The Fall of Sam Israel

octopus sam israel guy lawson

Sam Israel is a scumbag. He is a liar and a cheat. He admits so in Octopus by Guy Lawson. Israel was the nefarious trader behind the Bayou Funds, one of biggest hedge fund ponzi schemes, at least until Bernie Madoff finally fell to Earth.

Lawson met with Israel while Israel was in prison. He want to write about Israel’s fraud at the Bayou Fund. Lawson found him to be devious, defiant, impossible to not like.

Israel started as a trader, not an investor. He made his money on the short movements of stocks. He made his big money by cheating. He would front run client trades. He would trade on inside information.

Then he decided he want to be his own boss, so he started the Bayou Fund. But he was not successful. Rather than disclose this to investors, he rebated a big chunk of brokerage fees to show a good return. He figured he could make it up in the next trade.

Then he missed again. Again, he didn’t want to admit his shortcomings so he chose the path of deceit. But now the amount was too much to fix with creative bookkeeping. He turned to a complete fabrication of financial results. Israel called this “The Problem.”

He kept trading to try to fix The Problem. He thought the next trade could make enough to fix The Problem. But it kept getting bigger as his actual results continued to be well below the result he was telling investors.

Then Israel ran into a shadowy figure that told him about a secret market for prime government bonds sold at huge discounts. He could get enormously wealthy by trading in the secret market. Israel thought he had found a solution to The Problem.

The publisher was nice enough to send me a copy of the book. It caught my eye because it offered an insight into the mind of a fraudulent fund manager and the machinations of a ponzi scheme. It’s a twisted mind. The tale of trying to fix The Problem is even more twisted.

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3 Responses to The Fall of Sam Israel

  1. Kevin L. Warmack, E.J.D. July 29, 2013 at 9:09 am #

    I saw this story on American Greed over the weekend. What we had here was a complete fraud and an incompetent liar. He deserves to spend every moment in Federal prison!!

    • Doug Cornelius July 29, 2013 at 10:58 am #

      I’ve got the American Greed episode sitting it my DVR. Sounds like I need to watch it.

      One of the nagging things about the book was buying into the outlandish story. Was Guy Lawson getting played by Israel? I had a hard time telling if Israel was spinning a tale.

      Once I put my faith in Lawson as journalist, I felt better. I had confidence that he checked facts and sources. For more dubious descriptions, Lawson quotes Israel or one of the other participants.


  1. Monsters of Compliance – Werewolf | Compliance Building - October 24, 2013

    […] investment manager before he crossed the line and turned his business into a Ponzi scheme. In reading the story of Sam Israel, you can point to the event that turned him from a struggling investment manager into a fraudster. […]