NEW YORK (CNN/Money) – Investors in Bayou Group, whose top executives pleaded guilty to orchestrating a $450 million fraud Thursday, are undoubtedly wondering how they could’ve gotten sucked in by the Connecticut hedge fund shop.
Founder Samuel Israel III and CFO Daniel Marino pleaded guilty to charges that they raised more than $450 million from investors, lied to them about the fund’s returns and formed a phony accounting firm to audit the firm’s results. State officials in Arizona had seized $100 million in funds believed to belong to Bayou’s investors, according to court documents. (Full story).
Typically, when authorities uncover hedge fund fraud, the investors turn out to be individuals who often don’t have the tools they need to weed out underperforming or potentially criminal managers.
