U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19692 / May 9, 2006
Securities and Exchange Commission v. Samuel Israel III; Daniel E. Marino; Bayou Management, LLC; Bayou Accredited Fund, LLC; Bayou Affiliates Fund, LLC; Bayou No Leverage Fund, LLC; and Bayou Superfund, LLC, Civil Action No. 05-CIV-8376 (S.D.N.Y. filed September 29, 2005)
In the Matter of Samuel Israel III and Daniel E. Marino, Exchange Act Rel. No. 53775 / May 9, 2006
SEC Obtains Permanent Injunctions Against Samuel Israel III and Daniel E. Marino
On April 19, 2006, in a civil action previously filed by the Securities and Exchange Commission (Commission), Judge Colleen McMahon of the United States District Court for the Southern District of New York entered judgments permanently restraining and enjoining Samuel Israel III and Daniel E. Marino, principals of a group of Stamford, Connecticut hedge funds known as Bayou Funds (Funds), from future violations of the general antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and from future violations of the antifraud provisions of the Investment Advisers Act of 1940 (Advisers Act), Sections 206(1) and 206(2). Israel and Marino consented to the permanent injunctions without admitting or denying the allegations in the Commission's complaint. Israel and Marino had earlier consented to the entry of preliminary injunctions for violations of these provisions.
The Commission's complaint alleges that from 1996 through 2005, during which time investors deposited over $450 million into the Funds, Israel and Marino knowingly misappropriated, dissipated, and lost tens of millions of dollars of their investors' capital. The complaint further alleges that Israel and Marino defrauded their investors by, among other misconduct: fabricating financial statements, account statements, and performance summaries to show false profitability; creating a fictitious accounting firm in 1998 to issue "independent" audit reports that validated the Funds' purported profitability, when in fact the Funds had been highly unprofitable throughout the relevant period; and, unbeknownst to their investors, diverting the Funds' capital in 2004 into investment programs that were, in fact, nothing more than fraudulent "prime bank instrument" schemes.
Under the terms of the judgments entered against Israel and Marino, the Commission may in the future seek disgorgement of ill-gotten gains, prejudgment interest, and civil money penalties from Israel and Marino.
In related proceedings, the Commission today issued an order permanently barring Israel and Marino from associating with any broker, dealer, or investment adviser pursuant to Section 15(b)(6) of the Exchange Act and Section 203(f) of the Advisers Act. Israel and Marino consented to the permanent bars. See Order, 34-53775
The Commission's investigation in this matter continues.