Mystery of the missing millionaire

Denver attorney John Siegesmund had put his faith and a chunk of his money in the hands of hedge fund manager Samuel Israel III.

And, for a time, it seemed like the smartest investment of his life too. 

Investors got weekly updates emailed from Sam Israel, and the news was almost uniformly good.

Bayou was like Goldilocks: Not too much, not too little, just right.

John Siegesmund, investor: Sometimes they’d be down a little bit, sometimes they’d be up a little bit.  But it was slowly moving up, which is exactly what I wanted. 

Dennis Murphy, Dateline correspondent: So for a couple of years this thing is ticking along very nicely.

Seigesmund: Wonderful. Yeah, it’s great.

Murphy: “We’re up a little, we’re down a little, but life is okay.”

Seigesmund: I thought about putting more money in.

And he wasn’t alone. Randy Shain, who does background checks on hedge fund mangers, says that over the years several clients contacted his company to say they were thinking about investing with Sam Israel. 

Randy Shain, investigator: Clients are coming to us and saying, “We’re looking to see whether this person is who they say they are, whether they’ve been honest, whether they’ve been sued or what their character might be.”

Murphy:  Why do you need to have your own detectives?

Shain: When you’re looking at investing $5 million, $10 million, or $20 million into someone where you’re basically counting on their reputation and their track record to insure the success of that investment, it behooves you to check into those things.

But while many new investors were pouring into Bayou based on its steady profits, Randy Shain was less than impressed by what he was learning about Sam Israel.

Right off the bat, Shain uncovered a small but perhaps telling detail from Israel’s storied New Orleans past.  He had attended Tulane University where—by the way—there’s a Samuel Israel building named for his grandfather.  But Sam the 3^rd had never actually graduated from college.

Shain:  There are plenty of industries where schooling doesn’t matter. This happens to be one that in my opinion, it does.

And Shain says that just the start: He learned that Sam Israel had exaggerated  his professional resume, fudging dates and overstating his responsibilities for one key job in the bio he sent out to prospective investors. 

And back in the early ‘90s, the up and coming Wall Street whiz had been sued for not paying rent on an apartment in a Manhattan high-rise.

Shain: Which is very odd. At that point, he was then mid-30s. He’s not a 22 year old kid who’s out of school and who takes an apartment with his buddies, and they can’t pay.  This is a guy who’s proposing to run a hedge fund. This is just prior to his financial history just prior to that.

Also in the category of behavior unbecoming to a trusted money-manager, in 1999, three years into running the Bayou Hedge fund, Israel had been arrested for drunk-driving—and cops say illegal drugs were found in his car.

Shain: Again, it speaks to judgment when you’re in your 20s sometimes, people will forgive that, but not when you’re 40.

But perhaps most troubling of all was this... a lawsuit from 2003 that hinted at book-keeping problems inside the multi-million dollar hedge fund.  A Bayou employee claimed he was fired for asking too many questions.

Shain: Essentially, what he was saying was, “There’s a $7 million money capital account.  The money’s gone. Where is it?”  That’s when he approaches Sam Israel and says, “What’s going on with this?” Israel doesn’t answer him. 

Murphy: Whoops.

Shain: And then they fire him. 

At the time, Israel said those were fabrications from a disgruntled ex-employee and the lawsuit was later settled.

But to private detective Randy Shain, who says he’s checked out perhaps a thousand hedge fund managers, something seemed not quite right with Samuel Israel III.

Murphy: You personally, would you have loaned this guy $100 bucks? Told him to invest it for you? 

Shain: I would have been as far away in the other direction. 

And yet, what did any of it matter when Sam Israel’s fund was clearly doing well. By 2005, the total investments in Bayou were around $300 million plus profits.  And despite the book-keeping allegations in that lawsuit, the Bayou ledgers were checked out and certified each and every year by Richmond Fairfield Associates, a New York City accounting firm.

And according to those faithful account updates, John Seigesmund’s $250,000 investment was now worth a good deal more.

Seigesmund: $336,000, so I was up about $86,000.

Murphy: So, that’s good.

Seigesmund: Oh, that was fine.

So it was with surprise and a little disappointment that in the summer of 2005 John Siegesmund greeted this letter from Sam Israel III.

Seigesmund:  The letter says basically—“It’s been a great run, but I regret to tell you that I’ve decided to fold up Bayou because I wanna spend more time with my family.” “It’s been swell but it’s time to say goodbye. And the checks will be in the mail soon.”

Murphy: So, “the check is in the mail.”

Seigesmund: The check was promised to be in the mail.

The promised date came. And the promised date went. No check arrived.

Seigesmund: I’m thinking, "Huh?" And so I pick up the phone and I call Bayou, which I’d done dozens of times over year.  And there’s no answer.

Murphy: Does it go to voicemail?

Seigesmund: It goes to voicemail. And the voicemail box is full.  And I think, “Ahhh… this can’t be good.”

That something was NOT GOOD at Bayou would turn out to be more than a slight understatement. At the time, there was no clue where the money troubles at the hedge fund would lead. Before it was over, there’d be reports of suicide, an international manhunt, and a mystery set high up above the Hudson River.

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