The Bayou Hedge Fund Collapse

In 1995 The Bayou Hedge Fund Group, referred to as the fund, was founded by Samuel Israel III in Stamford, Connecticut with the intention to produce high returns for investors. Good intentions were not enough when the fund began to experience losses almost immediately and Mr. Israel resorted to fraudulent activities to keep the appearance of success alive. The resulting life of the fund was filled will illegal, fraudulent, and unethical activities that finally brought the fund to bankruptcy and landed Mr. Israel and some of his key associates in prison. The objective of this paper is to overview the history of the case and to highlight some of the major issues that should have alerted investors and other outside parties to the wrongdoings being perpetrated.

Before the facts and results of the case are presented, it is important to understand what a hedge fund actually is and how they function before the case can be fully understood. According to Investopedia, a website dedicated to building educational content and tools to empower individual investors, a hedge fund is, “An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).” For the most part, these funds are unregulated because they are only intended for sophisticated investors that have the capacity to take on more risk. These investor’s funds are then pooled and managed by the hedge fund (Hedge Fund, n.d.).

Now that the general idea of a hedge fund is understood, what happened to The Bayou Hedge Fund group and Mr. Israel? Mr. Israel was ...

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...ss. As fraudulent audit reports were presented to investors showing above market returns to keep capital coming in, actual losses kept compounding and Samuel Israel could not do anything to reverse them. The situation finally became too dire to handle and the fund entered bankruptcy while Mr. Israel and his two closest associates were sentenced to some of the harshest white-collar punishments of the time period.

Works Cited

Hedge Fund. (n.d.). In Investopedia. Retrieved November 1, 2013

Morgenson, G. (2005, September 17). Clues to a Hedge Fund's Collapse. In The New York Times. Retrieved November 1, 2013

The Bayou Hedge Fund, Sam Israel and the $450 Million Facade. (2008, June 16). In HedgeCo. Retrieved November 1, 2013

Weidlich, T., & Glovin, D. (2008, April 14). Bayou's Israel Gets 20-Year Term for Hedge-Fund Fraud. In Bloomberg. Retrieved November 1, 2013