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.Â
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.
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