Federal prosecutors and defense attorneys for one of the men involved in the notorious $450 million Bayou hedge fund swindle are locked in a bitter pre-sentencing battle of claims and motions over how much time he should spend in prison.
At the center of the fight is James Marquez, a one-time, high-flying portfolio manager who faces years in the slammer for his role in the 2005 collapse of the Bayou Financial Group – a hedge fund that appears to have swindled almost $350 million of the $450 million assets it managed.
Federal prosecutor Margery Feinzig is seeking a sentence for Marquez of between 51 months and 60 months.
The fund folded after it was discovered that its impressive track record was falsified, and that a phony accounting firm was created to certify its bogus results.
Marquez claims that his role in the fraud was limited to trying to push losses from its 1998 launch into 1999 in the hope that he could recover the losses.
Lawyers for Marquez also argued that fund founder Samuel Israel and Chief Financial Officer Daniel Marino perpetrated the vast majority of the fraud after Marquez’ departure in 2000.
They added that his community service, lack of previous violations and mental illness should be taken into account, and that the judge should impose a “non-incarceratory” sentence.
Marquez’ lead lawyer also argued that key documents submitted by prosecutors were forgeries.
Feinzig, meanwhile, in a sentencing memorandum filed last week wrote that not only had Marquez not alerted investors or the authorities to the fraud, but also he managed to cut a series of lucrative side deals with Israel that resulted in the fraud being covered up for more than six years.
As noted by hedge-fund industry veteran Greg Newton in his Naked Shorts blog, one of the government’s most interesting points has to deal with Marquez’ role as a stock tout for KFX Inc., a controversial energy company.
Promising investors for decades that it could deliver commercially viable, cleaner burning coal, short-sellers had long been skeptical of the claims.
But Marquez’ pumping of KFX proved lucrative, earning him fees as a consultant to both the company and the fund, the Feds said.