Fugitive Ex-hedge Fund Manager Israel Surrenders

BOSTON (Reuters) – Fugitive former hedge fund manager Samuel IsraelIII surrendered to police in Massachusetts on Wednesday, ending afederal manhunt after he faked his own death to avoid a 20-year prisonsentence.

"He surrendered at 9:30 this morning," said Peter Coe, dispatcherwith the Southwick police, who referred further questions to U.S.marshals, who also confirmed the arrest.

Israel gave himself up in Southwick, a town in the state’s Pioneer Valley about 100 miles southwest of Boston.

Israel, who engineered the $2 trillion hedge fund industry’s mostbrazen and longest-running fraud, sparked a nationwide manhunt afterhis GMC Envoy was found on a bridge above the Hudson River on June 9,its engine idling and the words "suicide is painless" etched in dust onits hood.

He is expected be taken to the U.S. District Court in nearby Westfield, Massachusetts, to be arraigned, a court official said.

"He is or will be soon in the custody of the U.S. marshals," said Vickie Wilson, a spokeswoman for the FBI’s office in Boston.

After his disappearance, police ruled out suicide and issued a"wanted" poster for the 48-year-old co-founder of the Bayou Group, aConnecticut-based hedge fund. He pleaded guilty in 2005 and wassentenced in April for his role in a scheme to fabricate returns andcheat investors out of $450 million.

Ten days after he disappeared, authorities arrested Israel’s girlfriend on charges of aiding and abetting his disappearance.

She was accused of having helped Israel pack his belongings in arecreational vehicle, attach a blue motor scooter to the back and drivehim on the day he vanished and was to report to prison in Ayer,Massachusetts.

The collapse of Israel’s Bayou Group hedge fund still ranks as the$2 trillion industry’s longest-running fraud where Israel and hispartners fabricated performance numbers and made up a fake auditor tosign off on the data.

"Investors are ready for him to report to jail. It’s been a long,difficult process for them and I hope this will be the last chapter,"said Ross Intelisano, a partner at Rich & Intelisano, a New Yorklaw firm that represented investors defrauded in the Bayou scandal.

"I think he thinks that he’s sick enough that he would have died injail in 20 years anyway so he thought he had nothing to lose,"Intelisano said. "I wonder why he turned himself in. He’s got seriousmedical problems. I wonder if he just ran out of medicine."

Israel has long suffered from back problems and has had numerous operations in an attempt to relieve chronic pain.

(Editing by Jason Szep and Dave Zimmerman)