Coal Kings Brother the certified Insane Criminal ?

The below article was originally written by Greg Newton who passed away on April 1, 2009. Mr. Newton was the author of the "Nakedshorts" blog at nakedshorts.typepad.com, which is no longer available. The Bayou Hedge Fund Group was a frequent subject of Mr. Newton's.

The following article was copied here in its entirety except that the link to the sentencing documents seems to be broken. We will trying to fix that later.

Feds not buying Marquez’s woes

Defense attorney says key document may be forged

Federal prosecutors aren’t interested in cutting admitted Bayou co-conspirator James G. Marquez a break when he’s sentenced. Dismissing defense claims that Marquez was a vulnerable victim of mental illness interested only in recouping losses hidden from Bayou investors, assistant US Attorney Margery B. Feinzig draws a compelling profile of a manipulative chancer, lining his pockets at the ultimate expense of Bayou investors long after he officially left the corrupt Scamford, Conn., hedge fund.

In a sentencing memorandum filed last week, Feinzig said that Marquez deserves a sentence of 51-60 months, rejecting defense suggestions that his jail time should be reduced because of “his history of mental illness, his devotion to his family, his charitable work” and other reasons.

But Marquez is not going quietly. His sentencing, set for Thursday, Oct 25, was deferred to Nov. 15 after defense attorney Bradley D. Simon alleged that a document rebutting a “a significant factual point in Mr Marquez’s sentencing submission,” filed Sep. 12, “was a forgery...made by or at the behest of one or more of the government’s main cooperators.”

Marquez’s own sentencing memorandum is not available online. At pixel-time, Simon had not returned a call seeking clarification as to which document was at issue amongst more than 250 pages, in 15 exhibits, accompanying the 66-page government filing.

Feinzig takes a hatchet to Marquez’s plaint, perhaps most devastatingly in an analysis of a rare, profitable, Bayou transaction [Emphasis added]:

The defense has attempted to paint a picture of Marquez as a vulnerable, passive, psychologically impaired individual who did not want to be a part of the fraud but was brow-beaten into it by Israel and Marino; who struggled to earn a living after he was kicked out of Bayou; and whose actions were unselfish and driven by a motivation to make money for Bayou investors.

As the record reflects, while he was at Bayou, Marquez had a reputation as a successful money manager whose stock views were sought after by business reporters and who was quoted in stock tip articles.

Even after being thrown out of Bayou, Marquez succeeded in persuading Israel and Marino to pay him consulting fees that paid him the same annual distribution he was earning at Bayou, a six figure separation fee, many of his new business start-up costs and other expenses, and his car payments. He also managed to convince Israel and Marino, despite the fact that Israel though he had poor investment judgment, to have Bayou purchase the energy stock he was recommending, KFX. That kind of record does not support the notion that Marquez was passive, vulnerable, or wracked by mental illness.

[KFX, the former KFX Inc, was recently renamed Evergreen Energy Inc (NYSE: EEE)].

Moreover the KFX transaction speaks volumes about Marquez’s motives, which appear to have been driven more by a desire to make money and conceal the fraud, than to selflessly pay back the Bayou investors. Dubbed by Marquez as the ‘Solution to Recoup Investor Losses,’ the KFX transaction was no selfless act to compensate victims. It was a stock tip, another trading gamble with other people’s money; it represented Marquez’s effort to hide the fraud; and it provided a tremendous financial boon to the Marquez family.

This time, the trading gamble paid off, although it took three years: in December 2004, Bayou sold its one million shares of KFX stock for approximately $16 million—an approximately $12 million profit that theoretically would have covered Marquez’s losses had it been realized years before; Marquez was off the hook in that he never had to pay Israel and Marino for his share of the losses out of his own pocket; it helped keep the Bayou fraud under wraps; and Marquez made millions of dollars in connection with the transaction and through his subsequent relationship with KFX.

The way Marquez came to obtain the KFX related money reflects his continued willingness to exploit the Bayou investors for his own profit. First...he received fees on both sides of that transaction as a ‘consultant’ to both parties. Next, Marquez obtained the potentially valuable warrants that were attached to Bayou’s stock and owned by Bayou for next-to-nothing. Then, once he came into possession of those warrants, KFX changed the terms by re-issuing the warrants with a longer holding period and a lower strike price. These changes allowed Marquez, eventually, to exercise the warrants and sell the stock at a profit of approximately $2,740,000. In addition to the profits that went into his pocket for that specific transaction, he forged a relationship with KFX that brought him more stock and provided him with annual consulting payments from KFX for years. In all, Marquez collected approximately $4.8 million in connection with his relationship with KFX. Thus the KFX transaction cannot be viewed as a selfless act to benefit the Bayou investors (17).

(17) The defense sentencing memo, including a letter submitted by Mrs Marquez, also leaves the impression that the Marquez’s have been struggling to make ends meet...the Marquez’s made a lot of money from Bayou and KFX from January of 2001 on. Additionally, they have been living in different neighborhoods in Greenwich for at least the last decade, their assets now including a home worth $1.9 million, a boat, cars, jewelry, securities and a trust fund, and they have been able to send their two children to an expensive private school.

US vs James G. Marquez
Government’s Memorandum In Connection With Sentencing
Oct. 16 2007