Mystery of the missing millionaire

Dennis Murphy Correspondent • Profile

NEW YORK CITY - No one knows for sure why the story of Sam Israel III found its way to Bear Mountain Bridge. Israel was a millionaire living the high life. He had a boat, a nice house, and some cars.

Suddenly, he was at the center of a mystery high up above the Hudson River. High noon, one bright spring day, Wall Street financier Sam Israel was gone.

Dead or alive?  No one knew for sure. Also missing was about $300 million of investor’s cash.

Had it been a bad day on Wall Street, or an elaborate con?

To understand the spectacular rise and precipitous fall of Sam Israel III, presumably from a bridge over the Hudson River, is to accept that for many Americans, in the last decade, being merely rich just didn’t cut it anymore.

You weren’t a player unless your private jet had non-stop range to the south of France, where your captain sometimes anchored your 200-plus foot yacht before you returned to your 35-room estate in Greenwich, Connecticut, with its garage full of exotic wheels.

This giddy era, before the market’s recent swan dive, was dubbed “the new gilded age” and some of the young men becoming as rich as any Rockefeller or Andrew Carnegie of days past were masters of something known on Wall Street as a "hedge fund."  Top hedge fund managers have been reported to make anywhere from $100 million to a billion dollars a year. They do it by making already wealthy people and institutions even richer.

Someone who wanted in on the hedge fund action in the worst way was Samuel Israel III. He was a Wall Street guy who’d worked his way up here and there in the ‘80s and ‘90s as a trader.

His kin, the Israel family of New Orleans, had built from scratch one of the largest trading companies in America— sugar, cocoa, coffee, turning themselves from immigrants to old money in the space of three generations.

So when Sam III set up his own hedge fund in 1996, he had the best assets any aspiring trader could hope for—family connections.

CNBC’s Maria Bartiromo: Sam Israel had access to a lot of big hitters having come from business.  He knew that the people around him in his circles had a lot of money. 

A hedge fund, like the one Sam Israel was starting up, is like a private club for wealthy investors. It usually takes a million dollars to get in the door.

And the very best hedge fund managers are a high priesthood of brilliant traders. They place complex bets that can pay off handsomely, even when others are losing their shirts.

Bartiromo: When you invest in a hedge fund you are not investing in a name of a company, you are investing in the individual running it.  And I think that was the case for of Sam Israel.

He called his hedge fund “Bayou” evoking his N’awlins heritage, and all those savvy traders who’d come before him.

Randy Shain, investigator: He was playing on his pedigree as being, “This is my grandfather and my great-grandfather, my father, and now me..”

Randy Shain is a kind of Wall Street private eye. He runs a business that checks out hedge funds for prospective investors.

Shain: That was his whole pitch.

Dennis Murphy, Dateline correspondent: "I am a rooted person, I am of this industry."

Shain: Correct. "Trading's in my blood. I can do it."

Bartiromo: He had access to some of the great investors around who believed him, trusted him, and gave him money to invest.

And it appeared that trust was well-placed. In the years to come, in boom times or bust, Sam Israel’s Bayou Fund always turned a profit.

More savvy investors anted up and by 2003 he was day trading with hundreds of millions of dollars.

With success came reward, and some perks of an outsized, hedge fund manager lifestyle. The divorced father of two lived in this mansion outside New York City. He rented the estate from none other that Donald Trump for a cool $32,000 per month.

Across the country and across the financial universe was John Seigesmund, a Denver attorney.  Well-off, thank you very much, but more apt to collect guitars than bling sports cars.

Murphy: He put you on the map for where you are personally? Are you, "Do I take the Porsche today or the Ferrari?" 

John Seigesmund, attorney and investor: Oh, no. We are comfortable but I would describe us as upper-middleclass. 

John and his wife had put aside a sizable retirement nest egg but in 2003 their money was just doggy-paddling in a ho-hum stock market.

Seigesmund: It was either flat or drifting lower.  So, I was looking for some alternative investments.

As a devoted watcher of CNBC and finance gurus like Jim Cramer, Seigesmund knew that there were hedge funds out there making truckloads of money for rich investors.

But for him, they seemed too risky and too expensive.

Seigesmund: They were just in a different world.  They were for people with a lot more money.

Then Siegesmund read about the Bayou fund in a popular investment newsletter. As hedge funds go, Sam Israel’s was more conservative than most, and...

Seigesmund: It's unusual because you can get in for $250,000.

Murphy: Rather than a million.

Seigesmund: Rather than a million. [$250,000 was] a number which was still a thinker for me but now within the realm of reason—as opposed to a million, which was not.

A Bayou salesman promptly dispatched a glossy pitch packet.  Inside was a glowing write up from a well-known investment advisor, describing Sam Israel’s trading genius.

Seigesmund: And said all the right things, like, “You have to understand.  If you invest in Bayou, you’re pretty much investing with Sam Israel.  It’s his talents that are making this work. He’s the guy, he knows what he’s doing.

Murphy: So, the fund looked attractive, the amount to get in looked attractive, and this guy seemed to have a hot hand.

Seigesmund: Exactly.

Murphy: Conservative bets... which is what you wanted.

Seigesmund: Exactly what I wanted. 

So in early 2003, five years before the mysterious events on that Hudson River Bridge, John Siegesmund was sold on Sam Israel III.

Seigesmund: And then I wrote him a check.  And I remember I sat in my office. I can see myself doing it right now, writing out a check for $250,000 and thinking, “This is either the smartest thing I’ve ever done, or the dumbest thing I’ve ever done.”

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