1 00:00:01,840 --> 00:00:04,400 This is a CNBC original. 2 00:00:11,940 --> 00:00:18,400 In this episode of American Greed, Samuel Israel III, the big money hedge 3 00:00:18,400 --> 00:00:22,740 manager. Most good fraudsters and Ponzi schemers in particular are people who 4 00:00:22,740 --> 00:00:27,480 strike all the right chords. Desperate to succeed. He lived through the most 5 00:00:27,480 --> 00:00:29,640 decadent era in human history. 6 00:00:30,040 --> 00:00:34,160 And was a creation of it and was destroyed by it. And the scam that 7 00:00:34,160 --> 00:00:36,140 investors out of $300 million. 8 00:00:37,280 --> 00:00:42,360 Literally within the space of minutes, I had lost $336 ,000. 9 00:00:42,920 --> 00:00:46,300 It all leads to this bridge and a suicide note. 10 00:00:46,660 --> 00:00:49,160 Leaving investigators with two key questions. 11 00:00:50,020 --> 00:00:51,560 Where's the $300 million? 12 00:00:52,260 --> 00:00:53,760 And where's the body? 13 00:00:54,300 --> 00:00:59,060 This was not a person who was thinking clearly, and it was inevitable that it 14 00:00:59,060 --> 00:01:00,160 would come crashing down. 15 00:01:15,860 --> 00:01:17,640 June 9, 2008. 16 00:01:18,400 --> 00:01:22,700 Police search the Hudson River for the body of a former Wall Street darling. 17 00:01:23,310 --> 00:01:27,190 The New York State Police haven't found the body of 48 -year -old Samuel Israel. 18 00:01:27,690 --> 00:01:32,810 Samuel Israel III, once the toast of Wall Street, has fallen mightily. 19 00:01:33,130 --> 00:01:34,890 His hedge fund company is gone. 20 00:01:35,210 --> 00:01:36,610 So is his family. 21 00:01:36,810 --> 00:01:40,410 And hundreds of millions of dollars of investors' money has disappeared. 22 00:01:40,950 --> 00:01:44,670 Israel's GMC Envoy was found abandoned Monday on New York's Bear Mountain 23 00:01:44,670 --> 00:01:49,870 Bridge. Police find his car on the bridge. On it, a haunting message. 24 00:01:50,680 --> 00:01:53,740 The word suicide is painless scrawled in pollen on the hood. 25 00:01:53,940 --> 00:01:59,060 It's a startling end to a bizarre story of success, pride, and ultimately, 26 00:01:59,220 --> 00:02:00,220 disgrace. 27 00:02:01,160 --> 00:02:06,760 Just nine years earlier, Israel and his company, Bayou Funds LLC, are riding 28 00:02:06,760 --> 00:02:09,740 high. The Dow explodes past 10 ,000. 29 00:02:10,080 --> 00:02:11,940 Technology stocks are the rage. 30 00:02:12,220 --> 00:02:15,120 And for savvy investors, money is everywhere. 31 00:02:15,870 --> 00:02:20,170 Dow, the S andP, the Nasdaq, all three of these indices for five straight years 32 00:02:20,170 --> 00:02:25,170 had posted double -digit percentage gains. So it was a good time to be on 33 00:02:25,170 --> 00:02:27,310 Street. A lot of people were making a lot of money. 34 00:02:27,650 --> 00:02:30,530 But things at Bayou are not as they seem. 35 00:02:30,790 --> 00:02:37,070 What starts as an FBI inquiry into overseas transactions explodes into a 36 00:02:37,070 --> 00:02:38,070 -blown investigation. 37 00:02:38,490 --> 00:02:44,370 You quickly see that it was a massive fraud being perpetrated on Bayou's 38 00:02:44,370 --> 00:02:45,370 investors. 39 00:02:45,840 --> 00:02:51,160 At the center is Samuel Israel III, perhaps one of the most unlikely con 40 00:02:51,160 --> 00:02:53,720 ever to take Wall Street for a ride. 41 00:02:54,180 --> 00:02:59,180 It really blew up very quickly. And once the check bounced, everything just 42 00:02:59,180 --> 00:03:05,480 unraveled. Now Israel's abandoned car sits on a bridge, and his body is 43 00:03:05,480 --> 00:03:06,480 to be found. 44 00:03:06,560 --> 00:03:11,120 It is only the latest detour in the wild journey of Sam Israel. 45 00:03:16,300 --> 00:03:22,320 Born in Louisiana in 1959, Samuel Israel III grows up surrounded by money, 46 00:03:22,440 --> 00:03:23,620 privilege, and power. 47 00:03:24,280 --> 00:03:29,300 When he's a teen, Sam's family moves to New York, and he is exposed to a new 48 00:03:29,300 --> 00:03:30,300 kind of elite. 49 00:03:30,880 --> 00:03:35,480 Sam said to me, he said, the people that the Israels moved with had more money 50 00:03:35,480 --> 00:03:39,280 than anyone, and he means anyone in the world. 51 00:03:39,540 --> 00:03:42,880 The social circle was Sandy Weil, Larry Tisch, Alan Greenspan. 52 00:03:43,360 --> 00:03:47,720 His grandfather built the commodities trading company Leon Israel and Brothers 53 00:03:47,720 --> 00:03:50,700 from scratch before selling it in 1981. 54 00:03:51,600 --> 00:03:53,420 Money runs in the Israel's blood. 55 00:03:54,900 --> 00:03:59,720 As a young man, Sam heads to Wall Street, but he doesn't use the family 56 00:03:59,720 --> 00:04:00,720 open doors. 57 00:04:00,980 --> 00:04:04,200 The keys to the kingdom were offered to Sam. He didn't want them. He was 58 00:04:04,200 --> 00:04:08,300 determined to make it on his own. He did not want to trade on that family 59 00:04:08,300 --> 00:04:11,720 connection. That's why he became a trader in the beginning, to prove 60 00:04:11,720 --> 00:04:12,720 his father. 61 00:04:14,010 --> 00:04:18,070 Israel bounces around for a decade on Wall Street, learning everything that 62 00:04:18,070 --> 00:04:22,630 isn't taught in business class during the rollicking greed is good decade of 63 00:04:22,630 --> 00:04:27,970 80s and early 90s. So Sam was taught how to get a stock in and out, how to fill 64 00:04:27,970 --> 00:04:32,310 in tickets, how to be on the floor, fight your way into a trade. But he's 65 00:04:32,310 --> 00:04:36,970 told how to steal inside information, how to front run, all the scams that 66 00:04:36,970 --> 00:04:38,610 basically an open joke. 67 00:04:39,360 --> 00:04:43,260 They weren't considered illegal because everyone was doing it. You can't call it 68 00:04:43,260 --> 00:04:45,540 cheating if everybody's cheating. 69 00:04:46,080 --> 00:04:50,860 Israel is drawn to the fiercely competitive world of hedge funds and the 70 00:04:50,860 --> 00:04:53,120 freewheeling lifestyle of successful managers. 71 00:04:53,660 --> 00:04:57,660 Hedge funds are lightly regulated and generally invite only. 72 00:04:57,920 --> 00:05:02,220 Those wealthy enough to invest accept higher risks with potentially greater 73 00:05:02,220 --> 00:05:05,580 returns, regardless of what direction the market is headed. 74 00:05:06,220 --> 00:05:09,880 A hedge fund is basically an investment vehicle for sophisticated investors. 75 00:05:10,220 --> 00:05:13,560 During the 90s, a lot of people were jumping into them. They weren't getting 76 00:05:13,560 --> 00:05:18,180 enough of a return from the index funds or the traditional mutual funds that 77 00:05:18,180 --> 00:05:22,380 they invested in, and these hedge funds had some of the top traders in there 78 00:05:22,380 --> 00:05:23,380 managing your money. 79 00:05:23,480 --> 00:05:26,020 Such expertise comes with a steep price. 80 00:05:26,420 --> 00:05:30,880 During the 90s, some hedge fund managers have been reported to make more than 81 00:05:30,880 --> 00:05:32,600 $100 million a year. 82 00:05:32,900 --> 00:05:33,960 You're the swanee. 83 00:05:34,220 --> 00:05:35,220 You're the magician. 84 00:05:35,980 --> 00:05:36,980 You're the wizard. 85 00:05:37,260 --> 00:05:38,640 He wanted to be that. 86 00:05:38,900 --> 00:05:42,460 These were the kinds of folks that were, you know, running companies, running 87 00:05:42,460 --> 00:05:44,740 countries, running the world. 88 00:05:46,560 --> 00:05:52,900 In 1996, Israel opens Bayou Fund LLC in the basement of his New York home. 89 00:05:53,220 --> 00:05:58,640 He begins conducting short -term trades with the dream of making Bayou a Wall 90 00:05:58,640 --> 00:05:59,640 Street darling. 91 00:06:00,110 --> 00:06:04,450 I think if he'd had his ideal wish, he would have taken my money and he would 92 00:06:04,450 --> 00:06:07,770 have turned it into a good investment and be strutting around Wall Street 93 00:06:07,770 --> 00:06:11,830 now as one of the great hedge fund managers of all time. That's what he 94 00:06:12,250 --> 00:06:15,310 Israel brings in two friends to help run Bayou. 95 00:06:16,110 --> 00:06:19,410 Investor James Marquez and accountant Dan Marino. 96 00:06:19,830 --> 00:06:22,970 But Sam is unquestionably the face of Bayou. 97 00:06:23,190 --> 00:06:25,990 He's a friendly, affable, self -deprecating guy. 98 00:06:30,210 --> 00:06:33,590 Confidant and a popular guy. 99 00:06:34,230 --> 00:06:39,910 These personality traits, along with his family name and trading experience, are 100 00:06:39,910 --> 00:06:45,030 keys in convincing people to invest with Bayou. I knew that I was, to some 101 00:06:45,030 --> 00:06:49,010 extent, gambling on giving my money to an individual. 102 00:06:49,390 --> 00:06:53,630 I sat in my office and I cut the check, and I remember when I cut the check, 103 00:06:53,770 --> 00:06:57,210 thinking this is either the smartest or the dumbest thing I've ever done. 104 00:06:57,570 --> 00:06:58,810 And time will tell. 105 00:07:00,340 --> 00:07:01,340 And it did. 106 00:07:01,440 --> 00:07:05,420 But from the beginning, there are problems with Israel's investment 107 00:07:05,760 --> 00:07:12,340 In 1996, the S andP rises 20 % and then 31 % the next year. However, 108 00:07:12,540 --> 00:07:16,100 Bayou's first audit reveals a 12 % loss. 109 00:07:16,680 --> 00:07:19,880 In the early years, the market's taken off. 110 00:07:20,120 --> 00:07:21,180 Everybody's making money. 111 00:07:21,500 --> 00:07:24,640 And here, they're trading, they're losing money. 112 00:07:24,980 --> 00:07:28,380 And how are they going to explain that? There's no way in this market. 113 00:07:28,730 --> 00:07:30,770 If they're losing money, anybody's going to stick with them. 114 00:07:31,570 --> 00:07:36,850 In an effort to hide losses and lure new investors, Israel decides to do some 115 00:07:36,850 --> 00:07:37,950 creative accounting. 116 00:07:38,610 --> 00:07:43,230 Bayou begins rebating commissions back into its fund to make it appear more 117 00:07:43,230 --> 00:07:44,230 profitable. 118 00:07:44,610 --> 00:07:45,790 Technically, it's legal. 119 00:07:46,090 --> 00:07:50,710 But it is the start of a slippery slope, one that Sam Israel will ultimately 120 00:07:50,710 --> 00:07:53,610 slide all the way to the bottom on. 121 00:07:54,370 --> 00:07:56,550 They do the accounting gimmick, if you will. 122 00:07:57,659 --> 00:08:01,020 by rebating these commissions from securities to the fund. 123 00:08:01,340 --> 00:08:03,340 And then after that, we're off to the races. 124 00:08:03,640 --> 00:08:07,240 But I think that sort of sowed the seed for what was to come. 125 00:08:07,800 --> 00:08:13,920 With this temporary plug in place, Bayou soon has new investors knocking on the 126 00:08:13,920 --> 00:08:16,380 door and its pool of money begins to grow. 127 00:08:17,060 --> 00:08:21,720 Another attraction for Bayou is that Israel doesn't charge the typical 2 % 128 00:08:21,720 --> 00:08:24,660 management fee that most hedge funds charge. 129 00:08:26,030 --> 00:08:28,650 In 1998, flush with apparent success, 130 00:08:29,370 --> 00:08:33,250 Bayou moves from Israel's basement to the shores of Long Island Sound in 131 00:08:33,250 --> 00:08:34,250 Stamford, Connecticut. 132 00:08:34,470 --> 00:08:36,870 But Israel's investments continue to fail. 133 00:08:37,230 --> 00:08:41,950 Either through bad luck or incompetence, Bayou cannot catch a lucky break. 134 00:08:42,570 --> 00:08:44,710 Investors' money begins to trickle away. 135 00:08:45,170 --> 00:08:49,170 You start losing money, especially in a market where almost everybody else is 136 00:08:49,170 --> 00:08:50,170 making money. 137 00:08:50,230 --> 00:08:52,290 You're not going to get any new money in there. 138 00:08:54,480 --> 00:08:55,680 This was their business. 139 00:08:56,380 --> 00:09:01,080 Up next, with mounting losses, Sam Israel is desperate to succeed. 140 00:09:01,440 --> 00:09:05,080 How far will he go to ensure Bayou survives? 141 00:09:05,740 --> 00:09:10,760 I don't think he set out from the outset to defraud people. I think he just 142 00:09:10,760 --> 00:09:15,840 couldn't admit failure, and he kept digging the hole deeper and deeper. 143 00:09:33,390 --> 00:09:37,750 By 1998, Sam Israel's dream is becoming a growing nightmare. 144 00:09:38,490 --> 00:09:43,670 Despite a market that moves steadily higher, Israel's hedge fund company 145 00:09:43,670 --> 00:09:45,890 continues to hemorrhage money. 146 00:09:46,330 --> 00:09:52,990 They just had some rotten luck, made some mistakes, got behind early, 147 00:09:53,270 --> 00:09:59,510 and couldn't bring themselves to just admit that it didn't work, admit 148 00:09:59,770 --> 00:10:02,390 admit defeat, and get on with their lives. 149 00:10:02,920 --> 00:10:07,460 The losses are relatively small at first, a couple of hundred thousand 150 00:10:07,460 --> 00:10:08,159 or so. 151 00:10:08,160 --> 00:10:10,800 But any loss will drive investors away. 152 00:10:11,600 --> 00:10:16,760 Israel and associates James Marquez and Dan Marino search for a way to turn 153 00:10:16,760 --> 00:10:17,760 Bayou around. 154 00:10:18,280 --> 00:10:23,520 Sam had told us that basically you needed a, at the time, a three -year 155 00:10:23,520 --> 00:10:29,280 successful track record in order to be a successful hedge funder. One of those 156 00:10:29,280 --> 00:10:32,060 first three years, you weren't successful, forget it. 157 00:10:32,750 --> 00:10:37,030 To cover their initial losses, they engage in accounting sleight of hand, 158 00:10:37,270 --> 00:10:42,470 channeling commissions from stock transfers back into the fund without 159 00:10:42,470 --> 00:10:43,470 investors. 160 00:10:43,550 --> 00:10:46,810 But during their second year, they lose more than a million dollars. 161 00:10:47,070 --> 00:10:50,950 And as their hole grows deeper, they can no longer hide the problem. 162 00:10:51,230 --> 00:10:55,630 The hole was the amount between what they told investors what they had and 163 00:10:55,630 --> 00:10:56,630 they actually had in the fund. 164 00:10:57,160 --> 00:10:59,980 And they always said, we have to plug that hole, we have to plug that hole. 165 00:11:00,360 --> 00:11:02,260 And that became sort of their mantra. 166 00:11:03,080 --> 00:11:08,960 At the end of 1998, Israel and his partners devise a desperate plan to hide 167 00:11:08,960 --> 00:11:12,420 problem. We've got to raise more funds, otherwise this thing is going to really 168 00:11:12,420 --> 00:11:14,520 go down the tubes and we're going to be in jail. 169 00:11:14,800 --> 00:11:20,360 They replace their independent auditing company with one more aligned to their 170 00:11:20,360 --> 00:11:21,360 best interests. 171 00:11:21,720 --> 00:11:24,780 One run by their own accountant, Dan Marino. 172 00:11:25,160 --> 00:11:26,800 Let's create a phony accounting firm. 173 00:11:27,160 --> 00:11:28,160 Dan, you're a CPA. 174 00:11:28,340 --> 00:11:29,540 You incorporate it. 175 00:11:30,280 --> 00:11:32,120 You do whatever you need to do to get it going. 176 00:11:32,800 --> 00:11:36,120 And we'll just have to cook the books for a year or two until we can get 177 00:11:36,120 --> 00:11:37,120 ourselves back on our feet. 178 00:11:37,600 --> 00:11:39,640 And that's what happens. 179 00:11:40,400 --> 00:11:45,100 Marino names the company Richmond Fairfield Associates, and he's soon 180 00:11:45,100 --> 00:11:50,240 out financial statements exaggerating Bayou's successes and minimizing losses. 181 00:11:50,810 --> 00:11:54,130 That's watershed because once you set up a phony accounting firm and they're 182 00:11:54,130 --> 00:11:57,350 going to do the quote -unquote independent audit, now you've opened the 183 00:11:57,350 --> 00:12:00,190 you've entered the world of criminality. 184 00:12:00,730 --> 00:12:05,970 The statements attract new investors whose money is used to pay redemptions 185 00:12:05,970 --> 00:12:06,970 earlier clients. 186 00:12:07,410 --> 00:12:12,570 Almost by accident rather than design, Bayou has become a Ponzi scheme. 187 00:12:12,990 --> 00:12:17,390 I don't think they started out with a Ponzi scheme in mind. I think what 188 00:12:17,390 --> 00:12:20,190 happened was that they got caught up. 189 00:12:20,700 --> 00:12:25,700 and trading losses back in the late 90s, when, again, everybody else was making 190 00:12:25,700 --> 00:12:27,320 money during that period of time. 191 00:12:28,060 --> 00:12:33,200 And to hide those trading losses, the Ponzi scheme started. 192 00:12:33,700 --> 00:12:38,740 Thanks to Marino's cooked books, Bayou now appears to make slow and steady 193 00:12:38,740 --> 00:12:45,380 profits. This fund was making, quote -unquote making, around 10 to 15 194 00:12:45,420 --> 00:12:47,880 which was just right. That sounded just right. 195 00:12:48,120 --> 00:12:49,740 It was a very steady... 196 00:12:50,520 --> 00:12:54,480 walk, don't run kind of fun, and all that sounded perfect to me. That's just 197 00:12:54,480 --> 00:12:55,480 exactly what I wanted. 198 00:12:56,860 --> 00:13:01,920 Now, with millions of dollars of investor capital, Israel promises to 199 00:13:01,920 --> 00:13:06,240 steady returns for his investors, regardless of where the market heads. 200 00:13:06,620 --> 00:13:10,180 His bogus weekly updates say he's well on the way. 201 00:13:10,480 --> 00:13:16,820 Over a course of two and a half years, my $250 ,000 had grown to about 202 00:13:16,820 --> 00:13:19,220 $336 ,000. 203 00:13:19,760 --> 00:13:23,100 You know, if he had come out and said, oh, we made 50 % this year, I would have 204 00:13:23,100 --> 00:13:27,000 run like mad because he was taking too much risk to make that kind of money. 205 00:13:27,400 --> 00:13:32,800 This is exactly what I thought he had advertised doing and exactly what I was 206 00:13:32,800 --> 00:13:33,800 looking for. 207 00:13:34,140 --> 00:13:35,180 Nice, steady returns. 208 00:13:36,240 --> 00:13:39,720 Most hedge funds require an initial investment of $1 million. 209 00:13:40,860 --> 00:13:43,520 Bayou offers investor shares for a fraction of that. 210 00:13:44,700 --> 00:13:49,820 $250 ,000, making it attractive to those who might not otherwise invest. 211 00:13:50,460 --> 00:13:53,760 A quarter million dollars was still a little bit more than I wanted to put in 212 00:13:53,760 --> 00:13:57,360 any one investment, but it was now in the realm of reason, which a million 213 00:13:57,360 --> 00:13:58,359 dollars wasn't. 214 00:13:58,360 --> 00:14:03,080 To investors in the outside world, Bayou is fulfilling all of its early 215 00:14:03,080 --> 00:14:04,460 promises, and then some. 216 00:14:04,920 --> 00:14:07,960 But behind closed doors, it's a much different story. 217 00:14:08,920 --> 00:14:10,180 Losses continue to mount. 218 00:14:10,730 --> 00:14:14,790 and the stress takes its toll on Sam personally and professionally. 219 00:14:15,570 --> 00:14:19,370 Israel's marriage suffers, and recurring back pains lead to heavy use of 220 00:14:19,370 --> 00:14:24,350 painkillers. Israel and fellow investor Marquez feud over market strategies. 221 00:14:24,950 --> 00:14:30,050 Sam and Jim are fighting like cats and dogs at this point. They were constantly 222 00:14:30,050 --> 00:14:34,490 getting in arguments amongst themselves, closed -door meetings when nobody's 223 00:14:34,490 --> 00:14:38,130 around, after, you know, hours type stuff, talking about how to. 224 00:14:39,400 --> 00:14:41,480 To fill the hole, fix the problem. 225 00:14:41,780 --> 00:14:47,500 In 2001, Marquez leaves the company and soon Bayou is attracting more money than 226 00:14:47,500 --> 00:14:50,620 ever. Many of these investors are well -heeled individuals. 227 00:14:50,980 --> 00:14:56,480 But soon, Bayou is also attracting large private equity funds, pension funds, 228 00:14:56,900 --> 00:15:02,140 venture capital funds, and even fund -to -fund managers from large companies and 229 00:15:02,140 --> 00:15:03,860 universities across the country. 230 00:15:04,260 --> 00:15:05,260 The fund. 231 00:15:05,920 --> 00:15:12,640 goes from a $10 million fund to quickly up to tens of millions of dollars, and 232 00:15:12,640 --> 00:15:16,420 then crosses the $100 million threshold and into the hundreds of millions of 233 00:15:16,420 --> 00:15:17,800 dollars in relatively short order. 234 00:15:18,360 --> 00:15:21,300 But Bayou's investing luck doesn't change. 235 00:15:21,940 --> 00:15:26,720 They just keep on committing the fraud year after year after year and losing 236 00:15:26,720 --> 00:15:32,860 money. By 2003, Israel's world is imploding. His dependence on painkillers 237 00:15:32,860 --> 00:15:34,920 grows, and his wife leaves. 238 00:15:35,530 --> 00:15:36,630 taking their two children. 239 00:15:36,950 --> 00:15:39,410 Sam faces some harsh realizations. 240 00:15:39,930 --> 00:15:45,550 He was not going to be the success that he hoped to be, and so he resorted to 241 00:15:45,550 --> 00:15:52,230 less traditional means to achieve success, and that ultimately was his 242 00:15:52,990 --> 00:15:59,490 Next on American Greed, desperate to raise money to save Bayou, see how 243 00:15:59,490 --> 00:16:02,970 himself is conned in a worldwide investment scam. 244 00:16:03,950 --> 00:16:05,570 Could he lose everything? 245 00:16:05,950 --> 00:16:11,610 Sam wanted so much to be something that he wasn't that he was willing to destroy 246 00:16:11,610 --> 00:16:12,610 himself. 247 00:16:26,970 --> 00:16:32,170 By 2002, the stock market cools. The dot -com bubble bursts. 248 00:16:32,860 --> 00:16:35,920 And Wall Street returns are flat or drifting lower. 249 00:16:36,500 --> 00:16:41,380 Now more than ever, hedge funds are attractive to investors looking to shake 250 00:16:41,380 --> 00:16:45,980 slump. Hedge funds had a bit of an advantage because a hedge fund will try 251 00:16:45,980 --> 00:16:49,580 essentially outperform the market. Even if it's down, a hedge fund will try to 252 00:16:49,580 --> 00:16:52,920 be down less than, you know, one of the indices like the S andP. 253 00:16:53,640 --> 00:16:56,680 And a hedge fund like Bayou seems perfect. 254 00:16:57,560 --> 00:17:01,400 Bayou is, by all accounts, doing great. They've got above. 255 00:17:02,040 --> 00:17:07,180 Average rates of return, everybody's happy with the fund, recommending 256 00:17:07,180 --> 00:17:08,220 to get into the fund. 257 00:17:08,660 --> 00:17:13,800 Some serious money starts to roll in. And now instead of millions and tens of 258 00:17:13,800 --> 00:17:20,359 millions, we're talking now hundreds of millions of dollars into 2002, 2003, 259 00:17:20,619 --> 00:17:21,619 2004. 260 00:17:22,380 --> 00:17:26,839 Flush with apparent success, Sam Israel and Dan Marino live the good life. 261 00:17:27,440 --> 00:17:31,900 Marino moves to a home with six bedrooms and a pool in the wealthy enclave of 262 00:17:31,900 --> 00:17:32,900 Westport, Connecticut. 263 00:17:33,220 --> 00:17:35,120 He buys flashy sports cars. 264 00:17:36,020 --> 00:17:41,120 Israel, separated from his wife and teenage children, rents a house from 265 00:17:41,120 --> 00:17:44,800 Trump in Bedford, New York for $22 ,000 a month. 266 00:17:45,120 --> 00:17:50,580 He hires Deborah Ryan, a local painter, to personalize his 13 -bedroom mansion. 267 00:17:51,100 --> 00:17:54,080 Soon, the relationship becomes more than professional. 268 00:17:55,000 --> 00:17:59,320 Suffering from increasing back pains, Sam begins trading from the house rather 269 00:17:59,320 --> 00:18:02,020 than commuting to Bayou's office in Stamford. 270 00:18:02,400 --> 00:18:07,100 There's a separate house on the property called the chapel, which is where 271 00:18:07,100 --> 00:18:12,840 Israel has its trading room, a room with maybe 20 or so flat screen trading 272 00:18:12,840 --> 00:18:16,080 equipment, and basically that's where Israel does its trades from. 273 00:18:16,620 --> 00:18:23,580 Between 2002 and 2005, Israel and Marino, now Bayou's chief financial 274 00:18:24,080 --> 00:18:26,700 receive $4 million in salary and compensation. 275 00:18:27,660 --> 00:18:32,120 Later, they will claim these excesses are little more than fronts, much like 276 00:18:32,120 --> 00:18:36,040 their phony accounting company that lures investors with false statements. 277 00:18:36,680 --> 00:18:40,480 I guess you can convince yourself of anything, but the fact is they were 278 00:18:40,480 --> 00:18:44,780 Porsches and Bentleys and Ferraris and living in beautiful homes in some of the 279 00:18:44,780 --> 00:18:48,420 most exclusive suburbs of New York and sort of living the life. 280 00:18:49,420 --> 00:18:51,320 But the life is a lie. 281 00:18:52,010 --> 00:18:55,150 On paper, Bayou is worth hundreds of millions of dollars. 282 00:18:55,590 --> 00:18:58,070 But the reality is much different. 283 00:18:58,490 --> 00:19:03,270 I think they said they had $410 million and maybe they had $125 million by the 284 00:19:03,270 --> 00:19:04,270 time the fund collapses. 285 00:19:04,790 --> 00:19:10,350 Israel, handicapped by back pain and medications, spends most of his time at 286 00:19:10,350 --> 00:19:11,350 Trump House. 287 00:19:11,470 --> 00:19:15,590 Israel wasn't sleeping at night. Part of it was his drug dependency, his 288 00:19:15,590 --> 00:19:17,730 substance abuse problem and his back problems. 289 00:19:18,520 --> 00:19:22,520 A significant part was the lie that he was perpetrating. It takes a really 290 00:19:22,520 --> 00:19:26,240 special kind of individual to commit a crime like this and be able to sleep at 291 00:19:26,240 --> 00:19:30,560 night. Worried that the flat market might tempt investors to pull their 292 00:19:30,560 --> 00:19:36,140 and cause Bayou to collapse, Israel embarks on a wild investing spree to 293 00:19:36,140 --> 00:19:36,959 his company. 294 00:19:36,960 --> 00:19:42,260 What he did was threw good money after bad and tried to reverse. 295 00:19:42,990 --> 00:19:48,550 the trading losses that he had incurred, and he kept digging the hole deeper and 296 00:19:48,550 --> 00:19:49,550 deeper. 297 00:19:49,790 --> 00:19:54,710 Desperate to infuse money into Bayou, Israel begins looking for nontraditional 298 00:19:54,710 --> 00:19:58,630 venture capital investments, including movies and fashion lines. 299 00:19:58,950 --> 00:20:02,350 But few pan out, and the money continues to disappear. 300 00:20:02,890 --> 00:20:09,690 They invested close to $40 million in maybe a dozen to 15 different venture 301 00:20:09,690 --> 00:20:11,150 capital deals throughout these years. 302 00:20:11,720 --> 00:20:16,780 Unfortunately, it was similar to their trading expertise. 303 00:20:17,140 --> 00:20:21,100 They didn't pick very wisely in their venture capital investments either. 304 00:20:21,980 --> 00:20:27,600 As the venture capital investments fail, Israel's strange saga takes a wild turn 305 00:20:27,600 --> 00:20:29,520 as his desperation grows. 306 00:20:30,060 --> 00:20:35,880 At some point in 2004, Sam makes a friend who claims he can solve all of 307 00:20:35,880 --> 00:20:37,860 problems for a slight fee. 308 00:20:38,640 --> 00:20:43,580 This individual was a pretty shadowy figure. He had actually told Sam that he 309 00:20:43,580 --> 00:20:45,460 was an ex -CIA officer. 310 00:20:45,900 --> 00:20:47,880 He was involved in black operations. 311 00:20:48,540 --> 00:20:55,340 A lot of super secret spook stuff, which Sam just, he 312 00:20:55,340 --> 00:20:59,760 bought hook, line, and sinker. This man tells Israel about a shadow world of 313 00:20:59,760 --> 00:21:01,100 secret government projects. 314 00:21:01,460 --> 00:21:04,620 Some humanitarian, some black ops. 315 00:21:05,240 --> 00:21:11,680 all financed by select or prime banks and invite only to exclusive investors. 316 00:21:12,180 --> 00:21:13,820 The man sweetens the pot. 317 00:21:14,100 --> 00:21:18,720 He tells Israel about a mysterious Federal Reserve box he has that contains 318 00:21:18,720 --> 00:21:20,080 unimaginable wealth. 319 00:21:20,460 --> 00:21:25,600 Even better than the background story is the incredible rate of return promised, 320 00:21:25,720 --> 00:21:31,940 Sam. You send over $150 million, you can generate up to 100 % return within a 321 00:21:31,940 --> 00:21:32,940 couple weeks' time. 322 00:21:33,950 --> 00:21:38,710 Israel is essentially singled out for the super -rich man's equivalent of a 323 00:21:38,710 --> 00:21:40,250 Nigerian email scam. 324 00:21:41,010 --> 00:21:46,290 Israel pays the man $10 million to get him in. In return, he is offered a 325 00:21:46,290 --> 00:21:47,590 fascinating bit of collateral. 326 00:21:48,090 --> 00:21:53,610 The so -called Federal Reserve Box, supposedly from World War II, that 327 00:21:53,610 --> 00:21:57,450 more than $100 million in Federal Reserve bonds. 328 00:21:57,910 --> 00:22:00,110 This individual told Sam, I have this. 329 00:22:00,680 --> 00:22:01,940 Super secret box. 330 00:22:02,200 --> 00:22:05,760 I'm going to give you this thing. You can't tell anybody about it. It could 331 00:22:05,760 --> 00:22:10,080 destabilize the U .S. economy if you told anybody about it. Of course, it's 332 00:22:10,080 --> 00:22:11,080 good to be true. 333 00:22:11,140 --> 00:22:12,139 The catch? 334 00:22:12,140 --> 00:22:14,880 The Federal Reserve issues notes, not bonds. 335 00:22:15,260 --> 00:22:17,360 The box is an elaborate hoax. 336 00:22:18,280 --> 00:22:22,400 One FBI agents have heard of but never seen until now. 337 00:22:23,400 --> 00:22:28,640 So somebody went through a lot of work to create this fraudulent box, too. 338 00:22:29,550 --> 00:22:32,270 Steal $10 million from Mr. Israel. 339 00:22:32,730 --> 00:22:36,730 The scam Israel falls for is well known to federal investigators. 340 00:22:37,250 --> 00:22:43,710 They are called prime bank frauds or high -yield investment frauds. The lure 341 00:22:43,710 --> 00:22:46,110 Sam is simple and impossible to resist. 342 00:22:46,550 --> 00:22:51,590 The final last chance to dig himself out of Bayou's bottomless hole with 343 00:22:51,590 --> 00:22:54,650 guaranteed 100 % returns on his investment. 344 00:22:55,260 --> 00:22:59,620 If you make it 100 % every two weeks on $120 million, it's not long before 345 00:22:59,620 --> 00:23:01,740 you're at that $450 million mark that you're supposed to be at. 346 00:23:02,180 --> 00:23:05,480 And then we'll go legit from there. 347 00:23:06,480 --> 00:23:12,240 Thinking that he is investing in a super -secret program, Israel wires $150 348 00:23:12,240 --> 00:23:17,440 million, essentially all the remaining Bayou money, to a bank in London. 349 00:23:18,060 --> 00:23:19,660 That was beyond a Hail Mary. 350 00:23:19,920 --> 00:23:22,480 That's like a guy who's got one chip left. 351 00:23:23,400 --> 00:23:28,500 And, you know, what the hell? I'll just throw it. I know I'm done, so I may as 352 00:23:28,500 --> 00:23:31,260 well just see. You know, nine red. 353 00:23:31,940 --> 00:23:32,940 Spin them. 354 00:23:33,000 --> 00:23:38,020 But the transaction is so large and unexpected, the bank sends the money 355 00:23:38,400 --> 00:23:42,380 You know, years earlier, he would have laughed at somebody telling him you can 356 00:23:42,380 --> 00:23:44,360 have 100 % return within two weeks' time. 357 00:23:44,760 --> 00:23:49,780 But I think it is desperation, and maybe with the combination of the painkillers 358 00:23:49,780 --> 00:23:51,220 he was taking at the time. 359 00:23:51,660 --> 00:23:53,640 I think he lodged such with reality a bit. 360 00:23:54,780 --> 00:23:56,240 Israel tries again. 361 00:23:56,660 --> 00:24:02,100 This time he wires $120 million to Hamburg, hoping to jump on another 362 00:24:02,100 --> 00:24:03,580 prime bank opportunity. 363 00:24:04,160 --> 00:24:06,900 German authorities promptly contact the FBI. 364 00:24:07,540 --> 00:24:10,920 Again, the large transaction is a red flag. 365 00:24:11,440 --> 00:24:12,700 We begin an investigation. 366 00:24:13,160 --> 00:24:16,480 Initially, frankly, we were looking at it as... 367 00:24:16,700 --> 00:24:17,940 potential money laundering situation. 368 00:24:19,060 --> 00:24:24,160 Ironically, when agents first interview Israel, everyone believes that he is the 369 00:24:24,160 --> 00:24:28,880 victim. But the more questions the agents ask, the more they realize there 370 00:24:28,880 --> 00:24:31,880 something else going on besides the prime bank fraud. 371 00:24:32,440 --> 00:24:33,720 This doesn't make sense. 372 00:24:33,920 --> 00:24:39,240 I mean, this is a sophisticated investor, a guy who knows Wall Street. 373 00:24:39,240 --> 00:24:43,440 engaging in this? What's the need to earn 100 % every two weeks? 374 00:24:44,280 --> 00:24:50,420 Bayou's wild money ride ends abruptly in June of 2005, when nearly $100 million 375 00:24:50,420 --> 00:24:56,760 ends up in New Jersey in the hands of yet another prime bank scammer. The 376 00:24:56,760 --> 00:25:01,960 is invested in some bogus Arizona gold mines, and the Arizona attorney general 377 00:25:01,960 --> 00:25:02,960 seizes it. 378 00:25:03,160 --> 00:25:07,140 Sam Israel III has run out of time and options. 379 00:25:08,140 --> 00:25:10,780 And that's when everything happened really fast. 380 00:25:11,440 --> 00:25:16,500 On July 27, 2005, Israel sends a surprise letter to investors. 381 00:25:17,160 --> 00:25:18,900 He's shutting Bayou down. 382 00:25:19,760 --> 00:25:23,980 It's been a great run, but I regret to tell you that I'm going to close down 383 00:25:23,980 --> 00:25:25,700 fund. I'm getting divorced. 384 00:25:25,920 --> 00:25:29,440 I want to spend more time with my kids, but I just don't want to do this 385 00:25:29,440 --> 00:25:33,440 anymore. So thanks for the memories, and the checks will be in the mail. 386 00:25:33,980 --> 00:25:36,680 But Bayou has no money to send. 387 00:25:37,460 --> 00:25:40,860 What's left has been frozen by the Arizona attorney general. 388 00:25:41,370 --> 00:25:46,070 When the checks don't arrive, investors begin flooding Bayou's office with phone 389 00:25:46,070 --> 00:25:50,290 calls. I call Bayou. They've always been very prompt. Just rings off the hook. 390 00:25:50,710 --> 00:25:55,110 It goes to voicemail, and the voicemail box is full. 391 00:25:56,130 --> 00:25:58,630 And I think, this can't be good. 392 00:25:59,350 --> 00:26:01,990 There is no one to explain what has happened. 393 00:26:02,810 --> 00:26:04,310 I just want to know where the money was. 394 00:26:04,610 --> 00:26:08,010 But nobody had any idea. Any of it was left. I mean... 395 00:26:08,490 --> 00:26:10,990 in a practical manner, appear to be gone. Just gone. 396 00:26:11,770 --> 00:26:15,190 Meanwhile, investigators have made a startling discovery. 397 00:26:15,950 --> 00:26:20,170 Richmond Fairfield Associates, the independent accounting company that 398 00:26:20,170 --> 00:26:25,710 Bayou, is in reality run by Bayou's own CFO, Dan Marino. 399 00:26:26,190 --> 00:26:33,190 So now we're going off in two directions. Bayou, the victim, and Sam 400 00:26:33,190 --> 00:26:35,830 possibly as the perpetrators of the fraud. 401 00:26:36,590 --> 00:26:37,590 Coming up. 402 00:26:38,030 --> 00:26:43,070 With his company disintegrating and authorities closing in, Israel is left 403 00:26:43,070 --> 00:26:45,350 the reality that his dream is dead. 404 00:26:46,250 --> 00:26:50,770 Once a high -flying toast of Wall Street, now in free fall. 405 00:26:51,570 --> 00:26:53,510 Is there only one way out? 406 00:27:10,030 --> 00:27:16,350 The collapse of Bayou's hedge funds in the summer of 2005 is as spectacular as 407 00:27:16,350 --> 00:27:17,450 it is unexpected. 408 00:27:18,230 --> 00:27:23,770 Literally within the space of minutes, I had lost $336 ,000. 409 00:27:24,430 --> 00:27:27,430 I mean, I woke up and that was part of my net worth. 410 00:27:27,710 --> 00:27:32,370 And by 3 o 'clock in the afternoon, the best anybody could tell me was it was 411 00:27:32,370 --> 00:27:33,370 gone. 412 00:27:33,770 --> 00:27:37,730 Investors have received a letter from Sam Israel telling them that Bayou's 413 00:27:37,730 --> 00:27:40,380 are shuttered. but that their money is coming soon. 414 00:27:40,920 --> 00:27:46,200 One Seattle money management firm receives a check for $53 million from 415 00:27:46,340 --> 00:27:49,260 When they deposit the check, it bounces. 416 00:27:49,780 --> 00:27:56,320 They're very upset, and they decide to fly to Connecticut to see what's going 417 00:27:56,320 --> 00:28:00,900 on. Finding the company deserted, the representative makes a surprising 418 00:28:00,900 --> 00:28:03,860 discovery in CFO Dan Marino's office. 419 00:28:04,380 --> 00:28:07,420 There on Dan's desk and computer was this... 420 00:28:08,520 --> 00:28:14,720 Suicide note and confession letter, basically spelling out the fraud that 421 00:28:14,920 --> 00:28:17,360 Sam, and Jim Marquez had committed. 422 00:28:17,640 --> 00:28:22,940 In six pages, it details how Israel and Marino have used Bayou to build 423 00:28:22,940 --> 00:28:26,960 investors of over $300 million in less than a decade. 424 00:28:27,540 --> 00:28:34,540 Within short order, Marino is found healthy and alive and very talkative. He 425 00:28:34,540 --> 00:28:36,500 confirms that everything Bayou has claimed. 426 00:28:37,050 --> 00:28:38,110 is nothing but a lie. 427 00:28:38,450 --> 00:28:45,210 So you're looking at approximately $150 million in assets, whereas the 428 00:28:45,210 --> 00:28:51,390 investors think and have been told via the independently audited financial 429 00:28:51,390 --> 00:28:54,530 statements that there is $410 million. 430 00:28:54,830 --> 00:28:57,690 So they're short about $300 million. 431 00:28:58,590 --> 00:28:59,670 This is massive. 432 00:28:59,890 --> 00:29:03,910 And as you were going through the numbers, it was ballooning and 433 00:29:03,910 --> 00:29:05,330 was daunting. 434 00:29:05,820 --> 00:29:11,160 With few options, both Israel and Marino begin cooperating with authorities. 435 00:29:11,640 --> 00:29:15,060 Sam, in particular, seems glad the sham is over. 436 00:29:15,580 --> 00:29:22,260 He said, every day I spend in jail, guys, I'll be a free man compared to 437 00:29:22,260 --> 00:29:23,640 this lie for this many years. 438 00:29:24,520 --> 00:29:29,900 In a storage locker, investigators find letters from former Bayou employee James 439 00:29:29,900 --> 00:29:33,220 Marquez that explain his involvement in the fraud. 440 00:29:33,920 --> 00:29:38,440 U .S. Marshals are brought in to determine what Bayou's remaining assets 441 00:29:38,440 --> 00:29:43,720 be. Aside from the money already seized in Arizona, very little remains. 442 00:29:44,360 --> 00:29:51,200 We identified approximately $43 million in assets in about 25 443 00:29:51,200 --> 00:29:55,180 to 30 different cases that may be viable. 444 00:29:55,520 --> 00:29:59,840 I'm not sure what happened to the rest of the money. There is no indication 445 00:29:59,840 --> 00:30:01,960 any of that missing money actually exists. 446 00:30:03,240 --> 00:30:07,800 Israel moves from his Trump estate with girlfriend Deb Ryan to a much smaller 447 00:30:07,800 --> 00:30:09,440 house in Armonk, New York. 448 00:30:09,720 --> 00:30:14,160 He is charged with misrepresentation of Bayou funds and mail fraud. 449 00:30:14,900 --> 00:30:18,520 He eventually pleads guilty, as does Dan Marino. 450 00:30:19,500 --> 00:30:25,100 Israel's family pays the $500 ,000 bail, and Israel surrenders his passport. 451 00:30:25,640 --> 00:30:31,000 But even after it has all fallen apart, Israel clings to the story that they 452 00:30:31,000 --> 00:30:36,280 were only trying to do the right thing all along and offers this as defense for 453 00:30:36,280 --> 00:30:37,280 his actions. 454 00:30:37,720 --> 00:30:41,080 He told Kevin and myself he felt bad for all the investors, that he had done 455 00:30:41,080 --> 00:30:44,040 this to all of them. You know, not his intent when he started. 456 00:30:44,360 --> 00:30:49,640 He went down a path and just couldn't work his way out of the forest from the 457 00:30:49,640 --> 00:30:50,639 path he took. 458 00:30:50,640 --> 00:30:54,440 But investors paint another story, one of greed. 459 00:30:55,000 --> 00:30:59,860 and of a man who coolly swindled hundreds of millions of dollars from 460 00:30:59,860 --> 00:31:00,759 trusted him. 461 00:31:00,760 --> 00:31:06,520 This wasn't somebody who had just strayed off the path for a day or two 462 00:31:06,520 --> 00:31:10,300 of, as soon as they got caught, said, oh, you know, what was I thinking? This 463 00:31:10,300 --> 00:31:14,840 was a guy who thought about committing fraud over a long period of time and 464 00:31:14,840 --> 00:31:17,100 it a lot of thought on how to do it well. 465 00:31:18,080 --> 00:31:23,880 Marquez pleads guilty and is sentenced to 51 months because He left Bayou 466 00:31:23,880 --> 00:31:25,620 the worst of the damage was done. 467 00:31:26,300 --> 00:31:30,980 For two and a half years, both Israel and Marino continue to cooperate with 468 00:31:30,980 --> 00:31:34,020 authorities. Each hopes for a lenient sentence. 469 00:31:34,460 --> 00:31:38,780 But the courts don't look kindly on criminals who swindle people out of big 470 00:31:38,780 --> 00:31:39,780 money. 471 00:31:39,980 --> 00:31:44,520 Israel and Marino are sentenced to 20 years in prison in order to pay $300 472 00:31:44,520 --> 00:31:46,800 million in restitution. 473 00:31:47,390 --> 00:31:51,190 It was a very harsh sentence. Keep in mind that it comes on the heels of 474 00:31:51,190 --> 00:31:54,530 companies like WorldCom and Enron collapsing because of accounting fraud. 475 00:31:54,730 --> 00:31:59,690 And in fact, the judge who sentenced Israel told him, just because you wear a 476 00:31:59,690 --> 00:32:02,890 tie when you're committing a crime, it doesn't mean that you get any kind of a 477 00:32:02,890 --> 00:32:07,890 break. For 48 -year -old Sam Israel, the pressure is too much. 478 00:32:08,270 --> 00:32:12,210 I think over the course of getting sentenced and having to report to 479 00:32:17,320 --> 00:32:19,560 I think it was a tremendous weight for him to bear. 480 00:32:20,240 --> 00:32:26,300 All of Sam's connections, all the people he knows, all the money they have, none 481 00:32:26,300 --> 00:32:27,340 of it can help him now. 482 00:32:27,780 --> 00:32:31,620 The judge gives Israel eight weeks to set his affairs in order. 483 00:32:32,020 --> 00:32:37,660 As the days approached for him to surrender to serve a 20 -year sentence, 484 00:32:37,660 --> 00:32:40,800 panicked, and he thought it was something that he couldn't do. 485 00:32:41,140 --> 00:32:45,780 On June 9, 2008, Israel is finally scheduled to report to prison. 486 00:32:46,440 --> 00:32:47,480 He never arrives. 487 00:32:48,180 --> 00:32:51,780 Israel disappeared the day he was supposed to begin serving a 20 -year 488 00:32:51,780 --> 00:32:53,380 at a federal prison in Massachusetts. 489 00:32:54,460 --> 00:32:59,960 Police find his GMC Envoy abandoned on the Bear Mountain Bridge, 40 miles north 490 00:32:59,960 --> 00:33:00,919 of Manhattan. 491 00:33:00,920 --> 00:33:04,900 The words, suicide is painless, scrawled on the hood. 492 00:33:05,560 --> 00:33:10,400 Inside the SUV are Israel's keys and a prescription for pain pills. 493 00:33:10,800 --> 00:33:13,260 It looks like Sam Israel has killed himself. 494 00:33:13,920 --> 00:33:18,960 But there is always another twist in the saga of Sam Israel, and this story 495 00:33:18,960 --> 00:33:20,220 isn't over yet. 496 00:33:20,740 --> 00:33:25,040 This was not a person who was thinking clearly. This was not a person who was 497 00:33:25,040 --> 00:33:27,180 thinking rationally. 498 00:33:27,380 --> 00:33:30,020 And this was someone who panicked. 499 00:33:45,040 --> 00:33:51,440 June 2008, three years after Bayou Hedge Fund Group collapses and more than $300 500 00:33:51,440 --> 00:33:57,260 million of investors' money disappears, the story shifts to a bridge spanning 501 00:33:57,260 --> 00:33:59,420 the dark waters of the Hudson River. 502 00:33:59,840 --> 00:34:05,480 Sam Israel Duther, Bayou's fund manager, has apparently jumped to his death 503 00:34:05,480 --> 00:34:08,120 rather than face a 20 -year prison sentence. 504 00:34:09,060 --> 00:34:14,100 It's 156 feet above the waterline, so if you did jump off that bridge, it's very 505 00:34:14,100 --> 00:34:15,219 unlikely that you'd survive. 506 00:34:15,679 --> 00:34:20,980 But when divers fail to find the body, investigators doubt that he really 507 00:34:20,980 --> 00:34:26,000 himself. Common sense would tell you if he jumped off a 150 -foot bridge, there 508 00:34:26,000 --> 00:34:29,400 would be some type of body that was found somewhere up or down the Hudson 509 00:34:31,120 --> 00:34:34,060 Investigators quickly mobilize a nationwide manhunt. 510 00:34:34,380 --> 00:34:37,780 The goal is to find Israel before they can flee the country. 511 00:34:38,429 --> 00:34:39,870 The first break comes quickly. 512 00:34:40,350 --> 00:34:45,670 Surveillance video shows as Israel's car pulls to the side of the bridge, it is 513 00:34:45,670 --> 00:34:46,569 not alone. 514 00:34:46,570 --> 00:34:51,650 Another vehicle had pulled in. You could see it was a bit rainy that the vehicle 515 00:34:51,650 --> 00:34:53,489 may have picked him up and then drove off. 516 00:34:54,250 --> 00:34:57,850 Investigators track the vehicle down and confirm what they already suspect. 517 00:34:58,530 --> 00:35:01,430 Sam Israel is still alive and on the run. 518 00:35:01,910 --> 00:35:05,350 U .S. Marshals reach out to family and friends of Sam. 519 00:35:05,990 --> 00:35:08,810 including his mother, Ann, who now lives in Chicago. 520 00:35:09,530 --> 00:35:13,110 The longer Sam runs, the harder it is to find him. 521 00:35:13,390 --> 00:35:17,910 As long as you don't stand out, don't do anything illegal, don't garner any 522 00:35:17,910 --> 00:35:19,570 attention, it's not hard to disappear. 523 00:35:19,850 --> 00:35:22,070 The United States is a big place. The world's a big place. 524 00:35:23,070 --> 00:35:25,970 Investigators lean on Deb Ryan, Israel's girlfriend. 525 00:35:26,470 --> 00:35:31,810 At first, she denies knowing anything. But after 11 days of questioning, she 526 00:35:31,810 --> 00:35:33,710 finally admits she helped Sam. 527 00:35:34,170 --> 00:35:39,410 stash a recreational vehicle and a blue motor scooter at a rest stop in New 528 00:35:39,410 --> 00:35:44,910 York. She'd helped him out, basically, stashing the RV at the rest stop, helped 529 00:35:44,910 --> 00:35:46,910 him pack his clothes in it the night before. 530 00:35:48,090 --> 00:35:52,870 So at this point, she was arrested for aiding and abetting Sam in his run. 531 00:35:53,790 --> 00:35:58,710 Hoping to squeeze Israel, agents put out alerts on campground websites across 532 00:35:58,710 --> 00:35:59,609 the country. 533 00:35:59,610 --> 00:36:02,710 The story is featured on America's Most Wanted. 534 00:36:03,070 --> 00:36:08,410 In Chicago, U .S. Marshal Ed Farrell spends weeks convincing Sam's mom, Ann, 535 00:36:08,650 --> 00:36:10,830 that her son should turn himself in. 536 00:36:11,090 --> 00:36:14,570 She was very concerned about the fact that if her son was caught, he would be 537 00:36:14,570 --> 00:36:18,330 killed. And we told her, you know, that could all be avoided if you can get him 538 00:36:18,330 --> 00:36:19,710 to surrender himself to the police. 539 00:36:20,490 --> 00:36:24,290 Ann does offer Marshall's insight into her son's character. 540 00:36:25,030 --> 00:36:29,610 We had asked her about him committing suicide if it was something he could do. 541 00:36:30,140 --> 00:36:32,520 He said, my son has always kind of had a problem with the truth. 542 00:36:33,200 --> 00:36:36,120 He doesn't always tell the full truth. 543 00:36:37,460 --> 00:36:39,740 Authorities fear Israel has left the country. 544 00:36:39,980 --> 00:36:42,540 In truth, he hardly leaves the state. 545 00:36:43,040 --> 00:36:47,340 For weeks, he holds up in Granville, Massachusetts, at the Prospect Mountain 546 00:36:47,340 --> 00:36:50,260 Campground, living under an assumed name. 547 00:36:50,780 --> 00:36:54,320 He was David Clapp, with a K, K -L -A -P -P. 548 00:36:55,180 --> 00:36:59,240 He signed with that name and everything. He paid by cash, so there was no credit 549 00:36:59,240 --> 00:37:01,140 card for us to check that name on or anything like that. 550 00:37:01,740 --> 00:37:06,720 Sam Israel, a .k .a. David Clapp, keeps a low profile at the campground. 551 00:37:07,280 --> 00:37:10,260 There was nothing suspicious about him at all. Like, he was a very personal, 552 00:37:10,320 --> 00:37:11,320 very likable guy. 553 00:37:12,000 --> 00:37:15,380 Didn't look anything like the pictures. He looked a lot skinnier. 554 00:37:15,640 --> 00:37:16,640 He had a beard. 555 00:37:17,420 --> 00:37:22,960 Curiously, the man who has spent years racked with back pain takes up jogging 556 00:37:22,960 --> 00:37:24,000 during his stay. 557 00:37:24,680 --> 00:37:28,880 He would come back from running. He would come in, buy Gatorade, buy 558 00:37:29,060 --> 00:37:32,760 always made jokes about why was he buying cigarettes, just coming back from 559 00:37:32,760 --> 00:37:34,600 run, that it was kind of he should choose one or the other. 560 00:37:35,260 --> 00:37:40,420 But even here, off the grid, the circle slowly tightens around him. 561 00:37:40,780 --> 00:37:44,740 He's just flicking through channels one night, and on comes America's Most 562 00:37:44,740 --> 00:37:50,670 Wanted. And there is his face staring back at him. On the hunt for an accused 563 00:37:50,670 --> 00:37:56,130 swindler. And Sam thinks, damn, they're not just going to let me go. 564 00:37:56,650 --> 00:38:02,290 And he learns that his girlfriend, Deb Ryan, is facing charges for aiding and 565 00:38:02,290 --> 00:38:04,270 abetting. This freaks him out. 566 00:38:04,770 --> 00:38:10,270 On July 2nd, U .S. Marshal Ed Farrell gets a surprise call from Sam's mother, 567 00:38:10,410 --> 00:38:14,210 Ann. She said that Sam was on his way to surrender himself to the police 568 00:38:14,210 --> 00:38:18,330 department. Ann didn't admit it on the phone, but I believe Ann is the one that 569 00:38:18,330 --> 00:38:19,590 talked him into surrendering himself. 570 00:38:20,450 --> 00:38:24,670 Israel climbs on his blue scooter and sets off to turn himself in. 571 00:38:25,270 --> 00:38:29,050 He stopped at the Granville Police Department. It's a part -time police 572 00:38:29,050 --> 00:38:32,050 department. The chief wasn't on duty at that time. 573 00:38:33,230 --> 00:38:37,910 He came down the hill further and was familiar with Southwicks, so he turned 574 00:38:37,910 --> 00:38:38,910 himself in here. 575 00:38:39,290 --> 00:38:42,310 Israel walks in and announces his identity. 576 00:38:42,960 --> 00:38:46,660 He came into this lobby and said he was wanted for white -collar crimes. 577 00:38:47,160 --> 00:38:52,060 He was brought into the back of our building to the booking area, at which 578 00:38:52,060 --> 00:38:57,860 the officer put him into the computer and found out exactly what he was wanted 579 00:38:57,860 --> 00:39:02,240 for. I called Southwick, and I got some sergeant on the phone. I said, hey, I'm 580 00:39:02,240 --> 00:39:03,460 Ed Farrell with the Marshal Service. 581 00:39:03,740 --> 00:39:05,500 I said, do you got a guy named Sam Israel there? 582 00:39:05,720 --> 00:39:06,720 He said, absolutely. 583 00:39:06,960 --> 00:39:09,140 He's standing right in front of me. I said, don't let him go. 584 00:39:10,470 --> 00:39:15,490 Israel's plan for escape ends like so many of his other grand schemes, in 585 00:39:15,490 --> 00:39:17,050 disarray and failure. 586 00:39:18,430 --> 00:39:19,970 The RV is seized. 587 00:39:20,210 --> 00:39:23,890 What authorities find inside gives a clue to Sam's intentions. 588 00:39:24,610 --> 00:39:26,830 Books on how to escape the country. 589 00:39:27,050 --> 00:39:30,190 A laminator and materials for making fake IDs. 590 00:39:30,730 --> 00:39:32,390 A global positioning system. 591 00:39:32,750 --> 00:39:35,630 A stamper with the seal of the state of South Carolina. 592 00:39:36,360 --> 00:39:41,020 And all suggest that Sam is hoping to remain at large indefinitely. 593 00:39:41,320 --> 00:39:46,360 But other items suggest Israel's mental capacity is afraid, perhaps by stress 594 00:39:46,360 --> 00:39:50,460 and pain drops, and that his plans are mostly delusional. 595 00:39:50,800 --> 00:39:56,820 Here we have a special forces ID for David Sam Clapp, 596 00:39:56,940 --> 00:40:00,540 with various weapons qualifications on the back. 597 00:40:02,060 --> 00:40:05,140 And also here is his... 598 00:40:05,770 --> 00:40:11,450 Military Assistance Command Card, which states that the bearer of this document 599 00:40:11,450 --> 00:40:15,930 is acting under the direct orders of the President of the United States and 600 00:40:15,930 --> 00:40:18,010 therefore do not detain or question him. 601 00:40:18,670 --> 00:40:24,070 In June 2009, Deborah Ryan is sentenced to probation for her role in aiding 602 00:40:24,070 --> 00:40:25,070 Israel in its escape. 603 00:40:25,550 --> 00:40:29,970 Sam faces an additional 10 years on his original 20 -year sentence. 604 00:40:30,310 --> 00:40:33,490 When he appears in court, he seems disoriented. 605 00:40:34,120 --> 00:40:38,740 He didn't carry any of that swagger that you'd expect from anyone who promoted 606 00:40:38,740 --> 00:40:40,880 himself as some kind of whiz kid investor. 607 00:40:41,800 --> 00:40:46,140 He talked a lot about his physical ailments, how he had had 12 spinal 608 00:40:46,260 --> 00:40:51,040 he had two rods in his back and ten screws in his back, and that he suffered 609 00:40:51,040 --> 00:40:55,240 great deal of pain and that he didn't want to cause any more harm to his 610 00:40:55,240 --> 00:40:59,940 or embarrassment to his family. He was rather devastated by what had happened, 611 00:41:00,040 --> 00:41:03,420 what he had done to his life, what he had done to his family's life. 612 00:41:03,880 --> 00:41:08,700 Eventually, Israel is given two extra years on top of his 20 -year sentence. 613 00:41:09,040 --> 00:41:12,220 As a federal prisoner, he has no chance of parole. 614 00:41:12,540 --> 00:41:19,220 His $500 ,000 bail is forfeited because he ran, becoming the last money Israel 615 00:41:19,220 --> 00:41:20,220 loses. 616 00:41:20,580 --> 00:41:25,280 Ironically, his own family had put that money down years before when he was 617 00:41:25,280 --> 00:41:26,280 first arrested. 618 00:41:26,300 --> 00:41:29,160 It's another example of how he didn't... 619 00:41:29,770 --> 00:41:34,270 think things through and how he wound up hurting some of the people he loved the 620 00:41:34,270 --> 00:41:35,249 most. 621 00:41:35,250 --> 00:41:40,570 Today, what remains of Bayou is locked in bankruptcy and court proceedings as 622 00:41:40,570 --> 00:41:45,010 former investors try to reclaim what few assets still remain. 623 00:41:45,430 --> 00:41:49,770 There's a lot of very sophisticated, very competent people working on it, 624 00:41:49,770 --> 00:41:54,550 lawyers. They will do what they do. And someday I may see a check. 625 00:41:54,870 --> 00:41:56,690 And that may be a long time from now. 626 00:41:57,930 --> 00:42:03,510 And many of the questions that swirl around Sam Israel and Bayou are still 627 00:42:03,510 --> 00:42:08,230 unanswered. How did Israel let Bayou spin so far out of control? 628 00:42:08,730 --> 00:42:13,610 And how did he allow himself to be fooled by con artists that promised him 629 00:42:13,610 --> 00:42:18,990 impossible? He has been absolutely forthright in recognizing that what he 630 00:42:18,990 --> 00:42:22,710 wrong, recognizing that he has to pay a penalty for it. 631 00:42:23,000 --> 00:42:28,900 And he's got to live with the crushing failure here, not just in a business 632 00:42:28,900 --> 00:42:30,380 sense, but in a personal sense. 633 00:42:31,340 --> 00:42:34,860 Sam ought to be down in Washington testifying before the Senate Finance 634 00:42:34,860 --> 00:42:38,320 Committee about finance fraud and how to catch it. 635 00:42:39,300 --> 00:42:40,380 Sam knows how to cheat. 636 00:42:41,480 --> 00:42:46,900 Israel's a crook. I mean, he didn't go in it to steal, but fraud is fraud. And 637 00:42:46,900 --> 00:42:51,340 he took my money, and my money is gone, and he swindled me. 638 00:42:52,089 --> 00:42:54,050 There's no way to put a nice spin on that.