THE ISRAELS: How This Legendary Family Went From Coffee Trading To Ponzi Scheming

coffee trade dock

Photo: flickruair01

This week, Dealbook’s Andrew Ross Sorkin caught up with convicted Ponzi schemer Sam Israel, and it reminded why his story is so crazy.It’s not because he faked his own suicide or hid from the cops.

Israel’s story is crazy because he didn’t have to run the scheme in the first place. He came from one of the most powerful families in New York City.

The Israel’s founded a commodities trading powerhouse that made millions from America’s addiction to coffee and socialized with the famous and wealthy of New York.  

The family commodities trading business was created by Leon Israel in 1898 and after nearly 80 years, morphed into companies that you have definitely heard of.  

Samuel Israel III’s great-grandfather, Samuel Israel, was Leon Israel’s brother.  He too was a coffee trader and worked closely with his brother in the coffee import business.  

Here’s their story.

In the late 1800s, New Orleans became a coffee trading hub.

During the late 1800s, Coffee importers wanting access to the middle of North America via the Mississippi River, began to import their product through New Orleans. Before New Orleans became a coffee importing hub, New York was the only major coffee importing port in North America.

Coffee importing was risky. Not only did the buyer have to travel to South America, but they had to maintain contacts and negotiate with often law-less coffee growers.

Source: Louisiana State Museum

Leon Israel entered the New Orleans coffee trading business in 1898.

In 1898, Leon Israel began to import coffee from South America to New Orleans. The famous Magazine Street district in New Orleans became the coffee trading hub.

Several of Leon's brothers, including Samuel Israel III's grandfather, Sam Israel, found work in Leon Israel's coffee trading business.

Source: The New York Times

When a yellow-fever epidemic hit New Orleans, he made a huge profit by going through New York.

In 1905, a yellow-fever epidemic hit New Orleans. This limited imports through the city because ships refused to dock and unload their goods. This created a shortage of demand, but allowed for huge profit making for those selling their product through New York.

Source: Louisiana State Museum

He then expanded his firm to Brazil, improving control of prices and supply.

Leon Israel soon owned a corporation in Brazil which grew coffee, giving him more control of import prices, quality and supply reliability.

Source: The Reading Eagle

Leon Jr. was born in 1906 and would become one of the best coffee traders in history.

Leon Israel's son, Leon Junior, was born in 1906 in New York City. He learned from his father about the coffee business and how to be a world class trader.

Leon attended the Wharton School at the University of Pennsylvania before going to work at Leon Israel & Sons.

Source: The New York Times

He expanded operations expanded to New York, where Israel could connect with more buyers and could monitor the market more closely.

Leon Israel decided to open up a trading office and warehouse in New York in 1913. An operation in New York gave Israel better oversight of the North American market and connected his company with more coffee bean distributors.

Source: The New York Times

Because of that move, Leon Israel Jr. became huge in the coffee trade, presiding over important boards throughout his life.

Leon Israel Junior went to work at the New York Coffee and Sugar Exchange in 1929 and served on the Coffee and Sugar Exchange board of directors from 1949 until 1963.

He also served as president of the New York Coffee and Sugar Clearing Association from 1964 to 1967. From 1963 to 1965, Leon served as the president of the Green Coffee Association of New York.

Source: The New York Times

Leon Israel married Audrey Hollander in 1935.

Leon Israel Jr. married Audrey Hollander in 1935, the daughter of the heiress of Sunny Brook Distillery and a famous London and New York lawyer. The marriage brought together two very wealthy New York families.

Source: The New York Times

Samuel Israel III was born into the now very wealthy family in 1959.

In 1959, Samuel Israel III was born into the now wealthy family. His father, Larry Israel, was Samuel Israel Sr.'s grandson.

Samuel III grew up in New Orleans and his family moved to New York when he was 16 years old.

Sam spent his childhood in the New Orleans neighbourhood of Audubon Place, where homes today cost north of $5 million. The neighbourhood was guarded by Blackwater security guards following Hurricane Katrina to protect the homes from looters.

Source: CNBC via YouTube, The Guardian

By the 1970s, the Israels' operations expanded to five continents. The family had invested in private equity opportunities, building a drug store empire.

Beginning in 1956, the Israel family began to invest in direct private equity opportunities when they purchased 11 drugstores in Ohio. The drugstores merged with the NYSE traded Peoples Drugstores Inc. in 1976.

During the eight years following the merger, the Israel family helped to lead Peoples Drugstores to become the fifth largest drugstore chain in the U.S.

By the 1970s, Leon Israel's company was based in New York and operated 19 offices on five continents.

Source: Ingleside Investors, The New York Times

It was at this point that the Israels also became New York socialites.

During the 1970s and 1980s, the Israel family socialized with New York's elite. Israels were commonly seen with the CEO of Citigroup Sandy Weill, the CEO of CBS Larry Tisch and the Chairman of the Federal Reserve, Alan Greenspan.

Source: CNBC via YouTube

And the company expanded into a variety of other commodities like sugar, rubber, gold and grain. The name changed to ACLI.

Leon Israel's company changed its name in 1971 to ACLI, when Leon's cousin, Adrian C. Israel became president of the company.

During the 1970s, the company expanded and became a market moving commodities trading house in green coffee beans, sugar, rubber, cocoa, grain, steel, gold and currencies.

Source: The New York Times

In 1981, Leon Israel Jr. passed away.

Leon Israel Jr. passed away in 1981, at the age of 75. He had grown his father's coffee trading company into a world class and Wall Street renowned commodities trading house.

Source: The New York Times

Soon after, ACLI merged with investment bank Donaldson, Lufkin & Jenrette.

Soon after the death of Leon Israel Jr., ACLI international was acquired by Donaldson, Lufkin & Jenrette in 1981.

ACLI had become a multibillion-dollar commodity and security brokerage firm and Donaldson, Lufkin & Jenrette was Wall Street's seventh-largest publicly held securities house. The deal was valued at $42 million dollars in 1981.

Source: The New York Times

In 1982, Samuel Israel III went to work on Wall Street.

Wanting to prove to his wealthy and successful relatives that he too could make it, Samuel Israel III, the great-grandson of Leon Israel's brother, went to work on Wall Street in 1982. He would float around firms for over a decade before launching his own hedge fund in 1995.

Source: CNBC via YouTube

And the family made tons of money selling their holdings.

Both Peoples Drugstores Inc. and parts of Donaldson, Lufkin & Janrette were acquired in 1984.

Following the transactions of 1984, what remained of the A.C. Israel Enterprises Inc. became known as Ingleside Investors, a financial holding company.

Source: Ingleside Investors

Parts of the Israel's commodities trading business was sold to Lehman Brothers.

Beginning in 1984, Donaldson, Lufkin & Janrette began to sell portions of ACLI as DLJ began to focus on financial services, capital markets and investment banking activities.

In 1985, Donaldson, Lufkin & Janrette sold ACLI Metals to Shearson Lehman, which is the now defunct investment bank Lehman Brothers.

Sources: The New York Times

10 years later, Sam Israel launched his own shop, Bayou Hedge Fund Group . It was a total Ponzi scheme.

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.

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 was addicted to living large and spent beyond his means.

Sam Israel III needed a home that could make a statement, so he rented this Mount Kisco, NY estate from Donald Trump for $32,000/month.

Source: The New York Times

He even tried to move into H.J. Heinz's old estate.

Just before the collapse of Sam's Bayou hedge fund, he planned to move into the Bedford, NY home of ketchup mogul H.J. Heinz.

Source: marie claire

It all came crashing down with his arrest in 2005. It brought the prominent family great shame.

Samuel Israel III brought great shame to his family's name in 2005 when his Bayou Hedge Fund Group collapsed and was accused of operating a Ponzi scheme.

From 2004 to 2008, Samuel Israel was front page news as he faked his own suicide and fled from authorities. He was even featured on America's Most Wanted.

Source: The New York Post

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