Case Study

Sam Israel was the manager of a Hedge Fund called Bayou.  Everything seemed to be going well for several years, until one day all the investors got a letter saying that he was closing up the firm and would be mailing them all a check in the mail.  He cheated people out of nearly $300 million dollars.

Upon a background check, attorneys found his background to be questionable.  He had been sued several times, and even was accused of doing drugs.  This isn’t the kind of guy you want making decisions about your money.

He claimed in court that he was a bad fund manager, and tried to cover it up by getting more money into the fund, hoping to do better.  Obviously this scheme could only work for so long.

How could this have happened if his books had to be audited?

The accounting firm that signed off on the company financial statements was a fake, set up by Sam to keep the scam going.  The accounting firm had a phone number and even a real physical address, but nothing was there.

If you want to read the full story, read it here: Sam Israel Fraud

What can we learn from this?

1. Always check up on anyone you invest with.  Get background information and be sure to verify that the management team is solid before giving any money.
2. Have your own accountant go through the numbers and call the company to verify.
3. Don’t have a negative outlook on the world because of people like this, but be cautious.  As the saying in real estate goes: trust, but verify.