Mystery of the missing millionaire

Federal prosecutors had been handed a gift in the form of a suicide note written by an accountant inside Sam Israel’s Bayou Hedge Fund. 

And as if to make thing even easier, the accountant hadn’t actually killed himself, but was now talking to the Feds about crimes he’d laid out in his 6-page mea culpa. It outlined hundreds of Bayou investors bilked out of around $300 million.

Dennis Murphy, Dateline correspondent: That’s really a blueprint for the fraud, isn’t it?

Ross Intelisano, attorney: Absolutely, and the government used that as a blueprint to prosecute them.

Sam Israel had been lying low for weeks, but once the bad news about Bayou made headlines, his attorneys got in touch with federal prosecutors, and soon Israel turned himself in.

In September 2005, he pleaded guilty to 3 counts of federal investor and mail fraud.

For Sam Israel III, the new gilded age had ended early.

Maria Bartiromo, CNBC Anchor: You’re living the high life. And then it’s gone because you were living it on a lie.

It was now up to a federal judge in New York to decide what exactly to do with him. Would it be a white-collar slap on the wrist?

Not if investors had anything to say about it.

John Seigesmund, investor: The guy belongs in jail.

John Siegesmund sent a letter to the judge handling the case asking her to put Sam Israel away for a very long time.

Seigesmund: As I said in the letter, nobody’s gonna have to eat peanut butter at our house for the rest of our lives. We’re not destitute.  But this hurt. This guy stole $250,000 of my money. That hurts.

There were letters from a few other outraged victims that made it into the court file. But for each of those, there were several more in support of Sam Israel.

Friends and family, mostly connected to his high-society parents back in New Orleans, wrote to the judge begging for mercy.

Those letters, plus a 55-page brief prepared by his attorney, detailed a side of Sam Israel that most investors never knew: He was a lover of animals, a faithful friend. He was also a drug-addict, hooked on prescription pain killers,  the result of  nine serious back surgeries. His friends and family believed the drugs had impaired Sam’s normally good judgment.

And most of all, they uniformly agreed, Sam Israel may have lied to investors, but he was no common criminal.

Sam Israel had pleaded guilty to fraud, but his case for little jail time came down to his intent. Supporters said he’d never set out to steal anything—but was just desperately trying to live up to the respected Israel family name. Problem was Sam was a dismal failure as a hedge fund manager and simply couldn’t admit it.

Bartiromo: I don't know that he had this master plan to defraud investors. But he kept losing money and kept trying to dig himself out of it. And was lying all the way down thinking that he could turn this around. 

Randy Shain, investigator: You could say he’s not a criminal, criminal. He’s just a guy who probably believed in his own investing skills, which clearly was a mistake. 

Leading up to his sentencing, Sam Israel had been living free on bail for more than 2 years, tending to his health problems and cooperating with authorities trying to trace the missing Bayou millions.

So come judgment day in April 2008, he might have thought the odds for leniency looked pretty good. The judge had discretion to give him anywhere from 30 years to just a few months.

Intelisano: He was joking with his lawyers. He had a very big family contingent there which, it seemed like, did not come from New York, and likely from New Orleans. 

Lawyer Ross Intelisano, whose clients lost a combined $25 million, was in the courtroom to hear what Sam Israel had to say for himself.

Intelisano: He talked more about the pressures of being a third generation trader in the Israel family as opposed—

Murphy: The shame brought to the family name, huh?

Intelisano: Exactly, as opposed to apologizing profusely to the investors that he defrauded.

Investors like John Siegesmund whose $250,000 was up in smoke...

Seigesmund: You know, this is not to defend Sam Israel. But, I think he was a massively delusional man.

The judge apparently agreed.

Intelisano: The judge really was laying into him and said that “This is no excuse. Pressure is not being a third-generation trader. Pressure is being a single mother, trying to take care of four kids.” 

During the process of the sentencing hearing you saw him go from this kind of jovial character to sweating bulleting, thinking, “Oh my goodness, I’m going to jail.”

The judge gave Israel 20 years.  Likewise for accountant Dan Marino, whose phony suicide note had exposed the fraud. Those were hefty sentences for white collar crime, on par with the punishments handed down in the massive Enron fiasco.

Intelisano:  I think this was certainly a message that, “If you commit fraud, even if it’s fraud upon wealthy people, you’re going to jail for a long time.”

Not that he’s vengeful, but the news sat pretty well at the Siegesmund home in Denver.

Murphy: Is Sam Israel a thief or just a bum stock picker?

Seigesmund: Oh, he’s a thief. Oh, he’s a thief.  He happens to be a bum stock picker.  But, he’s a thief.

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