Puzzling clues in the case of missing trader

Published 5:00 am Saturday, June 14, 2008

Is Samuel Israel III dead or alive?

Federal authorities strongly suspect the latter, and have begun an international manhunt for the former hedge fund manager, who was facing a 20-year prison sentence for defrauding investors out of about $450 million, when he disappeared Monday.

But exactly two months before abandoning his car by a Hudson River bridge Monday with the message “suicide is painless” written in dust on the hood, Israel admitted he had considered killing himself. Ultimately, however, he concluded in a letter to the judge presiding over his case that “taking my own life would be a shortcut, and would only do further harm to my son as he would know that I am not willing to accept the consequences of my actions.”

These seemingly conflicting clues reflect the bizarre trajectory of Israel’s life, beginning as the scion of a New Orleans family and ending up the perpetrator of one of Wall Street’s biggest recent scams, the 2005 collapse of his Bayou hedge fund. Now, investigators think Israel may have attempted one final hoax — his own death — and U.S. Marshals have termed him “armed and dangerous” and issued a wanted poster.

No body has turned up, and the marshals on Thursday were said to have questioned a driver whose car was sighted near the area where Israel abandoned his GMC Envoy, leaving behind the car keys and a bottle of pills. In addition to the marshals, the FBI and the U.S. attorney’s office for the Southern District, which prosecuted the case, are involved in the search.

In fugitive cases, former prosecutors and other law-enforcement officials say that along with monitoring airports and border crossings, police track credit cards and cell phones for any sign of activity. They also track the phones of friends, family, and in some cases, even lawyers, for incoming calls.

If Israel, 48, is indeed on the run, he will have added a whole new cast to the list of people he fooled while seeming to be a skilled money manager, including his lawyers, his girlfriend and even his family’s rabbi.

In a pre-sentencing memorandum to U.S. District Judge Colleen McMahon, Israel’s lawyers assured the court that “there is no question that Sam is neither a flight risk nor a danger to the community.”

What is more, they emphasized that Israel should be allowed to report voluntarily to prison on June 9 because of a long history of back pain and other medical problems. Israel, who wears a pacemaker as well as another implanted device that emits electrical currents to ease pain, had been scheduled for spinal surgery when he disappeared.

Israel’s lead attorney, Lawrence Bader, declined to comment.

Israel’s girlfriend, Debbie Ryan, told investigators she last saw him when he left their Armonk, N.Y., home at 9:30 a.m. Monday, telling her he was on his way to report to a federal prison in Ayer, Mass., according to the state police.

The GMC Envoy was found approximately three hours later on a shoulder near the Bear Mountain Bridge, and police investigators say they were initially puzzled by the idea that Israel would drive his own car alone to prison. And they recognized that “Suicide Is Painless,” is the theme song from the TV show “M.A.S.H.”

If he did flee, another mystery is why Israel waited until the day he was to report to prison. Israel was sentenced in April, and individuals familiar with the case say he has spent recent months receiving medical care and cooperating with investigators seeking to recover money on behalf of his former investors.

The contradictions do not end there.

In the same April 9 letter to McMahon where he speaks of suicide, Israel says he became increasingly desperate as Bayou’s losses mounted. But “when what I perceived as divine intervention occurred in the form of the fictitious investment programs, I leapt at the opportunity,” he wrote.

Israel makes other puzzling personal revelations in the letter. Although the Israel family is prominent in the Jewish community in New Orleans — Israel’s father was recently honored by a local hospital for his philanthropic work, and their rabbi also submitted a letter of support to the judge — Israel wrote that he has “always been a person of Christian faith, but through my saturating guilt and profound shame, I have reassessed what it means to be a Christian.”

Hearing of the latest spiritual turn in Israel’s drama, David S. Goldstein, emeritus rabbi of New Orleans’ Touro Synagogue, said, “You could knock me over with a feather.”

While police monitor the Hudson River as well as airports and borders for any sign of Israel, former victims say they are convinced he’s on the run.

“Knowing Mr. Israel, he probably faked this,” said Samuel Christen, who invested about $825,000 in the Bayou Group in 2003. “Everything about him was phony.”