The Bayou Hedge Fund Group: Case Study

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1. The Bayou Hedge Fund Group was founded in 1996 as Samuel Israel III as a group of institutions and hedge funds were brought together as the founder urged them to eventually rise $450 million in hope that the fund would grow to more than $7 million in a ten year period. The fact that the founder used some of the money for personal use alongside with trading losses occurring with an increasing frequency led to the company experiencing significant problems in 1998 and 1999. Many investors expressed criticism with regard to the company's activities after seeing poor returns in this period. In order to influence investors to continue to support the company's business, its leaders got actively involved in making it seem that it was actually thriving. "The company started a dummy corporation and hired it to audit the group and to provide misleading auditing results that masked its true condition." (Sarna 138) This makes it possible to understand that Bayou had developed an elaborate system to trick investors into thinking that it was perfectly safe for them to keep their money in the company. Many notable figures invested in Bayou, with Stern Investment Holdings and Hennessee Group being among the names associated with the hedge fund. Israel, Daniel Marino (the company's chief financial officer), and James G. Marquez (a co-founder) were later revealed to have conspired with the purpose of defrauding investors. The organization was a fraud from the very first moment of its

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