CORRECTED-Bayou fund founder seeks to leave prison early, cites health

Wed May 7, 2014 6:19pm EDT

(Corrects 6th paragraph to make clear Israel surrendered in July not August 2008)

By Jonathan Stempel

NEW YORK May 7 (Reuters) - Samuel Israel, a hedge fund manager who faked his own suicide to avoid prison after admitting to running a $450 million fraud, is trying to shorten his 22-year sentence or be set free, saying his health has worsened and authorities can't take care of him.

According to a Wednesday court filing, the founder of Bayou Group LLC nearly died last year after officials at the federal prison complex in Butner, North Carolina failed to replace the battery for his pacemaker, only doing so after he fell, hit his head and lost consciousness.

Israel, 54, also suffers from a degenerative spinal condition but has been refused treatment to alleviate chronic pain, the filing said. A Manhattan doctor who once treated Israel submitted a letter saying it would be "medically irrational" to deprive Israel of opioids to treat the pain.

"He's one of those people who is expensive to take care of in a humane way," Israel's lawyer Shane Landry, who said he last saw his client three months ago, said in an interview. "Prison officials keep telling us he's not in as much pain as he says, but I've seen him. He's in pain. He has trouble getting around."

Butner's other inmates include Bernard Madoff, the Ponzi schemer. Madoff, 76, is housed in a medium-security section of the complex, while Israel is in a low-security section.

Israel had pleaded guilty in New York in 2005 to defrauding Bayou investors, only to spark an intense manhunt in June 2008 when his GMC Envoy was found on Bear Mountain Bridge north of New York City, with the words "suicide is painless" scrawled in dust on the vehicle hood. He surrendered the next month.

A spokeswoman for U.S. Attorney Preet Bharara in New York declined to comment. Butner officials did not immediately respond to a request for comment. Israel could not be reached.

U.S. District Judge Colleen McMahon in Manhattan sentenced Israel to 20 years in prison for the fraud, and U.S. District Judge Kenneth Karas in White Plains, New York added two years for the 2008 escapade. Israel is not eligible for release until Sept. 12, 2027.

Landry, though, said his client's "near death experience" and cardiac condition, and the lack of proper medical care, justify shortening or ending the incarceration.

"It is an uphill climb, I admit that," Landry said about the prospect that Israel might be freed soon. "When the judge (McMahon) sentenced him, she relied very heavily on Bureau of Prisons' assurances that they could take of him. Our argument is that they can't."

The case is U.S. v. Israel, U.S. District Court, Southern District of New York, No. 05-cr-01039. (Reporting by Jonathan Stempel in New York; Additional reporting by Svea Herbst-Bayliss in Boston; Editing by Cynthia Osterman)

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