Bayou's Marino Gets 20 Years for $350 Million Fraud

Bayou's Marino Gets 20 Years for $350 Million Fraud

Jan. 29 (Bloomberg) -- Daniel Marino, the former finance chief of the bankrupt hedge-fund firm Bayou Group LLC, was sentenced to 20 years in prison for defrauding investors of more than $350 million.

The judge cited the size of the fraud and Marino's role as the ``linchpin'' in the scheme when determining the sentence. The maximum term allowable was 50 years. Marino, 48, who had sought leniency due to his cooperation with prosecutors, was ordered imprisoned immediately. He was handcuffed by U.S. marshals in the well of the court and led away.

``You are as much a career criminal as any mobster or any drug kingpin,'' U.S. District Judge Colleen McMahon told him today in Manhattan federal court. ``There is simply no alternative but to punish you for your life of crime.''

At least 16 corporate executives have been sentenced to 20 years or more in prison since 2003. They include former WorldCom Inc. Chairman Bernard Ebbers, who received 25 years for fraud, and former Enron Corp. Chief Executive Officer Jeffrey Skilling, who got a 24-year term.

Bayou was among the biggest hedge-fund firms to come under federal scrutiny for missing money. The company filed for bankruptcy in May 2006, prompting lawsuits that claimed it operated a Ponzi scheme that paid off old investors with money from new investors.

`Nine Figures'

Marino apologized before sentencing, saying he was ``truly sorry.''

McMahon said she will order him to pay restitution in the ``nine figures,'' saying she will set the amount within 90 days. Marino's lawyer said he will appeal the sentence.

His client began helping prosecutors after an investor discovered his confession and suicide note at Bayou's Stamford, Connecticut, office in 2005. Along with the firm's co-founder Samuel Israel, Marino pleaded guilty to using fake results and a phony auditing firm to lure investors to participate in the fund, which collapsed that year. James Marquez, another Bayou co- founder who pleaded guilty, was sentenced last week to 4 1/2 years in prison.

Hedge funds are private, largely unregulated pools of capital whose managers can buy or sell any assets and participate substantially in profits from money invested. Globally, managers oversee more than $1.8 trillion, Hedge Fund Research said.

The case stems from a scheme hatched by Israel and Marquez to falsify financial disclosures after Bayou sustained substantial losses in 1998. The initial $6 million fraud grew into a scheme costing investors more than $350 million, prosecutors said.

Sham Accounting

Later, Israel and Marquez asked Marino, a certified public accountant, to form a sham accounting firm named Richmond- Fairfield Associates to sign off on fake financial documents sent to clients. Marino reluctantly agreed in a bid to save the firm, his lawyer, Andrew Bowman, contended in court papers.

When Marino pleaded guilty, prosecutors said he faced more than 20 years in prison. Individuals who cooperate with prosecutors typically receive greatly reduced sentences. Marino and Israel helped the government build a case against Marquez, who left Bayou after an initial $6 million fraud.

Acting As Gatekeeper

The fraud collapsed when Seattle-based Silver Creek Capital Management sought to withdraw $53 million in August 2005. According to Bowman, Israel told Marino to write a check although Bayou lacked the funds. Marino wrote the check and then penned a six-page confession and suicide note that was recovered by an investor at Bayou's Stamford office, Bowman said.

Bowman asked for leniency, citing his client's recurring bouts of cancer, hearing loss, depression and attempted suicide. The lawyer claimed Marino has been sickly since age 5, when complications from the mumps left him with severe hearing loss.

McMahon said that, rather than acting as a gatekeeper to keep Bayou officials honest, Marino acted instead to help prevent his codefendants' crimes from being detected.

The judge told Marino what he did was ``a theft, a deception, perpetrated out of a sense of arrogance and belief that the ruled didn't apply to you.''

The case is U.S. v. Marino, 05-cr-1036, U.S. District Court, Southern District of New York (Manhattan).

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