By Svea Herbst-Bayliss and Scott Malone
BOSTON (Reuters) - Fugitive former hedge fund manager Samuel Israel III surrendered to police in Massachusetts on Wednesday, ending a federal manhunt after he faked his own death to avoid a 20-year prison sentence.
"He surrendered at 9:30 this morning," said Peter Coe, dispatcher with the Southwick police, who referred further questions to U.S. marshals, who also confirmed the arrest.
Israel gave himself up in Southwick, a town in the state's Pioneer Valley about 100 miles southwest of Boston.
Israel, who engineered the $2 trillion hedge fund industry's most brazen and longest-running fraud, sparked a nationwide manhunt after his GMC Envoy was found on a bridge above the Hudson River on June 9, its engine idling and the words "suicide is painless" etched in dust on its hood.
He is expected be taken to the U.S. District Court in nearby Westfield, Massachusetts, to be arraigned, a court official said.
"He is or will be soon in the custody of the U.S. marshals," said Vickie Wilson, a spokeswoman for the FBI's office in Boston.
After his disappearance, police ruled out suicide and issued a "wanted" poster for the 48-year-old co-founder of the Bayou Group, a Connecticut-based hedge fund. He pleaded guilty in 2005 and was sentenced in April for his role in a scheme to fabricate returns and cheat investors out of $450 million.
Ten days after he disappeared, authorities arrested Israel's girlfriend on charges of aiding and abetting his disappearance.
She was accused of having helped Israel pack his belongings in a recreational vehicle, attach a blue motor scooter to the back and drive him on the day he vanished and was to report to prison in Ayer, Massachusetts.
The collapse of Israel's Bayou Group hedge fund still ranks as the $2 trillion industry's longest-running fraud where Israel and his partners fabricated performance numbers and made up a fake auditor to sign off on the data.
"Investors are ready for him to report to jail. It's been a long, difficult process for them and I hope this will be the last chapter," said Ross Intelisano, a partner at Rich & Intelisano, a New York law firm that represented investors defrauded in the Bayou scandal.
"I think he thinks that he's sick enough that he would have died in jail in 20 years anyway so he thought he had nothing to lose," Intelisano said. "I wonder why he turned himself in. He's got serious medical problems. I wonder if he just ran out of medicine."
Israel has long suffered from back problems and has had numerous operations in an attempt to relieve chronic pain.
(Editing by Jason Szep and Dave Zimmerman)