Hedge fund swindler Israel denied bail, jailed

By Paul Thomasch and Matt Daily

NEW YORK (Reuters) - Hedge fund swindler Samuel Israel III faced a fresh charge of bail jumping on Thursday and was ordered to jail immediately, one day after his mother convinced him to end a high-profile run from justice.

Israel, who faked his own death nearly four weeks ago to avoid a 20-year prison sentence for cheating investors out of $450 million, claimed he really tried to commit suicide in the past 48 hours by overdosing on pills.

"I thought it was better to do myself in than to turn myself in," he told Judge Colleen McMahon in federal court in Manhattan. "I was unsuccessful."

When that attempt failed, Israel said, he realized that God had wanted him to surrender rather than kill himself. This and his mother's pleas made him leave the campground where he had been hiding out in a mobile home and ride his blue scooter to a police station in Southwick, Massachusetts.

Flanked by two lawyers, the 48-year-old co-founder of Bayou Group hedge fund was dressed in a blue T-shirt and shorts and smiled and waved to someone in the packed federal courtroom when he entered just past 10 a.m. ET.

"Welcome back, Mr. Israel," McMahon snapped.

McMahon originally sentenced Israel in April but allowed the man who engineered the $2 trillion hedge fund industry's most brazen scam ever to remain free for weeks so that prison officials could get the medications he needs ready.

This time, she denied him bail and withdrew her recommendation that he serve his sentence at a low-security prison in Ayer, Massachusetts, where he could receive medical attention. Israel has a pacemaker and once battled an addiction to painkillers.

"I'm through concerning myself with Mr. Israel's requirements," McMahon said. "It was thrown in my face last time."

Israel will likely face additional prison time for having failed to show up at the Massachusetts prison on June 9. He is due back in court within a month and in the meantime will be place in a federal holding facility in Manhattan.

Last month Israel briefly duped police into thinking he had killed himself by having abandoned his car on a New York bridge above the Hudson River with the words "suicide is painless" etched in dust on the hood. With no body however, police quickly realized that Israel was a fugitive and spent thousands of hours searching for him around the country.

McMahon said on Thursday that his original bail would be forfeited and would go to repay some of the expense associated with the manhunt.

(Additional reporting by Svea Herbst-Bayliss in Boston; Editing by Brian Moss and Dave Zimmerman)