Israels Plea Delayed Again; Ordered to Evaluation

Date: Wednesday, October 29, 2008
Author: Lindsay Fortado and Thom Weidlich, Bloomberg

The plea hearing of Sam Israel, the founder of hedge-fund firm Bayou Group LLC who jumped bail rather than face prison for a $400 million fraud, was delayed a third time so he may undergo medical and psychological evaluation.

Israel, 49, is accused of faking his suicide and fleeing the day he was to begin a 20-year sentence for his federal conviction in a hedge fund Ponzi scheme. His last plea hearing on Sept. 16 was delayed so he could continue treatment for drug abuse.

``We think it's the correct result,'' said Israel's lawyer, Barry Bohrer. ``His medical condition is such that there is a disagreement among medical experts as to what the standard of care is.''

In August, U.S. District Judge Kenneth Karas in White Plains, New York, delayed Israel's plea due to the hedge fund manager's addiction to methadone. Israel said his ability to understand the proceedings was ``60 to 70 percent.'' Last month, Karas again delayed Israel's plea because his ability to participate in the case hadn't sufficiently improved.

Karas today ordered Israel to undergo evaluation at a medical facility at a federal prison complex in Butner, North Carolina, said Herb Hadad, a spokesman for Manhattan U.S. Attorney Michael Garcia. Israel's next hearing is scheduled for Feb. 27 in White Plains.

`Numerous Back Surgeries'

Israel's medical disorder is a ``pain management issue'' associated with ``numerous back surgeries,'' Bohrer said.

Israel, who appeared today in White Plains federal court, had a bandage on his right hand, Hadad said. Bohrer, Israel's lawyer, said he broke it in ``an accident,'' declining to comment further.

Israel surrendered to police in Southwick, Massachusetts, in July, three weeks after his car was found abandoned on an upstate New York bridge with the words ``suicide is painless'' traced on the windshield. He must forfeit his $500,000 bail and faces as much as 10 additional years in prison.

Israel pleaded guilty in 2005 after admitting he hid hundreds of millions of dollars in losses at Stamford, Connecticut-based Bayou. Within a week of his disappearance June 9, when he was to report to the Fort Devens federal prison in Massachusetts, state and federal authorities ruled out suicide and started an international manhunt.

On July 2, Israel rode a scooter from a campground to police headquarters in Southwick, more than 100 miles from where his car was found. The next day, U.S. District Judge Colleen McMahon in Manhattan, who had sentenced him in the fraud case, ordered he begin his term and said she would seek to forfeit his bail.

Israel's Girlfriend

Prosecutors have also filed charges against Debra Ryan, Israel's girlfriend, accusing her of helping him flee.

Karas refused to take Israel's plea on Aug. 6. Earlier that day, the former fund manager had attempted to plead guilty before a magistrate judge, who told him he had to wait until he appeared before Karas. Israel told Karas he was taking methadone to end his addiction to pain patches he had used for a back condition.

On July 28, McMahon ordered Israel to forfeit his Yamaha scooter, a Tiffany & Co. watch, $932 in cash and the 2007 Coach Freelander recreational vehicle he lived in while a fugitive. The property will be applied to the judgment entered against him, the judge said at the time. Israel owes investors $150 million.

The case is U.S. v. Israel, 08-cr-00723, U.S. District Court, Southern District of New York (White Plains).

To contact the reporter on this story: Lindsay Fortado in U.S. District Court for the Southern District of New York in White Plains at lfortado@bloomberg.net