Hedge fund scammer to face federal judge in NYC

[July 03, 2008]  NEW YORK (AP) -- The beginning of the end for a financier on the run came when he reached out to his sister-in-law. She then called her mother, who in turn called a man she had grown to trust at the U.S. Marshals Service.

Samuel Israel III, on the lam for three weeks after faking his own suicide to avoid reporting to prison, told his family early Wednesday that he was considering surrendering.

His mother asked Ed Farrell, a supervisory inspector on the U.S. marshals' Fugitive Task Force in Chicago, to promise her son's safety.

"I said, 'We'll assure his safety,'" Farrell said.

Minutes later, the bearded Israel walked into a small-town police station in Massachusetts and surrendered while talking to his mom on his cell phone.

"It was great," Farrell said. "The best part is it was resolved peacefully."

Israel, 49, was due in federal court in Manhattan on Thursday morning. He asked during a court appearance in Springfield, Mass., on Wednesday to go directly to the federal medical prison in Massachusetts where he is supposed to be serving his 20-year sentence.

Judge Michael Ponsor denied the request, forcing him to face an additional charge in New York of failing to surrender to serve a federal sentence. If convicted, he could be sentenced to 10 more years in prison.

Israel was sentenced in April for conspiracy and fraud. Prosecutors said he and two other men scammed investors into putting $450 million into hedge funds by announcing nonexistent profits and providing fake audits, and made millions in commissions on trades that lost money for the investors. The total loss to investors was about $300 million.

Israel disappeared June 9, the day he was to report to prison. His SUV was found abandoned on a bridge over the Hudson River in a New York City suburb with the words "Suicide is Painless" -- the theme song for the "M A S H" television show -- scrawled in dust on the hood.

Authorities scoured the river for a body and quickly determined that the suicide was a ruse -- that Israel fled in his white recreational vehicle with a scooter and his belongings. He was thought to be staying at RV parks, campgrounds or highway rest areas. Authorities also arrested Israel's girlfriend on charges that she helped her lover elude the government.

Israel did not have a lawyer with him at his court appearance Wednesday. His lawyers did not return phone messages. His mother refused comment when reached at her home in Illinois.

Frank Dawson, a U.S. Marshals Service spokesman in Boston, said Israel "knew they were getting close to him, so he probably did the right thing."

Israel's RV was found in Granville, Mass., officials said. He had planned to surrender there, but the town's part-time police department was closed, so he rode a motor scooter to nearby Southwick to turn himself in, authorities said.

Israel walked into the police station wearing a T-shirt and shorts, identified himself and said he was a fugitive wanted by the federal government, officials said.

"He was polite, very contrite and a perfect gentleman at all times," Southwick police Officer Paul Miles said.

It was a humbling fall for Israel, who once enjoyed the glamour of an investment banking and hedge fund career that gave him a home in the playpen of the rich. He once rented a house from Donald Trump for $32,000 a month.

Complicating Israel's time on the run were his medical problems. He has had nine back surgeries, wears a pacemaker and is addicted to painkillers, according to prosecutors.

His ailments -- along with 2 1/2 years of cooperating with authorities -- helped him get less than the maximum 30-year sentence. Judge Colleen McMahon also granted him two months to surrender to prison after he was sentenced.

Farrell, of the Marshals Service, said he had met with family members who live in the Chicago area to encourage them to help investigators if they were ever contacted by the fugitive.

He said he met for 2 1/2 hours a week ago with Israel's parents, Ann and Larry Sr.

"It's more just garnering trust," he said. "You're a complete stranger saying, 'You don't know me, but I want you to trust me.'"

[Associated Press; By LARRY NEUMEISTER]

Associated Press writers Tom Hays and Jim Fitzgerald in New York, Denise Lavoie in Boston and Stephen Singer in Springfield, Mass., contributed to this report.

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