Receiver Appointed For Bayou's Onshore Assets

by Mike Godfrey, for LawAndTax-News.com, Washington

03 May 2006

Jenner and Block has been appointed as the federal equity receiver charged with seeking recoveries for defrauded investors who invested approximately $450 million in the Bayou hedge fund, which collapsed last year.

Last week, U.S. District Judge Colleen McMahon in the Southern District of New York, appointed Jenner & Block partner Jeff J. Marwil, giving him complete and exclusive control over all of the domestic, onshore Bayou entities’ assets, including causes of action to recover funds for defrauded investors.

His duties will include the identification of Bayou creditors, the pursuit of legal actions for the benefit of defrauded investors, the marshalling of assets, and the eventual distribution of recovered sums to creditors, including defrauded investors.

It is alleged that almost since Bayou's inception in 1996, the funds operated as a massive financial sham and Ponzi scheme, in which investors were lured to to invest approximately $450 million, subsequently pilfered by Bayou's founders.

Samuel Israel III, the founder and chief executive officer of Bayou, and the firm's CFO Daniel Marino surrendered to justice last October and waived their right to have the trial heard by a federal grand jury. Both men went into hiding after Israel wrote to investors in the summer telling them that the Bayou hedge fund was closing and that their money would shortly be returned - a promise that Bayou failed to honour, leaving several investors out of pocket to the tune of more than $1 million.

Bayou used a phony accounting firm to audit its financial statements, which, according to federal prosecutors, contained glaring errors; one entity, Bayou Superfund, reported assets of $192 million and trading gains of $27 million at the end of 2003, when in reality it had a value of $53 million and had lost $35 million.

Mr. Marwil, in his role as receiver, expects to coordinate and cooperate with the receiver appointed in the criminal cases of Bayou’s former executives in administering more than $100 million of forfeited assets, and the liquidators appointed in the Cayman Islands to administer affiliated Bayou offshore entities.

Mr. Marwil, who is also serving as the receiver in another investor fraud case, pledged to be "precise and aggressive in our pursuit and recovery of funds for the benefit of defrauded investors".

"We hope for good results here," he added.

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