Bayou's Marino Dabbled in Due Diligence

Investors in the star-crossed Bayou Management hedge fund have a new irony to ponder.

A venture headed by Daniel Marino, Bayou's chief financial officer, was the main investor in an off-shore company that specialized in performing corporate background checks and due diligence for online gambling sites.

Marino's IM Partners, which was run out of Bayou's Stamford, Conn., headquarters, sunk a $10 million investment into Kycos, a two-year-old firm based in the Isle of Man, according to documents and sources. Kycos closed its door in July after IM Partners withdrew its financial backing.

Kycos is short for Know Your Customer Outsourced Services. In the financial world, the phrase "know your customer'' is commonly used to refer to due diligence undertakings.

The collapse of Kycos occurred around the time that things began to unravel at Bayou, the hedge fund led by Samuel Israel that federal prosecutors allege defrauded investors of nearly $300 million. For the past seven years, prosecutors say, Bayou systematically overstated gains and losses, and relied on a phony accounting firm to prepare false audits for investors.

Earlier this month, prosecutors in New York filed a civil forfeiture suit against Bayou, seeking to lay claim to $100 million of the hedge fund's money that was seized earlier this year by Arizona regulators. Arizona officials seized the money after detecting a series of suspicious bank transfers by Bayou and other parties. The $100 million is all that's believed to remain from the fund that had about 100 investors at its peak and purported to only trade stocks.

The Kycos deal, meanwhile, is the third non-stock investment involving IM Partners, which some believe is short for "Israel Marino Partners," to surface in recent weeks. The New York Times previously reported that IM Partners had agreed to provide financing for a movie called "Yellow,'' but the deal fell apart. A week ago, Bloomberg reported that IM Partner had invested $2 million in Debit Direct, another Isle of Man company with close ties to Kycos.