Defrauded fund investors sue Goldman

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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