Embattled hedge fund founder Samuel Israel was the doting protégé of James Marquez, a trader emerging as a key figure at the center of the Bayou Management scandal, his former associates and colleagues said.
Israel, the principal of the $440 million Stamford, Conn.-based hedge fund, notified investors in July that the fund closing.
But no client money was returned, although federal attorneys filed a restraining order on a bank account they alleged held $101 million in Bayou funds.
The most damaging connection between Israel and Marquez is the six-page suicide note left by Bayou Chief Financial Officer Daniel Marino, who blamed the scandal on Israel and Marquez, according to published reports.
This wasn’t the first time that Marquez and Israel had hurt investors, their former colleagues said.
In 1991, Marquez, who founded a hedge fund called JGM Management in 1990, hired Israel to trade stocks, they said.
Details are sketchy on Israel’s performance, but not JGM’s: a March 1993 Wall Street Journal article said the fund was down 40 percent in 1992.
It also included a quote from fund controller Daniel Marino, later of Bayou fame. JGM never recouped its losses and shut down in 1993, a source said.
Marino, Israel and Marquez had also worked together at a hedge fund called HMR Investors.
Marquez and Israel connected in the mid-1980s at F.J. Graber & Co., a small stock-trading firm founded by Frederic Graber, a longtime NYSE member.
At the time, Israel was a young clerk on the trading desk, fresh from Tulane University, and the grandson of a legendary commodities trader.
Marquez was a highly respected former arbitrage trader who had managed money for hedge fund managers George Soros and Michael Steinhardt.
“Jimmy [Marquez] was brilliant – a real contrarian, original and had a ton of guts. Sam Israel was under his wing,” said Peter Jeffer, a former Soros trader and manager of Jeffer Capital Management.
Jeffer, his firm and two traders there, Stanley Patrick and Anthony Correra, were accused by the SEC and federal prosecutors of insider trading in 1990.
Correra and Jeffer settled in 1991; Patrick pleaded guilty in 1994 and was barred from the industry.
Correra, contacted by The Post, said, “Jimmy was around Jeffer and the trading desk a lot in those days. You’d see him jump into a back room with Peter for a meeting. A bunch of times you’d see Israel there.”