, which announced that it was closing in July and that it would return all of its investors' money in mid-August. Investors are still waiting for their funds, however, and Mr. Israel and Mr. Marino have stopped communicating with them. It is feared that the fund company, which is located in Stamford, has collapsed.

Mr. Israel did not return phone calls seeking comment and Mr. Marino could not be reached. A call to the office of Richmond-Fairfield last Friday was not returned. Mr. Marino's affiliation with Richmond-Fairfield was first reported by The Wall Street Journal in its online edition.

There are few clues to Bayou's fate at its main office, which sits at the edge of Long Island Sound at the end of a small, quiet road in the pricey Dolphin Cove section of Stamford, close to Greenwich. The offices of SAC Capital Advisors, the $4.5 billion hedge fund run by Steven A. Cohen, and Gartner, the research firm, are just around the corner.

Bayou shares its building, which was once a house, with a branch of UBS Capital Americas, part of UBS's private equity business. On Saturday, nobody answered the door at Bayou's offices, which appeared to be mostly empty, with computers on the floor and about 30 flat-screen monitors stacked against one another in a room visible through a window near the door. Boxes and file cabinets were piled on top of one another.

The two-story yellow building, one of the few waterfront offices in the area, has a generous yard, sandy beach and boat dock. There was no sign for Bayou in front of the building, but a note on its red front door asked postal workers to hold all mail until further notice.

The Stamford Advocate reported on Friday that the Stamford police had responded to a 911 call from Bayou's offices on Aug. 16 after a visitor found a suicide note on the desk of a Bayou employee; the note mentioned fraud at the firm. The police later located the writer of the note, whom they did not identify, and took him to a hospital for psychiatric evaluation, the paper said.

The 911 call came the day after Bayou was supposed to have returned its investors' money. When the day passed, investors were told the money would come on the 17th. It has not yet been distributed.

The Advocate reported that the police would not release their report on the incident, citing several exceptions to the state's Freedom of Information Act. When asked yesterday about the police response to the call, an officer in the Stamford police records department said that he did not have access to the relevant file because the F.B.I. was looking into the case, and that other records were not available on the weekend.

According to Bayou's 2004 financial statements, its four funds generated net gains totaling $54.3 million. Last year, the firm's executives shared a $10.8 million management fee, representing a 20 percent cut of the funds' gains. Bayou management had $18 million of its own capital in the fund as of 2004, the document showed.

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Louise Story contributed reporting from Stamford, Conn., for this article.

http://www.nytimes.com/2005/08/29/business/29bayou.html
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