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Hedge Funds Queue Up for $8 Billion in CDO Defaults

Mutual fund managers invested in securities with any type of credit exposure will want to know that sister publication Asset Securitization Report has learned that another major wave of $2.8 billion-to perhaps as high as $8 billion-in collateralized debt obligation (CDO) liquidations is set to hit the market.

This time what's making them crumble are defaults on underlying high-grade transactions in the automotive, credit card and airline industries.

One market source says the "en masse" defaults are troubling because these debt instruments are typically more reliable than residential mortgage-backed securities (RMBS) and housing equity loans (HELs).

Meanwhile, word has it that a handful of executive teams that specialize in CDOs and MBS are forming special MBS servicer operations to meet the demands of hedge funds, insurance companies and other investors willing to buy mortgage assets.

Bayou's Samuel Israel III Gets 20 Years Behind Bars

Samuel Israel III, the former Stamford, Conn., Bayou hedge fund manager who authorities found to have cheated investors out of $400 million, was sentenced to 20 years in prison by a federal judge. Israel must pay back $300 million.

Earlier, Daniel Marino, onetime chief financial officer of Bayou, also got 20 years in January, while co-founder James G. Marquez was sentenced to 51 months in jail.

Marino and Israel pleaded guilty in 2005 to inflating the value of the hedge funds they an at the elite hedge fund company they founded in 1996. Marquez fessed up to his role in the plot the following year.

Shortly after the fraud came to light, Israel barricaded himself inside his mansion, which he was subletting from Donald Trump and owed back rent. The ruling is one of the severest sentences ever handed down for a white-collar crime.

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