Bloomberg – The brother of former Bayou Group LLC finance chief Daniel Marino, who is serving 20 years in prison, pleaded guilty to a federal charge that he helped conceal a $400 million fraud at the bankrupt hedge-fund firm.

Matthew Marino entered his guilty plea yesterday in U.S. District Court in White Plains, New York, federal prosecutors said. Marino faces as long as three years in prison when he’s sentenced on Dec. 4, according to prosecutors.

Marino admitted “that he knew a fraud was being perpetrated on Bayou investors,” U.S. Attorney Michael Garcia said yesterday in a statement.

Daniel Marino was sentenced in January to 20 years in prison for defrauding investors. Bayou co-founder Samuel Israel is serving a 20-year prison term.

Bayou, based in Stamford, Connecticut, was among the biggest hedge-fund firms to come under federal scrutiny for missing money. Bayou filed for bankruptcy in May 2006, prompting lawsuits claiming it operated a Ponzi scheme that paid off old investors with money from new ones.

Defense attorney Eugene Riccio said yesterday in a phone interview that Matthew Marino pleaded guilty to misprision of a felony for failing to report the crime. Marino faces as long as 27 months in prison under federal sentencing guidelines, Riccio said. He declined to comment further.

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International Herald Tribune- Samuel Israel 3rd bilked his investors out of $250 million, but they are hoping to recoup some of their money from one of Wall Street’s deepest pockets: Goldman Sachs.

Bayou’s creditors were taking aim at Goldman even before Israel, the former manager of the Bayou Group hedge fund firm, surrendered to the authorities on July 2. His faked suicide on a Hudson River bridge 40 miles north of Manhattan and subsequent disappearance on the day he was to start a prison term had set off an international manhunt.

Bayou’s unsecured creditors committee sued Goldman in late May, claiming the investment bank had failed to detect Israel’s fraud, one of the biggest ever in the hedge fund industry, and to investigate signs that something was amiss at Bayou.

For six years, Goldman acted as the so-called prime broker for Bayou, clearing trades, taking custody of securities and providing reports on the fund firm’s investments. The claim seeks $20 million.

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