NEW YORK (Reuters) - The former chief financial officer of defunct hedge fund Bayou Group was sentenced to 20 years in prison on Tuesday for his role in a scheme that cheated investors of more than $400 million.
Daniel Marino pleaded guilty in September 2005 to conspiracy and three counts of fraud. At a hearing in U.S. District Court in Manhattan, Judge Colleen McMahon ordered him to begin serving the prison sentence immediately.
His sentence was more than four times longer than the prison term handed down last week to one of the firm’s founders, James Marquez, who was ordered to serve four years and three months in prison. Another founder of the firm, Samuel Israel III, awaits sentencing.
It is one of the longest sentences in a white-collar case in recent memory.
Former Adelphia Communications Corp finance chief Timothy Rigas is serving a 20-year prison term, former WorldCom Chief Executive Bernard Ebbers got 25 years, and former Enron CEO Jeffrey Skilling got 24 years — all higher-profile cases.
Judge McMahon said that Marino was more culpable than Marquez, who helped start Connecticut-based Bayou in 1996 but left in 2001 while Marino stayed on. She said Marino was an accounting professional who was supposed to have protected the fund’s investors, but that he went as far as set up a phony accounting firm to conceal its losses.
“You, Daniel Marino, were the linchpin of this fraud,” the judge said. “Without your cooperation they could not have pulled it off.”
While Marino cooperated with prosecutors probing the case, he only came forward when the scheme unraveled and did not provide much useful information, she said. She called him “a sad individual” and said that “I’ve never met anyone, Mr. Marino, who has stolen this much money.”
Prosecutors contend that between 1996, when the first Bayou fund was opened, and its collapse in August 2005, the funds sustained consistent losses. But investors were regularly told that the funds were reaping substantial gains. Bayou’s demise rocked the hedge fund world and led to calls for more oversight of these loosely regulated investment pools.
Marino, 48, will pay restitution to be determined at a later date, the judge said. She said the amount would likely be at least $200 million.
Marino, who suffers from hearing loss and has a speech impediment, made a brief statement at the hearing expressing his apologies to the court.
His lawyer, Andrew Bowman, said after the hearing that his client planned to appeal the sentence.
Richard Blumenthal, the attorney general of Connecticut, where many hedge funds are based, told Reuters in an interview that the sentence “seems very appropriate considering the severity of fraud.”
Michael Miller, a partner at Steptoe & Johnson LLP who focuses on white-collar cases, said the sentence was a troubling outcome for any defendant in the case still to be sentenced.
“The sentence that Marino received is comparable to the heaviest sentence handed down in connection with the last round of accounting fraud cases prosecuted in federal and state court here in New York,” said Miller.
Bowman had asked the judge for leniency, describing Marino as a man with a long history of health and self-esteem issues who had great loyalty to the fund’s founders that was not reciprocated.
Marino was a socially isolated man who had little in his life outside of his job at the fund, his lawyer said, adding that Marino never himself engaged in any trading activities there.
The judge, however, said that Marino’s difficult life was not an excuse for his conduct and that he had led a life of crime by keeping the fraud going for so many years.
“You are as much a career criminal as any mobster or drug kingpin,” she said.
Additional reporting by Paritosh Bansal, Emily Chasan and Dane Hamilton; Editing by Tim Dobbyn