Ex-hedge fund manager surrenders, sent to New York

2/07/2008 - 23:48

By Scott Malone

SPRINGFIELD, Massachusetts (Reuters) - Fugitive former hedge fund manager Samuel Israel III drove a motor scooter to a Massachusetts police station on Wednesday and surrendered, ending a nationwide manhunt after he staged his own suicide to avoid a 20-year prison sentence.

Wearing a blue T-shirt and athletic shorts over his stout frame, Israel, 48, appeared without a lawyer in U.S. District Court in Springfield, Massachusetts, hours after his mother had convinced him to turn himself over to police in the nearby town of Southwick, authorities said.

The 5-foot-11, 200-pound Israel asked the judge to send him to the low-security Devens prison in Ayer, Massachusetts, where he was originally scheduled to report on June 9 after his conviction in the longest-running fraud in the $2 trillion hedge fund industry.

"I have significant medical issues," Israel, who admitted during his sentencing to being addicted to pain killers after a string of back surgeries, told the judge. "I do require daily medical attention."

He said he posed no danger to the community. "I have not done anything violent," Israel said. "If I was going to flee again, I would not have turned myself in."

U.S. District Judge Michael Ponsor rejected his pleas, saying, "You could be at Devens right now if you wanted to be.

"There is not the slightest possibility that I or any other judge would release you at this point," Ponsor told Israel before turning him over to U.S. Marshals. They took him to a car outside the courthouse and drove him away.

Israel, now sporting a salt-and-pepper beard, was expected to face charges in New York related to his failure to report to prison. He is also expected to be held at a facility where he could receive medical attention after telling authorities that he had taken morphine before surrendering "perhaps in an effort to harm himself," a prosecutor said.


Israel, who was hiding out in a mobile home at a campground in western Massachusetts, showed up at the Southwick police station on a Yamaha scooter. His first attempt to surrender failed when he found no full-time police officer in the town of Granville, Mass.

His mother also told U.S. Marshals that her son was ready to end the chase.

"Sam Israel was in contact with his mother right before he came in, and she called us to let us know," said Dave Turner, a Marshals' spokesman. "He gave up because of the intense pressure of the manhunt."

Southwick, a town in the Pioneer Valley near the Connecticut border, is about 100 miles southwest of Boston.

It is not far from where Israel was to report to federal prison on June 9, the day his GMC Envoy was found parked on a bridge above the Hudson River, its engine idling and the words "suicide is painless" etched in dust on its hood.

Israel, who co-founded Connecticut hedge fund Bayou Group, in 2005 pleaded guilty to a scheme to fabricate returns and cheat investors out of $450 million. He was sentenced in April.

The scion of a prominent New Orleans family, Israel had told investors, including Mets baseball team owner Fred Willpon, that he had years of experience in hedge funds.

Ten days after Israel disappeared, authorities arrested his girlfriend on charges of aiding and abetting his disappearance. She admitted to helping Israel pack his belongings in a recreational vehicle and attach a blue motor scooter to the back, and driving him on the day he vanished.

Bayou's collapse still ranks as the hedge fund industry's longest-running fraud, with Israel and his partners fabricating performance numbers and making 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.

The U.S. attorney who prosecuted Israel said on Wednesday $115.6 million of the funds have been found and will be returned to harmed investors.

(Additional reporting by Svea Herbst-Bayliss in Boston, Editing by Jason Szep, Leslie Gevirtz)

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