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Thursday, September 29, 2005

Westporter Pleads Guilty in Hedge Fund Fraud

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A Westport man who is the chief financial officer of the Bayou Group, the Stamford-based hedge fund involved in what federal prosecutors have described as a $300 million fraud, pleaded guilty today to four federal felony fraud charges.

Daniel E. Marino, 46, pleaded guilty to mail fraud, wire fraud, investment adviser fraud and a conspiracy to commit those crimes in Federal District Court in White Plains, N.Y. The maximum penalty of the most serious is 20 years in prison. (See WestportNow Aug. 29, 2005)

A short time later, the fund’s founder and chief executive, Samuel Israel III, also 46, entered a similar plea to federal charges. He admitted sending out false financial information to current and prospective investors ‘‘which made it appear that Bayou was doing better than it really was.’‘

Prosecutor Margery Feinzig said Marino helped make it appear that Bayou was earning profits on trading when it was not, and created ‘‘fictitious’’ quarterly and annual reports. Prosecutors say the fraud occurred from 1996 to 2005.

“I deeply regret my action,’’ Marino told U.S. Magistrate Judge George Yanthis. “I am very sorry in more ways than I can say. I one hundred percent accept responsibility.’‘

Yanthis, after accepting Marino’s plea, allowed him to remain free on bail until Jan. 9, when he will be sentenced by U.S. District Judge Colleen McMahon. Prosecutors didn’t say what sentence they will recommend.

The conspiracy and investment fraud accounts each carry a maximum of five years in prison. The maximum punishment for the mail and wire fraud is 20 years, but Marino would serve considerably less time under federal sentencing guidelines.

Marino will give up any claim to $100 million in Bayou assets seized in Arizona and will give up his house in Westport to make restitution. A for sale sign went up outside the Bayberry Lane home in August.

Both men told the judge they are under psychiatric care. Israel answered yes when asked if he had been under treatment for drug or alcohol abuse.

The two men have not been seen publicly since state and federal officials began investigating Bayou last month after investors complained that they were unable to reach anyone at the fund. Among the many questions that had been surrounding the collapse of Bayou was why no arrests had been made, The New York Times reported today.

On Sept. 1, the United States attorney’s office for the Southern District of New York sued to freeze $100 million of funds that were seized in Arizona as part of a separate fraud investigation.

The Times said while Israel and Marino were duping investors about the fund’s true performance, they were living well. In 2003. Israel moved into a 10-bedroom estate in Mount Kisco, N.Y. owned by Donald J. Trump that was built for the ketchup magnate H. J. Heinz.

He moved out of the home 10 days ago after failing to pay the $32,000 monthly rent two months in a row, a Trump spokesman said.

“Mr. Marino, who had been living in Staten Island, moved into a multimillion-dollar home in Westport and started driving a Bentley.” the newspaper said.

Marino is represented by Westport attorney Andrew B. Bowman.

Posted 09/29/05 at 04:47 PM

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