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More Bayou Blues

The Securities and Exchange Commission (Commission) today filed a civil injunctive action alleging antifraud violations against James G. Marquez, in the United States District Court for the Southern District of New York. Marquez was a portfolio manager and principal of the failed Connecticut-based hedge fund Bayou Fund, LLC (Bayou) from 1996 until October 2001.

The full press release states:

"The Commission's complaint alleges that from 1996 until October 2001, Marquez and his partners, Samuel Israel III and Daniel E. Marino, systematically concealed from then-current and prospective investors Bayou's mounting trading losses by materially misrepresenting the fund's performance in correspondence, periodic account statements, and promotional materials.

The complaint further alleges that, with Marquez's knowledge, Bayou created a sham accounting firm known as Richmond-Fairfield Associates (Richmond-Fairfield) to issue and certify phony "independent" yearly audits of the Bayou's performance, and that, beginning in 1999, Bayou distributed fabricated audit opinions by Richmond-Fairfield attesting to the accuracy and truthfulness of the fund's year-end financial statements.

The complaint further alleges that Marquez, Israel, and Marino carefully concocted Bayou's artificial earnings to create the appearance that the fund had achieved modest, steady, and believable growth, which enabled Bayou to attract millions of dollars in new investor capital.

The complaint further alleges that in or about October 2001, Marquez dissociated himself from Bayou, but took no steps to expose Bayou's continuing fraudulent scheme.

On December 14, 2006, Marquez pleaded guilty to one count of criminal conspiracy for his conduct relating to Bayou. On January 22, 2008, Marquez was sentenced to fifty-one months in prison and ordered to pay $6,259,650 in criminal restitution."

I put the one sentence in bold because it highlights that fallacy of "too good to be true".

Here was a fraud, artfully constructed with false documents, real trading losses that benefited the perpetrators, and nothing was too good to be true. Oh, and everyone was registered.

All of the SEC's investigative suggestions would not have picked this one up - despite being one of the largest frauds in recent history.

Why? Can you tell me?

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Full post as published by Misleading Advertising Law on June 13, 2008 (boomark / email).