Israel Says He's Killed In Bizarre Interview

Jun 27 2012 | 11:59am ET

Defrauding investors of $450 million may not be the worst thing that Samuel Israel has ever done.

The mastermind of the Bayou Group hedge fund fraud, who is serving a 22-year sentence, told The New York Times' Andrew Ross Sorkin that he's a killer.

"I took a man's life," Israel told Sorkin in a jailhouse interview. "I shot him twice."

"I've seen someone with their head blown off maybe two feet back—as close as I am to you," he added.

The story is told in a new book about Israel, Octopus: Sam Israel, the Secret Market, and Wall Street's Wildest Con by Guy Lawson, due to be released next month. Lawson told Sorkin he believes the story is just that—a story—but it goes like this: Israel shot and killed a "Middle Eastern guy" who sought to ambush con man Robert Booth Nichols as he sought to make a secret trade at a Hamburg, Germany, bank. Sorkin asked Israel what became of the victim's body.

"Bob," who claimed to be a former Central Intelligence Agency employee, "made a couple of calls. These people can do anything. They can get rid of a body."

Then the conversation took a surreal, Oliver Stone-style turn.

"Come on," Israel said. "They can kill presidents. The J.F.K. thing," indicating that Israel is a subscriber to the conspiracy theory that John F. Kennedy was assassinated by the CIA.

To justify his claim, Israel told Sorkin that he had a tape of the assassination stolen from the Federal Bureau of Investigation. "I know it makes me look like a crackpot," Israel said. "But I know it's real. Look into my eyes—I don't care if people think I'm crazy."

"I don't think he's lying," Lawson offered, "but that doesn't mean he's telling the truth. That's the nature of confidence games—it becomes impossible to tell where the truth ends and deception begins."

Israel, whom Sorkin describes as affable and "likeable," himself plays on that perception.

"I'm a proven liar," he said. "Don't believe anything I say."

But, he then insists, "I'm not a liar. I became a liar."

Israel's scam came apart in 2005, and he pleaded guilty to fraud charges. But on the morning he was due to report to prison to begin a 20-year sentence, he fled, faking his suicide and going on the run for two months. He turned himself in, he says, after an episode of America's Most Wanted finally showed him how many people he hurt.

"I said, 'Oh my god!'"

Israel said the Ponzi scheme was his partners' idea, but like almost all Ponzi schemers, "I though, 'I can make this back.'"

"I was a good trader," he said. "I was a workaholic."

"Was it hard to lie in the beginning? No. Did it get harder? Yes."

Israel said that he himself was victimized by a con man as he sought a "secret market" supposedly run by the Federal Reserve. And he said that the Securities and Exchange Commission investigated Bayou just six months before its collapse and "did not see anything wrong," an oversight Israel attributes to its lack of manpower.

When not talking about his fraud or secret killings in Germany, Israel actually offers some good advice.

"Seek as much transparency as possible" if you want to avoid being scammed, he said. "If they do not understand exactly how a manager is making money, do not invest. If there is a secret process that cannot be explained, run."

During his time at the Butner, N.C., prison that is now his home—and will be until he's 70, by which time what's left of his hair will be quite long; he told Sorkin, "I'm never going to cut it until I get out"—he's gotten to learn about one man with such a secret process. Israel said that the word around the yard is that fellow Butner inmate Bernard Madoff is "a terrible guy. Not a nice dude."

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