Originally Posted - December 19, 2006

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WHITE PLAINS--- James G. Marquez has pleaded guilty in White Plains federal court to conspiring to defraud investors in the now-collapsed Bayou hedge funds of more than $10 million.

Specifically, Marquez admitted that from July1996 through October 10, 2001, he agreed with Samuel Israel III and Daniel E. Marino, both of whom pleaded guilty to related charges last year, to induce investors to contribute in excess of $10 million to the Bayou funds by misleading them into thinking the funds were highly profitable, when in fact they were losing money.

Marquez, who founded Bayou Fund LLC and Bayou Fund Ltd. with Israel, admitted during his guilty plea allocution that he was responsible for helping to formulate trading strategy. He further admitted that he conspired with Israel and Marino to defraud investors by creating fake financial statements that were distributed to investors. Marquez admitted that between 1996 when the funds were set-up and 2001, when he left, the funds sustained consistent losses, but investors were regularly told that the funds were reaping substantial gains.

According to the felony Information charging Marquez, he Israel and Marino hatched the scheme after the funds sustained a second year of losses. The three agreed that Marino, a certified public accountant, would form a sham CPA firm named Richmond-Fairfield Associates, to sign off on fake financial statements that were sent to future and current investors. Thereafter, beginning in 1999, they sent out, among other things, annual financial statements, in which Bayou falsely asserted that Richmond-Fairfield Associates was an independent auditor that had audited Bayou and certified its financial statements. According to publicly filed documents, a later series of Bayou funds collapsed in August 2005, after Israel and Marino attempted to recoup mounting losses by investing contributions to the funds in private placement transactions in the United States and abroad. The private placement transactions turned out to be frauds, according to publicly filed documents.

Israel and Marino each pleaded guilty on Sept. 29,2005, Israel to conspiracy, investment adviser fraud and mail fraud charges, and Marino to those charges and a wire fraud charge. They are awaiting sentencing. Their guilty pleas followed the filing of a civil forfeiture action by the United States Attorney's Office for the Southern District of New York against the remaining Bayou assets on Sept. 1, 2005.

According to the civil complaint, approximately $100,010,673.68 in Bayou funds were the subject of an Arizona state court seizure order. Those were the funds that had been transferred by Bayou in connection with the purported private placement transactions which turned out to be fraudulent. In connection with these transactions, Bayou transferred investor funds through various banks located in New York, London, Hamburg, back to London, and ultimately to an account in Flemington, NJ, where it was seized and forfeited pursuant to an order of the Arizona Superior Court.

In October, after the State of Arizona filed a notice of release of seizure of the funds and an application for order of transfer of funds, an Arizona Superior Court Judge issued an order directing the transfer of the released funds to the custody of the U.S. Marshals. The State of Arizona's release of the funds came about as a result of the submission of facts by the Federal Bureau of Investigation sufficient to demonstrate that the seized money is the property of the victims of the Bayou fraud. That investigation involved the tracing of the transfers of the funds from Bayou's bank accounts in New York to bank accounts in Europe and ultimately to the New Jersey bank account where the money was seized and forfeited.

According to the federal civil Complaint, the United States Attorney's office will, upon entry of a final order of forfeiture in the civil action, request that the forfeited property be distributed pro rata to victims of the fraud offenses.

The investigation is continuing.

As a result of his guilty plea, which was entered beforeU.S. Magistrate Judge George A. Yanthis, Marquez faces a maximum term of five years in prison on the conspiracy charge. He also faces a fine of up to $250,000 or twice the gross gain or loss resulting from the crime, an order of restitution in the amount of $6,256,650 and forfeiture of ill-gotten gains.

Marquez is scheduled to be sentenced on March 19. 12-19-06

© 2006 North Country Gazette