Bayou Hedge Fund faked its returns, faked its auditor, then faked its founder's death

Bayou Hedge Fund Group was founded in 1996 by Samuel Israel III, who started with $600,000 from outside investors. The fund claimed consistently strong returns, reporting assets in excess of $450 million by mid-2004. But the returns were entirely fabricated. After poor trading in 1998, Israel began lying to investors about the fund's performance and never stopped.

To cover the fraud, Israel created a fake accounting firm called Richmond Fairfield Associates to produce misleading audited results. The firm had no real accountants and no real office — it was just a name on paper. By 2004, Israel and CFO Daniel Marino stopped trading altogether and spent all investor money on covering losses, withdrawing $161 million from bank accounts and wiring $100 million overseas.

The fraud unravelled in July 2005 when a skeptical investor began questioning the fund's auditor. Israel shut down the fund. When the investor returned to Bayou's office to pick up a redemption cheque, he found an empty office and a note from Marino admitting the fraud. Israel pleaded guilty and was sentenced to 20 years in 2008. On the day he was to report to prison, he faked his death by leaving his car on the Bear Mountain Bridge. He turned himself in three weeks later.