Refco and Bayou Ex-CEOs: 16 and 20 Years; Judge, “[They] just don’t think they’ll get caught.”

Samuel Israel III, following three weeks on the lam, which followed a staged suicide attempt, has begun serving his 20-year sentence for fraud.  The not-quite-dead-yet former CEO of Bayou Management LLC, a hedge fund, forfeited his bail money of $500,000 and faces additional charges of failure to appear, i.e., bail jumping to “Dog” fans.  Meanwhile, Phillip R. Bennett, former CEO of Refco, Inc., was sentenced to 16 years  in federal prison in addition to agreeing to forfeit his $2.4 billion of assets.  Mr. Bennett pleaded guilty to 20 counts of fraud in February 2008.  The indictment alleged that Bennett and at least three other Refco executives hid the firm’s true financial picture for almost 10 years.Refco sought bankruptcy protection in 2005 and exited under a reorganization plan in 2006.  Investors in Refco lost over $1 billion.  Three other officers have either entered guilty pleas or been convicted of participating in the decade-long cover-up of the company’s true financial picture.  Charges have been filed against Refco’s outside counsel during the time of the financial misrepresentations.   The indictment against Joseph Collins, on leave from Mayer Brown, focuses on his $40 million of billed legal work for what are called “round-trip loans,” or the classic move of shifting debt off the books of the company to special purpose entities.  The practice was common prior to Enron’s collapse when the accounting rules on consolidated financial reporting were changed so that the real debt levels of the company were shown.  Mr. Collins entered a “not guilty” plea, and his defense lawyer has said Collins is himself a victim, not a perpetrator, of fraud. 

The Bayou situation was a classic case of a charismatic CEO who was able to dupe many into investing into a fund that did not perform well.  Israel sent out newsletters that painted a much rosier picture, and by the time the investors caught on, they had lost $300 million.  Mr. Israel has proven to be a tough character to catch.  When Bayou collapsed, an investor found a suicide note in the company offices, but Mr. Israel was alive and in hiding.  Following the guilty plea and a resulting 20-year sentence, but before his prison reporting date, Mr. Israel left his car on a bridge in New York with a note, “Suicide is painless.”  Authorities began a manhunt immediately.  The manhunt ended when Mr. Israel surrendered.  One presumes authorities are keeping a close watch.

    

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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