The Trade So Bad, He Faked His Own Death

In June 2008, a Wall Street money manager staged his own death. He drove an SUV from his home in Armonk, New York to Bear Mountain Bridge. He parked the car and stepped out, peering down at the Hudson River flowing beneath him. It's a 155-foot drop, but he doesn't jump. He walks back to the car and uses his finger to write suicide is painless on the dusty hood. And then he vanished. This, of course, was only the beginning. All that was found was his vehicle parked atop a 150-foot tall bridge. It appeared he might have killed himself, but tonight federal authorities think he staged the whole thing and they've launched a global manhunt. Shockingly, the fake death and investigation that followed are not even the most interesting parts of Samuel Israel's life. What baffled me were the reasons why he did it. The financial schemes, fake accounting firms, and a web of shady international transactions that until Bernie Madoff took the spotlight, culminated in the biggest hedge fund fraud in history. It's the late 1990s and the internet revolution is in full force. The stock market is booming and lots of everyday people are becoming rich at a rate faster than ever before. But they mostly got there by riding the wave of tech stock popularity, and now needed a professional to manage their small fortunes. One of those money managers is Samuel Israel III. He comes from a very wealthy family that had spent generations making money in the commodities markets. But Samuel wanted to go another way, and so after dropping out of university, he went to work as a stock trader on Wall Street. In 1995, he sees all of the money being thrown around in the stock market and decides that he wants a piece of the action. He creates Bayou Fund LLC and hires Daniel Marino as his chief financial officer. To attract clients, he lies about how successful he was at previous jobs. We've all done this to some degree, but over-exaggerating your returns is a big no-no, and some of the early prospective investors called his bluff. They spoke to former employers, asking about his experience as a trader, and whether they thought he should manage their money. They were not impressed by what they heard, and refused to let Samuel manage a single dollar for them. But Samuel persisted, pitching more investors with a promise of 1-3% returns every month by using a unique trading system he had developed. And he was able to convince some clients to hand over about a million dollars for the fund's 1996 debut. Every time the fund bought or sold a stock, the transaction first went through a broker-dealer called Bayou Securities, which Samuel also owned. This is like a middleman between the fund and the actual brokerage firm that executes the trades. The fund paid commissions to Bayou Securities, and then Bayou Securities paid the commissions to the brokerage firm for executing the trades. Bayou Securities, this middleman firm owned by Sam, basically did nothing, but it was a great way to lie about his investment performance. In 1997, the fund was barely profitable, so Bayou Securities rebated all of the trading commissions back to the fund, making its profits look bigger than they actually were. This is sometimes called round-tripping. It's an accounting trick that made it look like his secret trading strategy was working, when it wasn't. The next year, the fund suffered a huge trading loss. No amount of accounting trickery could hide it, so Samuel just blatantly falsifies the financial statements. To make the statements look legit, he created a fake accounting firm called Richmond Fairfield Associates and hires them as an auditor. Therefore, to prospective investors, Bayou looked like a highly profitable fund that had been carefully scrutinized and assessed for any fraud, and so many invested. This cycle continues for a number of years. Lose money trading, make up fake financial statements that show a profit, slap an audit signature on them, and use that to attract new investors. A good old-fashioned Ponzi scheme. It's estimated that the fund lost around $55 million in its first six years, despite reporting profits every year in their financial statements. In 2004, they told clients the fund made $54 million in profits from trading. Ironically, about the same amount of money that he had secretly lost. The shocking truth was that Sam didn't trade at all for most of 2004. By now, investors had given him about $300 million, which was supposed to have grown to about $410 million, when in reality he had lost most of it in previous years, and embezzled some to pay for personal expenses, like the $32,000 a month residence he rented from Donald Trump. Samuel's full attention was now on maintaining the facade of success. If his investors lost confidence and asked for their money back, he would be exposed. Sam became desperate, and was engaging in all kinds of weird attempts to recoup the losses. According to an account in the book Octopus, he came in contact with a man that claimed to be a CIA agent. The man offered him an opportunity to invest in secret bonds that were only traded on a so-called shadow market. He gave the man $10 million, and never saw it again. In April of 2004, Sam made one final attempt to save the fund. A convoluted scheme that's sometimes called a prime bank instrument fraud. It's where money is wired through several fraudulent accounts, each controlled by different fraudsters. Each time the money is moved, it's described as a new investment, and so when the money never comes back, each fraudster along the chain can just claim to be a victim of the next fraudster. Sam started the scheme by withdrawing $161 million from Bayou accounts in New York, and wiring the money to a Barclays bank in London. A few days later, the money was wired back to Samuel, and then some of it was wired through two German banks, then a trading account in London, then Hong Kong, then back through a couple US banks, and finally stopped in Arizona. Along the chain, Samuel also wired about $30 million to an unknown location in the US, which was likely an attempt to steal the last bit of money before it was gone. In early 2005, everything came crashing down in spectacular fashion. Some investors attempted to withdraw their money, but were faced with repeated delays and excuses. In July, Samuel tells his clients that he was shutting the fund down, and that their money would be distributed back on the 15th of August. When the date rolled around, nobody received their money. Silver Creek Capital Management, one of his clients, called the Bayou offices demanding their $53 million back. No one answers the phone. Another investor went down to the Bayou offices to confront Sam in person, but he found the place deserted. All that was left was a note written by CFO Daniel Marino that confessed Bayou was a fraud. Unsurprisingly, a number of clients alerted the authorities, but it wasn't news. The Commodities Futures Trading Commission, the SEC, and the Justice Department were already months into an investigation. It turns out that an Arizona bank had flagged a $100 million deposit back in May. Money that could be traced back to Samuel's accounts at Citibank. On September 1st, federal prosecutors sued Samuel and the Bayou funds for defrauding investors. Later that month, authorities dropped the hammer. The CFTC filed a civil complaint with similar allegations. The SEC also filed a civil suit. And the United States Attorney for the Southern District of New York filed criminal fraud charges against Samuel Israel and Daniel Marino for defrauding investors out of $450 million. The biggest hedge fund fraud in history. The two Bayou fraudsters pled guilty immediately. Conspiracy, investment advisor fraud, mail fraud, and Marino with an additional wire fraud charge. They were each sentenced to 20 years in prison in April 2008. This should have been the end of the story, but we're not even at the climax yet. Samuel begged the courts to give him a few extra months of freedom, citing urgent medical issues. Apparently, after undergoing nine back surgeries, he had developed an addiction to painkillers. Judge McMahon allowed it, ordering him to surrender to prison on the 9th of June. And thus, Samuel Israel begins plotting his escape. About a week before his prison sentence is set to begin, Samuel purchases an RV, a white 2007 Coach Freelander. He installs a television and outfits it with a mattress. Around the same time, he buys a blue 2005 Yamaha scooter, and he has a number of fake identification documents made up for him. One of the IDs uses an alias, Sam Ryan, a very obvious combination of his first name and the last name of his girlfriend, Deborah Ryan. Samuel tells her about his plan, including how he will fake his own suicide, and she's willing to help him do it. On the 7th, just two days before his surrender date, she meets him at an auto repair shop, and together they attach the motor scooter to a hydraulic lift on the back of the RV. In the early hours of the 9th of June, Samuel hops into the RV, and drives it out of Armonk and onto the I-684 highway. His girlfriend, Deborah, is following behind him in her own car. As they approach the I-84 intersection, they pull into a truck stop. Samuel parks the RV. He figures that police will be swarming all over his house once they realise he's not showing up to prison. He leaves the RV and drives back home with his girlfriend in her car. When they arrive, Samuel says goodbye to Deborah, gets in his red GMC SUV, and sets off towards Bear Mountain Bridge. The clock strikes 9.30. All the way across state lines at the Federal Medical Centre in Devons, Massachusetts, staff are expecting to see Samuel arrive. But he never shows. They contact the NYPD, and police are sent straight to his Armonk residence. Deborah is interrogated, and she denies knowing where he is. However, it doesn't take long for police to find the SUV. His car was found abandoned on this bridge high atop New York's Hudson River. With the message, suicide is painless, written in dust on the hood. A team is deployed to search the Hudson for his body. No witnesses in the immediate area saw anyone jump into the water. In a follow-up interview the next day, Sam's girlfriend reveals she found a suicide note that he had left behind. She's not very convincing, and just a few days later, CCTV footage confirms police suspicions. It shows Samuel's SUV pulling up to the bridge on the 9th, and then shortly after, another car pulls up. Someone had picked him up. Tonight, federal authorities think he staged the whole thing. It's now been over a week, and Deborah has been relentlessly interrogated. They tell her that she'll face up to 10 years in prison if she doesn't cooperate. And she cracks. On the 20th of June, Deborah Ryan is charged with aiding and abetting, and a full-blown manhunt gets underway. He's even placed on the U.S. Marshals' Top 15 Most Wanted list. U.S. Marshals have issued this wanted poster stating Israel should be considered armed and dangerous. One federal official telling CBS News there is reason to believe he may be Police fear that he's already fled the country, but he's actually much closer than they could have imagined. He's less than two hours north, parked at a campground in rural Granville, Massachusetts, and running critically low on supplies. Sam knew that his time on the run was coming to an end. He dropped the camper off, plugged in, and got his motorcycle out, and he was gone. On the 2nd of July, at around 9.30am, a motor scooter pulls into the Southwick Police Station. It's Samuel Israel, surrendering himself after 23 days at large. Still, the judge in the case says he must forfeit his $500,000 bail. He's also facing an additional 10-year sentence for failing to report to prison. A year later, in July 2009, Samuel Israel was sentenced to an additional He was incarcerated at the Federal Correctional Institution in Butner Low, which ironically puts him right alongside Bernie Madoff. Just a month prior, Madoff was sentenced to 150 years for committing the largest known Ponzi scheme in history. Sam's girlfriend, Deborah Ryan, received just three months probation due to her help in cooperating with the investigation. The investors will receive checks very soon from the $116 million that the government has. They'll probably get more checks later. The victims have still not recovered their losses. By 2013, about $128 million in seized assets and restitution had been paid back, a fraction of the $450 million allegedly stolen. Also, just a funny side note, some of the investors who withdrew money from the fund before it collapsed were forced to repay that money, even though they had no idea it was a Ponzi scheme, the Justice Department considered those profits to be proceeds of crime. And you, watching this right now, I sentence you to one count of hitting the subscribe button. Thanks for watching.