The Crazy Story Of Samuel Israel, The Ponzi Schemer Who Faked His Own Suicide And Sparked An International Manhunt

sam israel

Photo: YouTube

When people are discussing Ponzi Schemes, infamous villains like Nevin Shapiro and Bernie Madoff tend to get most of the attention.But no one should forget about Samuel Israel III, a man who ran a $450 million Ponzi scheme in New York during the late 1990s and early 2000s.

Dealbook’s Andrew Ross Sorkin wrote a profile on him that came out today and reminded us of Israel’s story.

Mr. Israel’s journey from Wall Street newbie to hedge fund manager on the run, recently ended in a North Carolina prison. And, in a few weeks, a book about Israel’s wild ride of a life will be available, titled Octopus: Sam Israel, the Secret Market, and Wall Street’s Wildest Con by Guy Lawson. 

Israel was born into a trading family in New Orleans.

Samuel Israel III's grandfather, Samuel Israel, built a small commodities trading firm into ACLI international, a firm that would sell for $42 million in 1981. ACLI Metals would later be purchased by Shearson Lehman in 1985.

Source: The New York Times, The New York Times

Though his family was illustrious, but he didn't graduate from college.

When Samuel Israel III was 16, his family moved to Harrison, N.Y. from Louisiana.

He attended the private Hackley School in Tarrytown, N.Y. and Tulane University. But he didn't graduate from college.

Sources: Bloomberg, The New York Times,

Instead he went to work — as a trader at a variety of firms in the 1980s and 1990s.

In 1982, Samuel left New Orleans for Wall Street. He would work as a trader for a few different firms during the 1980s and early 1990s. He would even learn from Leon Cooperman, while working at Cooperman's multibillion-dollar hedge fund Omega Partners.

Sources: The New York Times,

After learning from greats like Leon Cooperman, Israel opened his own hedge fund called Bayou in 1995.

In 1995, Mr. Israel would establish his own hedge fund in Stamford Conn. called the Bayou Hedge Fund Group.

Source: The New York Times

From the start, he lied to potential investors in order to fund-raise.

While trying to raise funds for his new hedge fund, many potential investors claimed that Mr. Israel inflated his resumè and over exaggerated his at former hedge funds, including Omega Partners. Many potential investors were turned off after checking with Israel's former employers, including Mr. Cooperman at Omega Partners.

Source: The New York Times

He lived far beyond his means, even renting a house from Donald Trump for $32 K a month.

In 1996, Mr. Israel was able to successfully raise $300 million from investors.

The trading floors within Bayou's office were quite lavish. They were high-tech and even featured aquariums with exotic snakes.

Israel also lived in a $32,000/month house he rented from Donal Trump in Mt. Kisco, N.Y.

Source: The New York Times

Bayou used fake accounting firms to hide Israel's $55 million in trading losses between 1996 and 2002.

In 1998, Bayou suffered heavy losses. To hide them from his curious investors, Bayou created a fake accounting firm called Richmond Fairfield to audit their financials.

Between 1996 and 2002, Israel's trading losses cost the firm roughly $55 million.

Source: The New York Times

He described himself as a short-term stock trader who expected returns of 1-3% per month.

He wasn't saying he was the best in the business, and that made him even more believable.

Sources: Bloomberg,

In 2004, Israel drained Bayou's accounts of $161 million in 6 days but told investors everything was fine.

In July of 2004, Mr. Israel drained five of his firm's bank accounts at Citibank over the course of six days. The total withdrawals totaled $161 million.

That September, Israel told his investors that the firm's four accounts had more than $400 million.

During late 2004 and early 2005, Israel would wire the money between several different banks on a couple of different continents as he tried to hide the money he stole from authorities.

Sources: The Wall Street Journal

Bayou finally closed its doors in 2005.

In July of 2005, Mr. Israel finally announced plans to close the firm and to distribute the funds to his investors. After that, he immediately dropped out of contact with his investors and disappeared.

Bayou ultimately collapsed in August of 2005 when the Seattle-based fund Silver Creek Capital Management demanded to withdraw their invested $53 million.

Source: The Wall Street Journal, Bloomberg

The CTFC charged Bayou with fraud and misappropriation in 2005.

The U.S. Commodity Futures Trading Commission filed a complaint in the U.S. District Court for the Southern District of New York on September 29, 2005 alleging misappropriation and fraud involving the Bayou Hedge Fund Group.

Israel plead guilty in 2005 and Bayouy filed for bankruptcy in May of 2006.

Source: The CFTC, Bloomberg

Israel tried to use ill health and drug addiction as an excuse for leniency during his trial.

While in court, his defence lawyers used his poor health as a source for leniency. Israel had undergone nine back surgeries, had been addicted to pain killers and had a pacemaker.

Source: Bloomberg,

But he was ordered to serve a 20 year sentence in June of 2008.

On 14 April 2008, Israel received five years in prison for conspiracy, five years for investor fraud and 20 years for mail fraud. It was one of the most severe punishments for a white collared crime since the Enron collapse.

After the sentencing, the judge let Israel free remain free until his June 9, 2008 surrender date and his punishment reduced to 20 years.

Sources: Bloomberg, DealBook

On June 9, 2008 Israel faked his own suicide.

The day Israel was due to surrender to authorities for his sentencing, he faked his suicide. He wrote 'Suicide is Painless' in the dust on the hood of his car and parked it on the Bear Mountain Bridge just north of New York City in Westchester county.

Source: DealBook

Since no body was found, the entire world went looking for Israel and everyone was talking about his disappearance.

He hid on a camp ground in Massachusetts for a month before he surrendered.

On July 2, 2008, Israel arrived at the Southwick, Massachusetts police station on a motorised scooter and surrendered himself. He had been living at a local campground since his faked suicide almost a month earlier.

Reasons why he gave up? Drug addiction, shame for his family, and (perhaps) the fact that he saw himself featured on America's Most Wanted.

Source: Bloomberg, DealBook

Today Israel is serving time in the same prison as Bernie Madoff.

Today the 52 year-old, is serving his time in a Butner, N.C. prison. The same prison where Bernard Madoff is currently serving his sentence.

A book documenting the crazy life of Samuel Israel III is scheduled to release shortly. It is called Octopus: Sam Israel, the Secret Market, and Wall Street's Wildest Con by Guy Lawson.

Source: DealBook

We imagine Israel might get along well with another Ponzi Schemer who went on the run...

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