Police probe ex-fund manager's possible suicide

BOSTON (Reuters) - Law enforcement officials are searching for a former hedge fund manager who cheated investors out of more than $400 million and once considered suicide, after finding his car on a New York bridge, police said on Tuesday.

Police began to suspect that Samuel Israel III might have killed himself to avoid a 20-year prison sentence after he failed to turn himself in at the prison outside of Boston and his abandoned vehicle was found on the Bear Mountain Bridge which crosses the Hudson River at its deepest point. The words "Suicide is Painless" were etched onto the vehicle.

However, after more than a full day of searching for a body, police had found nothing, prompting the U.S. Marshals Service, which tracks federal fugitive felons, to launch its own search for Israel, police said.

"We cannot establish that he jumped off the bridge," said Bruce Cuccia, a senior investigator with the New York State Police, adding that marine units will keep patrolling the shoreline and estuaries over the next days. No one saw Israel jump and video cameras on the bridge did not catch him exiting the vehicle, Cuccia said.

Bayou still ranks as the most brazen hedge fund industry fraud ever, according to court papers which show that Israel and several partners fabricated returns, made up an accounting firm and set up a broker dealer to keep their elaborate ruse going for years.

A call to Israel's lawyer was not returned.

Israel wrote that he once considered killing himself after his business partner was sentenced to prison for the fraud.

Israel's disappearance marks the latest chapter in the colorful life of the son of a prominent New Orleans family who lied for years about his successes in the red-hot $1.8 trillion hedge fund industry, former investors and analysts said.

With promises of big returns, the 48-year-old Israel wooed clients like Indiana's DePauw University and dozens of wealthy private investors into Stamford, Connecticut-based fund Bayou.

However for eight years, Israel spun ever bigger lies to keep hundreds of investors in the dark about their money.

As his lies unraveled, Israel said he suffered debilitating back pain, abused medication and endured six spinal surgeries.

"Living the lie on a daily basis cost me my marriage as my life spun out of control and this horrible secret I lived literally ate me up from the inside. My daily guilt was so overwhelming that it impacted my body physically," Israel wrote to U.S. District Judge Colleen McMahon, who sentenced him to 20 years in prison in April.

Former investors recall a more confident Israel, however, remembering him as having been a fairly good trader who told bold faced lies to keep attracting new money. Several investors said it was impossible to see red flags and avoid the fund's eventual collapse.

Israel also acknowledged an urge to die instead of living out his days behind bars.

"I considered taking my own life," Israel wrote to McMahon, adding: "But I also have learned that my life is not mine to take and I have to accept responsibility for my actions no matter what the consequence."

But one of Israel's former investors, who asked not to be named in light of the ongoing probe, said hearing that Israel may have plunged to his death struck him as odd. "I could see Sam overdosing on pills and quietly drifting off to sleep but not jumping off a bridge. That's not his style. So until they find a body, I am not convinced this isn't another ruse and he isn't on the run," the person said.

If Israel did kill himself it would mark the second suicide in as many months by former hedge fund managers convicted of fraud. In May Kirk Wright, who was convicted of having cheated clients including professional football players out of $150 million, hung himself in his jail cell.

(Additional reporting by Martha Graybow, editing by Richard Chang)