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Manhunt Stepped Up for Hedge-Fund Con Man

Reuters
Wednesday, 11 Jun 2008 | 1:22 PM ET

The manhunt for a hedge fund manager who skipped his prison date and may have killed himself dragged into a third day Wednesday as police look for a body and other agents search for a rich man who may be on the run.

Police thought Samuel Israel III, who was scheduled to begin serving a 20-year prison term for fraud June 9, may have plunged to his death after finding his abandoned car on the Bear Mountain Bridge in New York.

The words "suicide is painless'' were written on it. (Footage of the scene and the message can be seen in the accompanying video).

The phrase was the title of the theme song from the television show ''M+A+S+H.'' But with no body found, other government agencies quickly jumped on the case and are now broadening their search for the man who engineered the $1.8 trillion hedge fund industry's most brazen and long-running fraud.

Israel, 48, and his partners pocketed millions as investors in his Bayou Group hedge fund lost more than $400 million over eight years, court papers show.

"We haven't found him yet,'' Tim Miller, an investigator with the New York State Police said Wednesday, explaining that the FBI and U.S. Marshals Service are looking for a person while police are looking for a body.

The Last Big Con?
Hedge fund manager Samuel Israel, who was facing 20 years in prison, is now said to be at the center of a fake suicide investigation, reports CNBC's Mary Thompson.

The bridge where Israel's car was found crosses one of the deepest parts of the Hudson River and police said it could take a few days for a body to surface and wash ashore.

But in nearly 30 years of keeping records, police have found the bodies of all but one jumper fairly quickly, Miller said.

Suspicions that Israel may have staged his death mounted because there were no witnesses, and video cameras along the bridge's spans showed the car traveling on the bridge but were not clear on what happened next.

"The tapes were inconclusive,'' Miller said after reviewing them. The FBI now has the tapes.

Several investors who were duped by Israel's inflated resume and promises of strong returns at a time wealthy people and pension funds were putting billions into hedge funds also wondered whether Israel might be staging yet another scam.

"Until they've got a body, I'm not going to believe it,'' said Charles Gradante, principal of the Hennessee Group, which recommended Israel's Bayou Group to his own clients.

He remembers Israel, the son of a prominent New Orleans family who boasted about decades of experience at some of the world's best hedge funds, as someone who told "boldfaced'' lies and likely had plenty of money stashed abroad.

Israel, who once hinted at suicide in a letter to the judge sentencing him, pleaded in April with U.S. District Judge Colleen McMahon for a lighter prison term because he suffered debilitating back pain and was addicted to pain killers.

McMahon was not moved and sentenced Israel to 20 years but let him stay free on bail from April to June so that the federal prison system would be able to prepare to take care of his needs.

Israel was scheduled to serve his time at Federal Medical Center Devens, located 40 miles outside of Boston, which houses offenders who need long-term medical or mental health care.

If Israel is on the run it would not be the first time for a hedge fund manager to have escaped.Kirk Wright, who recently hanged himself in his jail cell after having been convicted of cheating professional football players, was missing for months. Also Michael Berger, another hedge fund manager who lost millions, was arrested last year in Europe after having evaded authorities for years.

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