Guilty Pleas for Bayou Brass

Updated from 3:03 p.m. EDT

The wealthy investors who got duped in the Bayou Management hedge fund scandal got a measure of justice when two top executives entered guilty pleas Thursday.

Daniel Marino, the former chief financial officer of Bayou, pleaded guilty to four felony counts before a federal judge in White Plains, N.Y., early in the morning. A few hours later, Samuel Israel III, Bayou's founder and manager, did the same.

Federal prosecutors have accused both men of defrauding investors out of $300 million while running their hedge fund that at one time claimed to have more than $400 million in assets.

With both men pleading guilty, it brings a quick end to the criminal investigation in a hedge fund soap opera that has been playing out since mid-August. Both men pleaded guilty to a variety of mail fraud, wire fraud, conspiracy and investment adviser fraud charges.

In a related civil action, the Securities and Exchange Commission asked for the appointment of a receiver to dispose of the fund's remaining assets.

Earlier this month, prosecutors in New York filed a civil forfeiture suit against Bayou, seeking claim to $100 million of the hedge fund's money that was seized previously by Arizona regulators from a bank account. Arizona officials seized the money after detecting a series of suspicious bank transfers by Bayou and other parties.

Prosecutors say Bayou systematically overstated gains and losses and relied on a phony accounting firm to prepare false audits for investors for years. Israel and Marino sought to conceal the fraud by reporting "fictitious rates of return" in weekly newsletters sent to investors.

About 100 wealthy investors and smaller hedge funds invested $450 million in Bayou since its inception in 1996.