In Re: Bayou Hedge Funds Investment Litigation 0501762...

UNITED STATES DISTRICT COURTFOR THE DISTRICT OF CONNECTICUT

BROAD-BUSSEL FAMILY LIMITEDPARTNERSHIP, MARIE-LOUIS EMICHELSOHN, MICHELLE MICHELSOHNand HERBERT BLAINE LAWSON, JR., :Individually and on Behalf of All Othe rPersons and Entities Similarly Situated,

CIVIL ACTION NO. 3 :05-CV-01762-JBAPlaintiffs,

vs . : AMENDED CLASS ACTION COMPLA INT

BAYOU GROUP LLC,BAYOU MANAGEMENT LLC ,BAYOU FUND, LLC,BAYOU SUPER FUND, LLC ,BAYOU NO LEVERAGE FUND, LLC, JURY TRIAL DEMANDE DBAYOU AFFILIATES FUND, LL CBAYOU ACCREDITED FUND, LLC,BAYOU OFFSHORE FUND, LLC ,BAYOU PARTNERS LLC ,BAYOU SECURITIES LLC,BAYOU SECURITIES, LTD,BAYOU ADVISORS, LLC,BAYOU EQUITIES, LLC,IM PARTNERS, IMG, LLC,SAMUEL ISRAEL, III 7 DANIEL E. MARINO,RICHMOND-.FAIRFIELD ASSOCIATES,CPA, PLLC, JAMES G . MARQUEZ,JEFFREY D. FOTTA, EQYTY RESEARCHAND MANAGEMENT, LLC ,EQYTY RESEARCH AND MANAGEMENT ,LTD, CITIBANK N .A. ,FAUST RABBACH & OPPENHEIM LLP ,STEVEN D. OPPENHEIM ,HENNESSEE GROUP LLC,ELIZABETH LEE HENNESSEE, andCHARLES J. GRADANTE, March 6, 2006

Defendants .

Plaintiffs Broad-Bussel Family Limited Partnership ("Broad-Bussel Family"), Marie-

Louise Michelsohn, Michelle Michelsohn and Herbert Blaine Lawson, Jr . (collectively,

"Plaintiffs"), individually and on behalf of all other persons and entities similarly situated, as and

for their Amended Complaint against defendants ("Defendants"), allege as follows :

NATURE OF ACTIO N

During the period between at least December 31, 1996 and August 25, 2005 (th e

"Class Period"), defendants Bayou Super Fund, LLC, Bayou No Leverage Fund, LLC, Bayou

Affiliates Fund, LLC, Bayou Accredited Fund, LLC, Bayou Offshore Fund, LLC, and Bayou

Fund, LLC (collectively, the "Bayou Hedge Funds"),' and defendants Bayou Group LLC, Bayou

Management LLC, Bayou Securities LLC, Bayou Securities, LTD, Bayou Partners LLC, Bayou

Advisors, LLC, Bayou Equities, LLC, IM Partners, IMG, LLC, Samuel Israel, III and Daniel E .

Marino (collectively, with the Bayou Hedge Funds, the "Bayou Defendants" or "Bayou")

solicited, sold, operated and/or participated in the operations of the Bayou Hedge Funds . On

August 25, 2005, the financial press began to reveal that Bayou had long been operated as a

fraud, with its principals having misappropriated literally millions of investor dollars . Plaintiffs

and other similarly situated investors purchased investment interests in one or more of the Bayou

Hedge Funds during the Class Period, and were damaged thereby (the "Class") . In total,

Plaintiffs and members of the Class invested more than $450 million in the Bayou Hedge Fund s

during the Class Period.

' The Bayou Hedge Funds also include the following Bayou entities that are not named as

defendants in this Amended Complaint because they are in bankruptcy and an injunction has been issued

precluding any such lawsuits, as explained more fully in ¶ 44 below : Bayou Offshore Fund A, LTD ;

Bayou Offshore Fund B , LTD ; Bayou Offshore Fund C, LTD ; Bayou Offshore Fund D , LTD; Bayou

Offshore Fund E, LTD ; Bayou Offshore Fund F, LTD ; and Bayou Offshore Master Fund, LTD .

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2. The Bayou fraud was accomplished with the active and substantial participatio n

of Bayou's bankers, lawyers and advisors . Indeed, almost since their inception, the Bayou

Hedge Funds have essentially operated as a massive financial sham and Ponzi scheme

orchestrated by the Bayou Defendants . In sum, the Bayou Defendants fraudulently lured

investors to invest and maintain hundreds of millions of dollars in the Bayou Hedge Fund s

during the Class Period, through a scheme of improper acts and continuing misrepresentations

and omissions regarding the business practices and financial results, operations and condition of

Bayou and the Bayou Hedge Funds. The Bayou Defendants, and in particular their principals

including defendants Samuel Israel, III ("Israel") and Daniel E . Marino ("Marino"), then

unlawfully pilfered and squandered hundreds of millions of dollars that Plaintiffs and the Class

had entrusted to them as financial investments . Subsequently, both Israel and Marino have pled

guilty to multiple criminal acts, and the Bayou Funds have essentially collapsed .

3. The financial fraud and other misconduct of the Bayou Defendants was aided an d

abetted substantially by Bayou's long-time banker, defendant Citibank, N .A. ("Citibank") . In

sum, defendant Citibank served as Bayou's lead banker . As such, Citibank received millions of

investment dollars from Class members it knew were fiduciary proceeds beneficially owned by

the Class, and processed millions of dollars in Bayou transactions . Nevertheless, Citibank

assisted defendants Israel and Marino in misappropriating Class member investor funds .

Specifically, beginning in or about July 2004, Citibank actually distributed some $161 million in

cash from five Bayou bank accounts maintained at Citibank in New York, directly to one or

more private bank accounts solely in defendant Israel's name at Deutsche Postbank in Hamburg ,

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Germany, despite knowing or ignoring that such proceeds were fiduciary funds beneficiall y

owned by Class members .

4. The financial fraud and other misconduct of the Bayou Defendants was also aide d

and abetted by defendants James G . Marquez ("Marquez"), Richmond-Fairfield Associates,

CPA, PLLC ("Richmond-Fairfield"), Jeffrey D. Fotta ("Fotta"), Eqyty Research and

Management, LLC, Eqyty Research and Management, LTD, Faust Rabbach & Oppenheim LLP,

and Steven D . Oppenheim (collectively with Citibank, the "Aider/Abettor Defendants"). In sum,

defendants Marquez, Richmond-Fairfield, Fotta, Eqyty Research and .Management, LLC, Eqyty

Research and Management, LTD, Faust Rabbach & Oppenheim LLP ("Faust Rabbach &

Oppenheim") and Steven D . Oppenheim ("Oppenheim") were close associates of Bayou and

Bayou's principals, defendants Israel and Marino; were directly or indirectly involved in

planning, orchestrating and/or executing the alleged fraud ; and directly or indirectly received

compensation misappropriated from Class member investors .

In addition , the investment advisor defendants Hennessee Group LLC (the

"Hennessee Group"), Elizabeth Lee Hennessee ("Lee Hennessee") and Charles J . Gradante

("Gradante") (collectively, the "Hennessee Defendants") also facilitated the wrongdoing by

failing to conduct proper due diligence of Bayou and the Bayou Hedge Funds prior to

recommending those investments to plaintiff Broad-Bussel Family and other investors, and then

by failing to monitor properly those investments, and are thus liable to those Bayou investors to

whom they marketed the Bayou Hedge Funds. Plaintiff Broad-Bussel family and other Class

member investors retained the Hennessee Defendants for the express purpose of properly

conducting such due diligence . However, despite the presence of numerous red flags regarding

Bayou's finances, operations and principals as set forth more fully below, the Hennesse e

Defendants failed to uncover and advise plaintiff Broad-Bussel Family and other investors of a

fraud that had been occurring for years . The principals of defendant Hennessee Group ,

defendants Lee Hennessee and Gradante, are liable because they were the alter egos an d

controlled the acts of defendant Hennessee Group ; personally solicited and recommended Bayou

investments to plaintiff Broad-Bussel Family and other investors ; personally failed to investigat e

properly Bayou and Bayou's principals ; and received direct or indirect compensation and were

unjustly enriched thereby . '

6 . As the fraud began to unravel internally within Bayou in July 2005, defendan t

Israel sent a letter to Bayou investors informing them that Bayou was closing its businesses .

Significantly, however, that letter also assured Class member investors that all of their invested

funds would be distributed to them once the necessary liquidation audit was complete .

7. On August 25, 2005 -- the end of the proposed Class Period -- The New York

Times first alerted investors to "the possible collapse" of Bayou and the Bayou Hedge Funds .

By August 29, 2005, The Wall Street Journal reported that a self-titled "suicide note and

confession", w ritten by Bayou 's CFO Dan Ma rino (who did not commit suicide ), had been found

2 In the initial complaint they filed November 17, 2005, Plaintiffs also brought suit against

Sterling Stamos Capital Management, L .P . ("Sterling Stamos") . Subsequent to the filing of that

complaint, Plaintiffs have continued their investigation and conducted both formal and additional

informal discovery as to Sterling Stamos, among other things . As a result, Plaintiffs have not named

Sterling Stamos as a defendant in this Amended Complaint . Further, this action does not appear to

require notice to Class members or court approval because at this juncture no class has been certified in

these proceedings . See Federal Rule of Civil Procedure 23(e)(1)(A) ("The Court must approve any

settlement, voluntary dismissal, or compromise of the claims, issues, or defenses of a certified class .") .

Plaintiffs Marie-Louise Michelsohn, Michelle Michelsohn and Herbert Blaine Lawson, Jr . reserve their

rights to add Sterling Stamos as a defendant in any further amended pleading or otherwise, or to pursue

their claims against Sterling Stamos in separate individual (i .e., non-class) proceedings in state court.

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at Bayou ' s abandoned headquarters in Stamford , CT. That six-page note di rectly implicate d

Marino, Israel and others in a massive fraud on investors of the Bayou Hedge Funds dating bac k

to 1996. Subsequent media and other reports indicate that the Bayou Hedge Funds are wholly o r

substantially insolvent, and that hundreds of millions of dollars of Class member investments are

missing and unaccounted for -- including the some $161 million of Class member investmen t

proceeds which Citibank distributed directly to one or more personal offshore account s

controlled solely by defendant Israel . At least seven Bayou entities have already commenced

bankruptcy proceedings as of the date hereof (see footnote 1, supra, and 1 44, infra) .

$. Since Bayou's shocking collapse, numerous investigations have been commence d

by state, federal and regulatory agencies, several lawsuits have been filed, and Bayou's tw o

principals, defendants Israel and Marino, have pleaded guilty to multiple criminal counts. In

addition, some $101 million in suspected Bayou investor funds have been seized by the Arizona

Attorney General from several Wachovia Bank accounts in Flemington, New Jersey ; Plaintiffs

understand that those monies are the subject of civil forfeiture proceedings by the U .S .

Attorney's Office for the Southern District of New York and other litigations . In addition to

money damages, Plaintiffs, on behalf of themselves individually and other members of the Class,

seek the imposition of a constructive trust over such proceeds and further that such proceeds be

equitably distributed to members of the Class in accordance with their respective losses . Since

the Bayou Defendants' announcement in July 2005 that the Bayou Hedge Funds were being

closed and liquidated, none of the Bayou Hedge Fund investments has been returned to th e

Plaintiffs and other members of the Class .

9. Defendants' misconduct has caused Plaintiffs and the Class to suffer hundreds o f

millions of dollars in damages .

JURISDICTION AND VENU E

10. This Court has jurisdiction over the subject matter of this action pursuant to 2 8

U .S .C. § 1332(d)(2)(A) because the matter in controversy is in excess of $5 million, exclusive o f

interest and costs ; the matter is a class action in which at least one member of the Class is a

citizen of a State different from any Defendant; and the aggregate size of the proposed Class i s

believed to be greater than 100 members .

11 . This Court also has jurisdiction over the subject matter of this action pursuant t o

28 U .S .C. § 1331 because the claims of Plaintiffs and the Class arise under a federal statute, th e

investment Advisers Act of 1940 (the "Investment Advisers Act"), 15 U .S .C. § 80b-6 and 1 5

U .S.C. § 80b-15, and thus present federal question jurisdiction .

12. This action is not preempted under the Securities Litigation Uniform Standard s

Act of 1998, 15 U .S.C. § 78bb ("SLUSA"), because, among other reasons, this case does involv e

"covered securities " as defined by SLUSA, 15 U .S .C. § 78bb(f)(5)(E) .

13 . Venue is proper in this District pursuant to 28 U.S.C. § 1391(a) . Many of the acts

and transactions giving rise to the alleged violations of law occurred in this District. In addition,

numerous of the Defendants maintain their principal executive offices or residence within this

District, or did so during the time of the alleged wrongdoing . Moreover, each of the Defendants

resides in the State of Connecticut, and/or transacts business in the State of Connecticut, and ha s

certain minimum contacts with State of Connecticut, and/or engaged in tortious conduct in the

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State of Connecticut, such that maintenance of this action does not offend traditional notions o f

fair play and substantial justice .

14. In connection with the acts, conduct and other wrongs alleged in this Amende d

Complaint, the Defendants, directly and indirectly, used the means and instrumentalities of

interstate commerce including the mail, the Internet and telephone communications .

THE PARTIES

The Plaintiffs

15 . Plaintiff Broad-Bussel Family is a limited partnership organized under the laws o f

North Carolina with registered offices located in Chapel Hill, North Carolina . During the Class

Period, the Broad-Bussel Family invested in the Bayou Hedge Funds and was damaged as a

result of Defendants' misconduct .

16. Plaintiffs Marie-Louise Michelsohn, Michelle Michelsohn and Herbert Blaine

Lawson, Jr . (collectively, the "Michelsohn Plaintiffs") are citizens of New York. During the

Class Period, the Michelsohn Plaintiffs invested in the Bayou Hedge Funds and were damaged a s

a result of Defendants' misconduct .

The Bayou Defendants

17. Defendant Bayou Group LLC ("Bayou Group") is a limited liability compan y

organized under the laws of Connecticut and has principal offices located at 40 Signal Road,

Stamford , CT. Corporate records list defendants Israel and Fotta as being Principals an d

Members of Bayou Group .

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a. The Bayou Group has, or at times relevant during the Class Period had ,

controlling and/or other equity interests in one or more of the Bayou Defendants and/or helped

create, operate and control the Bayou Hedge Funds .

b . The email domain used by one or more of the Bayou Defendants durin g

the Class Period was <<www.bayougroup.com». The registrant of this email domain is

defendant Bayou Securities . This email domain was used by Bayou for both inte rnal email at the

40 Signal Road address in Stamford (e.g., info(bayougroup .com , podwyer(ODbayougroup .com),

and for exte rnal email addresses , such as those for promoters and agents of Bayou, including bu t

not limited to Howard Kra (e.g., hkra(bayougroup .com) .

18. The Bayou Hedge Funds include the following funds :

Defendant Bayou Fund , LLC ("Bayou Fund"), which is a limited liability

company organized under the laws of New York and has principal offices at 40 Signal Road ,

Stamford, CT ;

b. Defendant Bayou Super Fund , LLC ("Bayou Super Fund"), which is a

limited liability company organized under the laws of Delaware and has principal offices at 40

Signal Road , Stamford, CT;

Defendant Bayou No Leverage Fund , LLC ("Bayou No Leverage Fund") ,

which is a limited liability company organized under the laws of Delaware and has principa l

offices at 40 Signal Road, Stamford, CT ;

d. Defendant Bayou Affiliates Fund, LLC ("Bayou Affiliates Fund"), whic h

is a limited liability company organized under the laws ofDelaware and has principal offices at

40 Signal Road , Stamford, CT ;

C . Defendant Bayou Accredited Fund, LLC ("Bayou Accredited Fund") ,

which is a limited liability company organized under the laws of Delaware and has principa l

offices at 40 Signal Road, Stamford, CT; and

f. Defendant Bayou Offshore Fund , LLC, which is a company incorporated

under the laws of the Delaware .

19. Defendant Bayou Management LLC ("Bayou Management") is a limited liability

company organized under the laws of New York and has principal offices at the law firm of

defendant Faust Rabbach & Oppenheim LLP, 488 Madison Avenue, New York, NY -- Bayou's

outside law firm ("Faust Rabbach & Oppenheim") -- and at 40 Signal Road, Stamford, CT .

Bayou Management served as the investment advisor to, and manager of, the Bayou Hedge

Funds. Bayou Management maintained primary bank accounts at defendant Citibank an d

additional accounts at Wachovia Bank .

20. Defendant Bayou Partners LLC ("Bayou Partners" ) is a company with principa l

offices at both 40 Signal Road, Stamford, CT and 27 Beaver Place, Boston, MA -- the hom e

residence of defendant Fotta. Defendant Bayou Partners was involved in soliciting investmen t

funds from members of the Class and other prospective Bayou investors, including specificall y

at investor conferences held in Miami, FL in October 2000 and in Monte Carlo, Monaco in

September 2000 . According to its own investment literature, Bayou Partners purported to

provide "advisory services to managers and investors in the alternative sector" and "specializes

in identifying emerging managers ($25-500 Mill .) and positioning them in institutional

investment portfolios, either through structuring multi-manager product or direct allocation ."

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21 . Defendant Bayou Advisors , LLC ("Bayou Advisors") is a Delaware limite d

liability company with principal offices at defendant Faust Rabbach & Oppenheim, and a

mailing address at 40 Signal Road, Stamford, CT. Bayou Advisors was formed in or abou t

January 2001 and is a member of the Bayou Group .

22. Defendant Bayou Equities, LLC ("Bayou Equities") is a Delaware limited

liability company with principal offices at defendant Faust Rabbach & Oppenheim, and a

mailing address at 40 Signal Road, Stamford, CT. Bayou Equities was formed in or about

January 2001 and is a member of the Bayou Group .

23. Defendants Bayou Securities LLC and Bayou Securities, LTD are collectively

referred to as defendant Bayou Securities .

a. Bayou Securities LLC is a limited liability company organized under th e

laws of New York in or about May 1997 and has principal offices located at 40 Signal Road,

Stamford, CT. Bayou Securities LLC is a broker-dealer registered with the National Association

of Securities Dealers ("NASD") and the Securities and Exchange Commission ("SEC"), and,

upon information and belief, is the successor-in-interest to Bayou Securities, LTD, a Delaware

corporation. Bayou Securities, LTD was formed in or about January 1996 with principal offices

located at 3l. Buckout Road, West Harrison, NY .

b . Bayou Securities performed securities brokerage and trading services fo r

the Bayou Hedge Funds . Defendant Israel is the President and sole owner of Bayou Securities .

During the Class Period, defendants Israel and Marquez oversaw the operations of Bayou

Securities and directed the securities trades for the Bayou Hedge Funds, engaging in a "strategy"

that involved buying and selling tens of millions of dollars of securities on a nearly daily basis ,

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akin to day trading . While these securities trades generally resulted in significant losses, those

trades yielded enormous commissions for Bayou Securities, from which Israel, Marino and

Marquez paid themselves substantial annual salaries and profit distributions . Moreover, even

occasionally profitable trades resulted in net losses because of the high commissions charged by

Bayou Securities . For example, in 2003 alone, the Bayou Hedge Funds suffered losses of some

$49 million ; however, Bayou Securities earned approximately $29 million in commissions .

24. Defendant IM Partners ("IM Partners") is a general partnership organized under

the laws of Connecticut with principal offices at 40 Signal Road, Stamford, CT . During the

Class Period, defendants Israel and Marino created IM Partners to directly participate in

converting and laundering Class member investor funds. Israel and Marino then used IM

Partners to, among other things, invest those wrongfully converted funds in private companies

located in Europe, the United States and possibly elsewhere, including reportedly a $10 million

investment in Kycos Ltd. in or about 2003, and a $2 million investment in Debit Direct Ltd .

beginning in or about November 2003 .

25. Defendant 1MG, LLC ("IMG") is a limited liability company organized under the

laws of Connecticut with principal offices at 40 Signal Road, Stamford, CT . Defendants Israel

and Marino created IMG in or about November 2002 . According to state regulatory filings,

Marino is listed as a Principal and Member of IMG . Like IM Partners, Israel and Marino created

IMG to participate in their scheme to unlawfully convert Class member investor funds from th e

Bayou Hedge Funds .

26. Defendant Israel is and was, at all times relevant, a founder and principal of th e

Bayou Group, Bayou Management, Bayou Securities, Bayou Partners, Bayou Advisors, Bayou

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Equities and the Bayou Hedge Funds . He is the sole owner of Bayou Management and Bayo u

Securities . He is also the Chief Executive Officer and Chief Investment Officer of Bayou

Management , and as such, was responsible for the investment management and operations o f

Bayou. Defendant Israel is a citizen of New York and resides at 52 Oregon Road, Mt. Kisco,

NY .

27. Defendant Marino is and was, at all times relevant , the Chief Financial Officer

and Chief Operating Officer of Bayou , including Bayou Group and Bayou Management , and wa s

a fund manager for the Bayou Hedge Funds. Marino is also the owner and registrant for

defendant Richmond-Fairfield . Defendant Marino is a citizen of Connecticut and resides at 26 1

Bayberry Lane, Westport, CT. He is a Certified Public Accountant, having received his licens e

in 1990 in the State of New York. Prior to his involvement with Bayou, Marino worked a t

several securities brokers, as well as in the audit departments at two accounting firms, Cooper s

& Lybrand LLP and Spicer & Oppenheim.

28. As a result of their positions and roles as principals and officers of the variou s

Bayou entities, defendants Israel and Marino controlled the financial operations, busines s

practices and assets of Bayou and the Bayou Hedge Funds.

29 . As a result of their positions and roles as principals and officers of the variou s

Bayou entities, defendants Israel and Marino owed fiduciary and other duties to the Plaintiffs

and the members of the Class . Among other things, those duties required defendants Israel and

Marino to safeguard and protect the Class' investments in the Bayou Hedge Funds, to properly

manage Class member investor funds as faithful fiduciaries, and to be truthful and deal honestly

and fairly with the Plaintiffs and the Class .

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30. The Bayou Defendants were also bound to act in good faith by the contracts that

were entered into with members of the Class governing Class member investments in the Bayou

Hedge Funds . These agreements, which typically were called Operating Agreements and

Subscription Agreements, had uniform terms governing the parties' relationship . For example,

these agreements uniformly obligated the Bayou Defendants to ensure the accuracy of the Net

Asset Valuations and other reports the Bayou Hedge Funds distributed to the Class. Defendants

Israel and Marino controlled each of the Bayou entities and thus had the ability and opportunity

to prevent the issuance of such reports if such reports were inaccurate or to promptly correct

same. In addition, defendants Israel and Marino had unfettered access to the true financial

results, operations and condition of the Bayou Hedge Funds . Nevertheless, defendants Israel and

Marino directed the Bayou Defendants' wrongdoing alleged here and knowingly disseminated

false and material statements and omissions regarding the financial results, operations and

condition of the Bayou Hedge Funds .

The Aider/Abettor Defendants

31 . Defendant Marquez was, at times relevant, a principal and co-founder of Bayou

Securities and the Bayou Hedge Funds with defendant Israel . In addition, Marquez oversaw th e

operations of Bayou Securities . Reportedly, defendant Marquez left Bayou in 2004 as it wa s

plunging into insolvency.

a. According to media repo rts, Marquez had long been a mentor to Israel ,

and Israel became a protege of Marquez . Defendants Marquez and Israel began thei r

relationship in the mid-1980s at F.J . Graber & Co., a small stock-trading firm. At the time ,

defendant Israel was a young clerk on the trading desk, fresh from Tulane University, and the

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grandson of legendary commodities trader, Samuel Israel, Jr. By contrast, Marquez was a well-

known former arbitrage trader who had managed money for hedge fund managers George Soro s

and Michael Steinhardt.

b. In 1990, Marquez founded a hedge fund called JGM Managemen t

("JGM") . In 1991, Marquez hired Israel to trade stocks for JGM; Marino was hired as the fund' s

controller . According to a March 1993 Wall Street Journal article, the JGM fund was down 40%

in 1992; JGM never recouped its losses and was shut down in 1993 .

Defendants Marino, Israel and Marquez have also previously worke d

together at another hedge fund called HMR Investors, Limited Partnership (a/k/a Highl y

Motivated Research) ("HMR Investors") . HMR Investors is a Delaware limited partnership wit h

principal offices at 405 Park Ave., New York, NY; defendant Marquez and his wife , Mariella,

are the General Partners of HMR Investors .

32. Defendant Richmond-Fairfield (a/k/a Richmond-Fairfield CPA Services, PLLC)

was, at times relevant, the purported outside accountant and auditor for Bayou and the Bayo u

Hedge Funds .

a. Richmond-Fairfield is a limited liability company organized under the

laws of New York. The Bayou Defendants falsely portrayed Richmond-Fairfield as being a

legitimate public accounting firm with offices located at 575 Madison Avenue, Suite 1006, Ne w

York, NY that performed independent financial audits of Bayou .

b. In actuality, Richmond-Fairfield was a sham company set up by defendan t

Marino on or about October 10, 2000 as part of the Bayou Defendants' fraudulent scheme to

misappropriate Class member assets. Corporate records for Richmond-Fairfield list defendan t

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Marino as the sole owner and report registered offices located at 111 John Street, #1720, Ne w

York, NY.

33 . Defendant Fotta was, at times relevant, a Principal and Member of the Bayo u

Group, according to the Connecticut Secretary of State's Commercial Recording Division .

Defendant Fotta is also a principal or agent for Bayou Partners and Bayou Securities . On or

about October 11, 2005, a so-called Interim Notice was filed with the Connecticut Secretary of

State, by or on behalf of defendant Fotta, to remove Fotta's name as a Principal and Member of

the Bayou Group -- in an attempt to conceal his involvement and relationship with Bayou .

a. Defendant Fotta is a citizen of Massachusetts and resides at 73 Mount

Vernon St ., Boston, MA. Defendant Fotta also has or had a residence at 27 Beaver Place,

Boston, MA. In addition, Fotta maintains telephone listings at the 27 Beaver Place residence for

Bayou Partners and Bayou Securities, as well as for Ernst Research and Management, LLC

(n/k/a Eqyty Research and Management, LLC) .

b. Defendant Fotta is also a co-founder and Managing Partner of defendan t

Eqyty Research and Management, LLC and is a principal of defendant Eqyty Research and

Management, LTD (collectively, "Eqyty Research") . From 2003 to 2005, Eqyty Research

received at least $700,000 from Bayou Securities . According to a September 17, 2005 article i n

The New York Times, Fotta claimed that "the payments were for research on stocks" for Bayou

through May 2005 . However and in fact, the Bayou Defendants halted all stock trades and

liquidated the Bayou Hedge Funds in or about April 2004 . Indeed, the $700,000 payment to

Eqyty Research was one of the means pursuant to which defendant Fotta participated in, an d

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personally benefitted from, the Bayou Defendants' misappropriation of Class member investor

assets .

34 . Defendants Eqyty Research and Management, LLC and defendant Eqyt y

Research and Management, LTD are collectively referred to as defendant Eqyty Research.

a . Defendant Eqyty Research and Management, LLC is a limited liability

company organized under the laws of Massachusetts and has principal offices located at 2 7

Beaver Place , Boston , MA. According to state regulatory records , Eqyty Research was formerly

known as Ernst Institutional Research ; that name change occurred on July 16, 2003 . Prior to that

time, Eqyty Research was known as Ernst Research and Management, LLC .

b. Defendant Eqyty Research and Management , LTD is a corporation wit h

principal offices located in Tortola, British Virgin Islands and a mailing address of 27 Beaver

Place, Boston , MA. Eqyty Research and Management, LTD is registered as an Investment

Advisor with the NASD and the SEC .

According to a February 15, 2000 media report on SmartMoney.eom,

defendant Fotta and Eqyty Research are touted experts in the field of fundamental analysis of

equities securities and supposedly pioneered a novel approach to analyzing companies based on

cash flow, known as a "dual cash flow" screen . This analytical approach supposedly "has a

proven record as an early warning system for companies whose earnings may be about to

change." Morever, that analytical approach allegedly allows "investors [to] spot companies with

real potential" by focusing on "the sustainability of earnings growth by getting a handle on how

much cash flow is actually generated by paying customers and how much is being contrived by

balance-sheet manipulations."

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35 . Defendant Citibank is a nationally chartered bank with its principal place o f

business at 399 Park Avenue , New York, NY. Citibank is a subsidiary of Citigroup , Inc ., a

Delaware corporation with principal offices located at 399 Park Ave, New York, NY .

a. Defendant Citibank served as a principal banker for Israel and the Bayo u

Hedge Funds . Among other things, Citibank held several of Bayou's bank accounts during th e

Class Period; received millions of dollars in deposits from Class member investors ; transferred

millions of dollars in Class member investments for securities trading and other transactions ; and

knew that the proceeds it had on deposit in Bayou accounts were fiduciary proceeds beneficiall y

owned by Class members . Citibank specifically held bank accounts in the name of, amon g

others, defendants Bayou Super Fund, Bayou No Leverage Fund, Bayou Affiliates Fund, Bayo u

Accredited Fund and Bayou Management.

b . During the Class Period, defendant Citibank received deposits directl y

from members of the Class that were specifically designated as being investments in the Bayou

Hedge Funds . Citibank also participated in transferring and receiving Class member funds from

or relating to the securities trading activities directed by defendants Israel, Marino and Marquez .

For example, defendant Citibank transferred investor funds to, and received funds from, Spear,

Leeds & Kellogg, L .P., which served as Bayou's lead securities trading and clearing firm, as

described more fully below .

c . Defendant Citibank knew or disregarded that the Bayou accounts it hel d

consisted of fiduciary funds representing Class member investments in the Bayou Hedge Funds .

Nevertheless, and at the request of defendant Israel, in or about July 2004 Citibank allowe d

defendant Israel to withdraw some $161 million from the five Bayou bank accounts that were

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held at Citibank in New York -- thereby completely draining those accounts -- and transferre d

some or all of such proceeds directly to Israel care of one or more offshore bank accounts solel y

in Israel's own name maintained at Deutsche Postbank in Hamburg, Germany .

36. Defendant Faust Rabbach & Oppenheim is a limited liability partnershi p

organized under the laws of New York with registered offices located at 488 Madison Avenue ,

New York, NY . Defendant Faust Rabbach & Oppenheim, served as counsel for Bayou durin g

all or some of the Class Period and was otherwise substantially involved in facilitating the

operations of Bayou . Indeed, during the Class Period, defendants Bayou Management, Bayo u

Advisors and Bayou Equities actually maintained their principal place of business at defendan t

Faust Rabbach & Oppenheim's offices in New York City .

37 . Defendant Steven D. Oppenheim ("Oppenheim ") is a partner and member o f

defendant Faust Rabbach & Oppenheim and served as counsel for Bayou during all or some of

the Class Period . He is a citizen of New York and resides at 14 Senaca Trail in Harrison, Ne w

York .

a. Oppenheim is both an attorney and a Certified Public Accountant, havin g

received his CPA license in 1965 in the State of New York . In April 2005 , he was elected to

serve as a Governor of the American Stock Exchange .

b . Prior to his law practice as a named partner of Faust Rabbach &

Oppenheim, defendant Oppenheim was the managing partner of Spicer & Oppenheim, an eight-

office, 100-partner accounting firm that disbanded in or about December 1990 ; at that time ,

Spicer & Oppenheim was the nation's 15'h largest accounting firm . According to media reports ,

19

the securities industry accounted for about 40% of Spicer & Oppenheim's business, which was

crippled in 1987 by the Black Monday crash of the stock market .

c. Following the dissolution of Spicer & Oppenheim, defendant Oppenheim

and most of his New York office joined the accounting firm of Grant Thornton, which served as

Bayou's auditor until in or about 1998 . Bayou, however, continued to falsely tell investors as

late as 2002 that Grant Thornton audited Bayou's books .

d . In late 1991, Oppenheim left Grant Thornton to join Faust, Rabbach &

Stranger as a tax lawyer . After leaving Grant Thornton, Oppenheim continued a personal

business relationship with that firm. According to a September 23, 1991 article in Accounting

Today, Oppenheim said at the time that "he and his family would retain Grant Thornton as

accountant for certain entities, which he would not identify, that they control . "

38 . During the Class Period, defendant Faust Rabbach & Oppenheim and defendan t

Oppenheim provided counsel and advice to the Bayou Defendants in planning, forming and

operating the fraudulent Bayou Hedge Funds . In doing so, defendant Oppenheim acted on

behalf of, and in the interests of, defendant Faust Rabbach & Oppenheim . As legal counsel for

Bayou, defendant Faust Rabbach & Oppenheim and defendant Oppenheim were privy to non-

public information and documents concerning the true structure, operations and finances of the

Bayou Hedge Funds . Further, given defendant Oppenheim's extensive legal, accounting and

auditing knowledge and background, defendant Faust Rabbach & Oppenheim and defendant

Oppenheim knew or ignored various aspects of the fraud and other misconduct that was being

committed by the Bayou Defendants, all as alleged more fully herein . Nonetheless, defendant

Faust Rabbach & Oppenheim and defendant Oppenheim failed in their professional duties to

20

help stop the Bayou Defendants' fraudulent conduct, timely disclose the truth to Class membe r

investors, or otherwise withdraw from said representation and stop facilitating the Bayou

Defendants' underlying wrongdoing in conformity with their professional and ethica l

obligations .

The Hennessee Defendants

39. Defendant Hennessee Group (dlbla Hennessee Hedge Fund Advisory Group) is a

limited liability company organized under the laws of New York which was formed in or abou t

March 1997 . Hennessee Group has principal offices at 500 Fifth Avenue, 47" Floor, New York,

NY .

a. Hennessee Group is a registered investment adviser that consults hedge

fund investors on asset allocation, manager selection, ongoing monitoring of hedge fun d

managers and asset reallocation. In its role as a hedge fund consultant, Hennessee Grou p

funneled tens of millions of dollars to Bayou by advising its clients to invest in the Bayou Hedg e

Funds and by facilitating those investments .

b. The Hennessee Group charged plaintiff Broad-Bussel Family and othe r

similarly situated investors advisory and other fees for its services .

40. Defendant Lee Hennessee was, at times relevant, a Managing Principal of th e

Hennessee Group . Lee Hennessee is a citizen of New York and resides at 45 Sutton Place in

New York City .

a. In her role with the Hennessee Group, defendant Lee Hennessee touted ,

among other things, that she "focuses on manager selection and client services development ,

sharing overall management with Mr . Gradante ."

21

b. Lee Hennessee co-founded the Hennessee Group with defendant Gradant e

in 1997 . Lee Hennessee directed a division of E.F . Hutton and worked for Shearson Lehman,

Republic National Bank and Weiss, Peck and Greer from 1987 to 1997 . Prior to that time, sh e

worked for Thomson McKinnon Securities where she performed institutional and retail sales

from 1976 to 1987 . Defendant Lee Hennessee claims that she has been "Series 3 and 7

registered since 1976 and also holds Series 24, Series 65 and Series 63 registrations . "

41 . Defendant Gradante was, at times relevant, a Managing Principal of the

Hennessee Group . Gradante is a citizen of New York and resides at 45 Sutton Place in Ne w

York City .

a. In his role with the Hennessee Group, defendant Gradante claimed that h e

"focuses on research, market analysis, risk management and portfolio design" and specifically

boasts that he "brings `hands-on' experience in risk management, portfolio analysis, trading an d

venture capital . "

b . Prior to co- founding the Hennessee Group in 1997, defendant Gradant e

had a twenty-five year financial industry career, during which he held executive positions in the

banking and securities industries, including as President and CEO of Union Chelsea National

Bank, Group Marketing Manager at Citibank and Chair of the Risk Management Committee of

Drexel Burnham Lambert, where he was responsible for Trading Administration. Defendan t

Gradante claims to hold a Series 65 registration .

42. As a result of their positions and roles as principals and officers of the Hennessee

Group, defendants Lee Hennessee and Gradante controlled the business operations and practice s

of the Hennessee Group .

22

43. The Hennessee Defendants had fiduciary and other duties and obligations to b e

truthful and deal honestly and fairly with plaintiff Broad-Bussel Family and the other Class

member investor clients who retained the Hennessee Defendants expressly to render such

investment advisory services . Among other things, those duties required the Hennessee

Defendants to conduct proper due diligence and monitoring of the investments they

recommended to plaintiff Broad-Bussel Family and their other similarly situated client investors .

Indeed, plaintiff Broad-Bussel Family and other such investors specifically relied upon th e

Hennessee Defendants to perform properly such investigation and monitoring . However, the

Hennessee Defendants failed to perform their obligations, ignoring or failing to uncove r

numerous red flags with regard to the Bayou Hedge Funds which should have been properl y

investigated and timely reported to plaintiff Broad-Bussel Family and the Hennesse e

Defendants' other client investors, all as described more fully below .

CERTAIN OTHER RELEVANT PERSON S

44 . Bayou Offshore Entities : The following seven Bayou entities (the "Bayou

Offshore Entities") are part of the Bayou family of funds, directly participated in the wrongdoing

alleged, and would have been named as defendants in this litigation but for an Order of the

United States Bankruptcy Court for the District of Connecticut enjoining lawsuits against the

Bayou Offshore Entities :

a . Bayou Offshore Fund A, LTD ("Bayou Offshore Fund A"), which is a

company incorporated under the laws of the Cayman Islands ;

b . Bayou Offshore Fund B, LTD ("Bayou Offshore Fund B"), which is a


23

Bayou Offshore Fund C, LTD ("Bayou Offshore Fund C"), which is a


d. Bayou Offshore Fund D, LTD ("Bayou Offshore Fund D"), which is a


C . Bayou Offshore Fund E, LTD ("Bayou Offshore Fund E"), which is a


f. Bayou Offshore Fund F, LTD ("Bayou Offshore Fund F"), which is a

company incorporated under the laws of the Cayman Islands ; and

g. Bayou Offshore Master Fund, LTD ("Bayou Offshore Master Fund") ,

which is a company incorporated under the laws of the Cayman Islands . '

45. Goldman Sachs Execution and Clearing, L .P . : Goldman Sachs Execution and

Clearing, L .P. (f/k/a Spear, Leeds & Kellogg, L .P.) ("Spear Leeds") is a New York limited

partnership with principal offices located at One New York Plaza , New York, NY.

a. Spear Leeds is registered as a U .S. broker-dealer and futures commission

merchant and provides a wide range of brokerage and investment services, including, among

other things: floor-based and electronic market making as a specialist on U .S. equities

exchanges ; facilitating and financing transactions with a diverse group of corporations, financial

institutions, government and individuals ; and executing and clearing customer transactions on

3 See Order for Preliminary injunction and Granting of Petitions under Section 304, In re

Petitions of Gordon I . Macrae and G. James Cleaver , Case Nos . 05-51 154 to 60 (Bankr . Conn . Oct . 5,

2005) (Shiff, J .) (ordering "that a Preliminary Injunction is hereby issued . . . enjoining all persons and

entities from . . . commencing or continuing any action or other legal proceeding against the [Bayou

Offshore Entities], or any of their property in the United States, and seeking discovery of any nature . . .

against the [Bayou Offshore Entities] without first seeking and receiving permission by the Grand Court

in the [Cayman Islands]") .

24

major stock, options and futures exchanges worldwide . Spear Leeds held itself out as being a

reputable, honest and experienced broker-dealer .

b. Spear Leeds served as a securities trading agent for Bayou Management ,

Bayou Securities and the Bayou Hedge Funds . In that capacity, Spear Leeds maintained one o r

more capital trading accounts for Bayou, processed securities trading instructions from Bayou' s

principals, including defendants Israel, Marino and Marquez, and engaged in actual securitie s

trading for Bayou .

c. Spear Leeds also acted as the clearing firm for Bayou' s securitie s

transactions and transferred securities and cash proceeds to and from Bayou accounts includin g

at Citibank in connection therewith . Spear Leeds' clearing responsibilities include , among othe r

things: receiving and delivering funds from or to the customer; maintaining records that reflect

the transaction ; and safeguarding the funds in the customer's account .

46 . Kenneth E. Stocker : Kenneth Stocker was, at relevant times, a principal and

Managing Director of Bayou Management and a Partner of Bayou Partners . In addition, Mr .

Stocker was part of the hedge fund advisory team, along with Kathleen McLaren Williams,

which advised Bayou Management and the Bayou Hedge Funds. Mr. Stocker was also a direct

marketer of the Bayou Hedge Funds . Among other things, Mr . Stocker acted as intermediary

between Bayou and the institutional investor community . For example, Mr. Stocker acted as the

Bayou representative for investor conferences held in Scottsdale, Arizona in January 2001 ;

Miami, FL in October 2000 ; and Monte Carlo, Monaco in September 2000 -- the latter being a

conference that was personally attended by defendant Fotta . Mr. Stocker reportedly left Bayo u

in or about June 2002 to become a Managing Director of Northeast Alternative Strategies in

25

New York City, a then newly-created division of Northeast Securities, Inc. which serves

institutional hedge funds .

47 . Kathleen McLaren Williams: Kathleen McLaren Williams was, at relevant times ,

part of the hedge fund advisory team, along with Kenneth Stocker, which advised Bayou

Management and the Bayou Hedge Funds . Ms. Williams reportedly left Bayou with Kenneth

Stocker in or about June 2002 to become a Managing Director of Northeast Alternativ e

Strategies in Boston, MA .

48. Chris D'Amore : Beginning in or about June 2002, Chris D'Amore became a

direct marketer for the Bayou Hedge Funds, and thereby participated in directly soliciting

members of the Class and other prospective Bayou investors to invest in the Bayou Hedge

Funds. Mr. D'Amore replaced Kenneth Stocker who had previously acted as one of Bayou's

direct marketers . Prior to working for Bayou, Mr . D'Amore was a marketer for the San

Francisco-based hedge fund RS Investment Management .

CLASS ACTION ALLEGATION S

49. Plaintiffs bring this action on behalf of themselves and a Class of persons who ,

during the Class Period December 31, 1996 through August 25, 2005, invested funds or

maintained investments in the Bayou Hedge Funds, and suffered damages thereby . Plaintiffs

also bring this action on behalf of the following subclass : all members of the Class who, during

the Class Period December 31, 1996 through August 25, 2005, were advised to invest in the

Bayou Hedge Funds pursuant an investment advisory relationship with the Hennessee Group,

and suffered damages thereby (the "Hennessee Subclass") . Excluded from the Class and the

Hennessee Subclass are: the Defendants ; the principals, officers and directors of the Defendants ;

26

the members of the immediate families of any of the foregoing persons ; any entity in which any

Defendant has a controlling interest ; other persons and entities presently unknown to Plaintiffs

who directly or indirectly participated in the wrongdoing alleged ; and the legal affiliates ,

representatives, heirs, controlling persons, successors and predecessors in interest and assigns of

any such excluded person or entity .

50. This action is properly maintainable as a class action on behalf of the Class under

Rules 23(a), (b)(1)(A), (b)(1)(B) and (b)(3) of the Federal Rules of Civil Procedure (the "Federa l

Rules") because :

(a) During the Class Period, numerous investors dispersed throughout th e

United States invested hundreds of millions of dollars in the Bayou Hedge Funds, and

accordingly, those investors are so numerous that joinder of all such Class members i s

impracticable .

(b) Plaintiffs' claims are typical of the claims of the other members of th e

Class. Plaintiffs and all members of the Class similarly acquired interests in one or more of th e

Bayou Hedge Funds . Plaintiffs and all members of the Class similarly relied on the veracity o f

Defendants' acts and practices and were similarly damaged by Defendants' misconduct .

(c) Plaintiffs are representative parties who will fairly and adequately protec t

the interests of the members of the Class . Plaintiffs have retained counsel competent an d

experienced in class action litigation .

(d) A class action is superior to other available methods for the fair and

efficient adjudication of the Class' claims, because joinder of all members is impracticable .

Furthermore, although the damages suffered by Plaintiffs and other individual Class member s

27

may be substantial, the expense and burden of individual litigation render class treatment far

superior to individual litigation in the circumstances here . Moreover, the likelihood of all of th e

individual Class members prosecuting separate claims is remote, would result in increased

litigation costs, and would be an inefficient use of judicial resources in any event .

(e) Plaintiffs anticipate no unusual difficulties in the management of thi s

action as a class action .

(f) Common questions of law and fact predominate over any question s

affecting any individual members of the Class . The questions of law and fact which are common

to Plaintiffs and the Class include, among others :

(i) Whether the Defendants' acts and omissions violated the law as

alleged ;

(ii) Whether the Bayou Defendants defrauded Plaintiffs and the Clas s

through several sham hedge funds that they orchestrated and operated ;

(iii) Whether the Bayou Defendants misappropriated property of th e

Plaintiffs and the Class;

(iv) Whether the Bayou Defendants engaged in fiduciary and other

breaches of obligations owed to Plaintiffs and the Class ;

(v) Whether the Aider/Abettor Defendants aided and abetted th e

Bayou Defendants' misconduct as alleged;

(vi) Whether the reports and other statements disseminated by the

Bayou Defendants to the Plaintiffs and the Class misrepresented or omitted material facts abou t

the financial results, operations and condition of the Bayou Hedge Funds ;

28

(vii) Whether Class members should be entitled to share ratably in

accordance with their damages in any remaining proceeds of the Bayou Defendants and othe r

Bayou Hedge Fund proceeds ; and

(viii) Whether the Plaintiffs and the Class have sustained damages and,

if so, the extent of such damages .

(g) Certification of a mandatory non-opt Class under Federal Rule s

23(b)(1)(A) and 23(b)(1)(B) is appropriate in the circumstances here as to Plaintiffs' claims

against the Bayou Defendants . First, certification as a mandatory non-opt out Class is

appropriate under Federal Rule 23(b)(1)(A) as to the Class' claims against the Bayou Defendants

because inconsistent or varying adjudications with respect to individual Class members would

establish incompatible standards of conduct regarding the Bayou Defendants' alleged culpability

to the Class . Second, certification as a mandatory non-opt out Class is appropriate under Federal

Rule 23(b)(1)(B) because adjudications with respect to individual members of the Class would

as a practical matter be dispositive of the interests of the other members not parties to the

adjudications or substantially impair or impede their ability to protect their interests .

Certification of the Class claims against the Bayou Defendants as a mandatory non-opt out Class

is particularly appropriate here given, among other things, the limited funds the Bayou

Defendants reportedly have, the fact that a judgment in favor of the Plaintiff Class may

substantially exceed the Bayou Defendants' available assets, and the $101 million in investor

proceeds reportedly seized by the Arizona Attorney General which are beneficially owned by,

and should be distributed ratably to, Class member investors in accordance with their respective

damages . Indeed, Plaintiffs understand that the U .S. Attorney for the Southern District of Ne w

29

y

York has commenced civil forfeiture proceedings against at least certain of the Bayo u

Defendants and will seek to distribute the $101 million in seized proceeds, together with other

proceeds the Government may collect from the Bayou Defendants, ratably to injured investors i n

accordance with their losses . Class certification as a mandatory non-opt out Class as to th e

claims against the Bayou Defendants will provide an efficient, cost-effective way for the partie s

to coordinate with the U .S . Attorney and distribute such proceeds to injured investors fairly an d

expeditiously in accordance with their respective losses . Plaintiffs seek a mandatory non-opt out

Class only as to the Class' claims against the Bayou Defendants . Plaintiffs seek to certify the

Class under Federal Rule 23(b)(3) as to all other claims against the Hennessee Defendants and

the Aider/Abettor Defendants, with Class members free to opt out and pursue their own claim s

against such parties as the Court may determine .

51 . This action is properly maintainable as a Class action on behalf of the members o f

the Hennessee Subclass under Federal Rules 23(a) and (b)(3) because :

(a) During the relevant period, numerous investors dispersed throughout th e

United States retained the Hennessee Defendants to render financial advisory services and, base d

on such advice, invested millions of dollars in the Bayou Hedge Funds . Accordingly, th e

members of the Hennessee Subclass are so numerous that joinder of all such subclass members i s

impracticable .

(b) Plaintiff Broad-Bussel Family 's claims are typical of the claims of th e

other members of the Hennessee Subclass . Plaintiff Broad-Bussel Family and all members o f

the Hennessee Subclass similarly retained the Hennessee Defendants to render financial advisory

serv ices and made investments in one or more of the Bayou Hedge Funds as a result of such

30

financial advice . Plaintiff Broad-Bussel Family and all members of the Hennessee Subclas s

similarly relied on the veracity of the Hennessee Defendants' acts and practices in properl y

investigating the Bayou Hedge Funds, and were similarly damaged as a result .

(c) Plaintiff Broad- Bussel Family is a representative party who will fairly and

adequately protect the interests of the members of the Hennessee Subclass . Plaintiff Broad-

Bussel Family has retained counsel competent and experienced in class action litigation .

(d) A class action is superior to other available methods for the fair and

efficient adjudication of the claims of the Hennessee Subclass, because joinder of all members o f

the Hennessee Subclass is either impracticable, or would entail duplicative litigation and

significantly increased costs to the parties and the judiciary. Furthermore, although the damages

suffered by plaintiff Broad-Bussel Family and other individual members of the Hennessee

Subclass may be substantial, the expense and burden of individual litigation render class

treatment'far superior to individual litigation in the circumstances here . Moreover, the

likelihood of all of the individual members of the Hennessee Subclass prosecuting separat e

claims is remote, would result in increased litigation costs, and would be an inefficient use o f

judicial resources in any event .

(e) Plaintiffs anticipate no unusual difficulties in the management of the

Hennessee Subclass in this action .

(f) Common questions of law and fact predominate over any question s

affecting any individual members of the Hennessee Subclass . The questions of law and fact

which are common to plaintiff Broad-Bussel Family and the members of the Hennessee Subclas s

include, among others :

31

(i) Whether the acts and omissions of the Hennessee Defendants

violated the law as alleged ;

(ii) Whether the Hennessee Defendants engaged in fiduciary and other

breaches of obligations owed, respectively, to plaintiff Broad-Bussel Family and to the other

members of the Hennessee Subclass ;

(iii) Whether the Hennessee Defendants failed to investigate properly

Bayou and the Bayou Hedge Funds prior to recommending investments in the Bayou Hedg e

Funds ;

(iv) Whether the Hennessee Defendants failed to monitor properly th e

Hennessee Subclass' investments in Bayou and the Bayou Hedge Funds ; and

(v) Whether the plaintiff Broad-Bussel Family and the other members

of the Hennessee Subclass have sustained damages and, if so, the extent of such damages .

ADDITIONAL SUBSTANTIVE ALLEGATION S

The Class Invests in the Bayou Hedge Funds

52. In seeking to attract investors to the Bayou Hedge Funds, the Bayou Defendant s

provided prospective investors, including Plaintiffs and members of the Class, with the Bayo u

Hedge Funds' offering memoranda, subscription agreements, operating agreements and other

general marketing materials .

53 . Investments in the Bayou Hedge Funds by Class members were typicall y

contracted for pursuant to a so-called Subscription Agreement with Bayou Management (th e

"Subscription Agreement") . The Subscription Agreement provided for the Class member' s

initial purchase of an interest in one or more of the Bayou Hedge Funds . In addition, Class

32

members and Bayou Management entered into a separate agreement known as the Operating

Agreement (the "Operating Agreement") .

54. The material terms of the Bayou Operating Agreements were uniform, although

each Operating Agreement was also specific to the particular Bayou fund the Class membe r

invested in . For example, Bayou's standard form Operating Agreement specifically obligate d

Bayou Management in its role as the manager of the Bayou Hedge Funds, among other things :

a. to keep "[p]roper and complete records and books ofaccount" ;

b. to account "fully and accurately [for] all transactions and

other matters" ;

c . to compute all "profits and losses of the [Bayou Hedge

Fund] . . . in accordance with Generally AcceptedAccounting Principles applied on a consistent basis using

mark-to-market method of accounting" ;4

d. to maintain sufficient "procedures and inte rnal controlsreasonably designed to prevent the use of the Fund formoney launde ring purposes" ; and

C . to perform its managerial duties "in good faith, in a manner

it reasonably believes to be in the best interests of the

Company [i.e., the Bayou Hedge Fund], and with such careas an ordinary prudent person in a like position would use

under similar circumstances .

55. The Operating Agreements also provided for a uniform choice of law (Delaware)

and similarly purported to disclaim liability for loss or damage unless such was the result of

a GAAP are those principles recognized by the accounting profession as the conventions,

rules and procedures that define accepted accounting practice at a particular time . GAAP includes,

among other things: FASB (Financial Accounting Standards Board) Statements of Financial Accounting

Standards ("FAS") ; FAS13 Interpretations ("FIN") ; Accounting Principles Board Opinions ("APB") ;

American Institute of Certified Public Accountants ("AICPA") Accounting Research Bulletins ("ARl3") ;

AICPA Statements of Position ("SOP") ; Consensus Positions of FASB Emerging Issues Task Force

("EITF") ; and FASB Concept Statements ("CON") .

33

"fraud, deceit, gross negligence, willful misconduct, or a wrongful taking by [Bayou

Management] . "

56. The terms of Bayou's Subscription Agreements were similarly uniform for the

Bayou Hedge Fund Class member investors . For example, Bayou's Subscription Agreement s

also provided that the Subscription Agreement shall be governed by a uniform choice of law

(Connecticut) .

57. For example, plaintiff Broad-Bussel Family entered into a Subscriptio n

Agreement with Bayou on December 21, 2003 . Broad-Bussel Family's Subscription Agreement

provided for, among other things, the Broad-Busse] Family's initial investment of$1,000,000 in

the Bayou Super Fund. In accordance with its obligations thereunder, .on January 5, 2004, the

Broad-Bussel Family made a $500,000 wire transfer to Citibank, credited as the Broad-Bussel

Family's initial investment in the Bayou Super Fund . On January 8, 2004, the Broad-Bussel

Family made a second $500,000 wire transfer to Citibank ; that transfer was also credited as the

Broad-Bussel Family's investment in the Bayou Super Fund .

58 . After Citibank received monies from plaintiff Broad-Bussel Family and other

Class members as investments in the Bayou Hedge Funds, defendant Bayou Management sen t

such investors a certificate that acknowledged the Class member's investment in the respectiv e

Bayou Hedge Fund .

59 . During the Class Period, the Bayou Defendants sent members of the Class ,

including Plaintiffs, on a monthly basis Net Asset Valuations that purported to accurately reflec t

Class members' contributions, withdrawals, and profits and losses for their investments in the

Bayou Hedge Funds . However, all such Net Asset Valuation statements were false an d

34

misleading because they did not reflect Class members' true financial interests in the Bayo u

Hedge Funds and did not accurately portray the Bayou Hedge Funds' true financial position and

results . Moreover, such Net Asset Valuation statements were also false because they omitted to

disclose, among other things, the massive trading losses that were being incurred by the Bayou

Hedge Funds , the true asset valuation of the Bayou Hedge Funds, and the fact that the Bayo u

Defendants were unlawfully and secretly converting and otherwise dissipating -- indeed, outright

stealing -- millions of dollars of Class member funds .

60. In disseminating the false monthly asset valuations, the Bayou Defendants' modus

operandi was to similarly mislead all Class member investors into believing that their investmen t

funds were being properly maintained and invested when, in fact, the opposite was true .

Moreover, and throughout the Class Period, the Bayou Defendants also communicated financial

and other information about Bayou and the Bayou Hedge Funds to the Class via weekl y

newsletters, monthly reports, quarterly reports, annual reports and investor conference calls, al l

of which similarly omitted material adverse information about Bayou and the Bayou Hedg e

Funds in order to mislead Class member investors into believing the Bayou Hedge Funds wer e

being operated properly and in accordance with the law .

61 . During the Class Period, the Bayou Defendants represented to the Class tha t

independent financial audits of Bayou and the Bayou Hedge Funds were properly and timely

being conducted . In certain instances, the Bayou Defendants even requested Class members t o

assist in those so-called independent audits.

62. For example, on or about February 14, 2004, defendant Israel sent plaintiff Broad-

Bussel Family a con firmation letter stating that Bayou's auditors were engaged in a n

35

examination of Bayou's financial statements and thus wanted to confirm material information

covering investor capital accounts. The confirmation letter reflected the $1,000,000 investmen t

that the Broad -Bussel Family made in January 2004. The letter requested that the Broad-Busse ]

Family confirm the contribution information directly to Bayou's auditor, defendant Richmond-

Fairfield.

63. However, contrary to the Bayou Defendants' representations, the Bayou Hedg e

Funds were not being independently audited during the Class Period . The Bayou Defendants

omitted to disclose that no audits of the Bayou Hedge Funds were being performed and that

Richmond-Fairfield, the purported auditor, was not independent but was simply a sham company

set up by defendant Marino .

64. On or about July 27, 2005, defendant Israel sent Class member investors ,

including Plaintiffs, a letter that abruptly announced that the Bayou Hedge Funds would be

closed at the end of July 2005. In that letter, Israel made false assurances that, among othe r

things, "[u]pon completion of the final audit, all investors will receive a 100% payout of thei r

investments", and that Bayou would "send updates to the investors while the audit is in progres s

indicating an anticipated date of final payments ." Israel also falsely praised Bayou's financia l

and fiduciary performance for its investors, stating specifically that "I feel we have done a n

admirable job in the stewardship of the funds with which we have been entrusted and hope tha t

you agree ."

65. On or about July 29, 2005, defendant Israel sent Class member investors ,

including Plaintiffs, a letter stating that the process of liquidating the Bayou Hedge Fund s

requires an auditing and closing process that could take four months or even longer . However,

36

the letter stated that at least partial distributions of Class members' investments could begin by

mid-August 2005 . That letter also falsely assured investors that "the final results [and resultin g

distribution] will not be materially different from the information furnished to you in your Jun e

[2005] statement . "

66. In or about August 2005, Bayou Management sent Class member investors ,

including Plaintiffs, a final Net Asset Valuation statement for their investments in the Bayou

Hedge Funds .

67. On or about August 2, 2005, defendant Israel sent members of the Class ,

including Plaintiffs , a letter dated that same day falsely stating that "[t]he auditors are now

conducting the final audit of the Bayou Family of Funds ." Those letters also included

investment information regarding Class members' Bayou investments and requested that Clas s

members confirm the investment information using a self-addressed enclosed envelope . That

envelope was addressed to "Richmond-Fairfield Associates, 575 Madison Avenue, Suite 1006 ,

New York, NY 10022-2511 " .

68. On or about August 11, 2005, defendant Israel sent members of the Class ,

including Plaintiffs, a letter stating that it planned to distribute 90% of the proceeds from th e

liquidation to investors beginning on August 17, 2005 . As with the other prior speci fic

communications set forth above, this letter was materially false and misleading because, among

other things , Bayou had no intention of properly making such distributions .

The Truth Begins to be Revealed

69. On August 25, 2005 -- the close of the Class Period -- The New York Times

shocked Class members and other investors by reporting that "[ s]tate and federal officials in

37

Connecticut are investigating the possible collapse of the Bayou Group, a hedge fund an d

brokerage firm in Stamford that managed an estimated $400 million for its investors" . The

article reported that "[c]lients of the Bayou Group apparently grew concerned about the firm's

status in recent days, when refund checks it had sent to customers could not be drawn upon fo r

lack of funds" .

70. On August 27, 2005, The New York Post reported that federal agents had seized

boxes of records and other material from Bayou's offices in Stamford, Connecticut, amid fear s

that up to $500 million of its investors' money has "disappeared" . Reportedly, witnesses said

that those Bayou offices had employed some 15 to 20 people ; however, by the time of the raid ,

the offices had been stripped bare of their contents and had actually been vacant for weeks . The

article also reported that "[n]early everyone involved with Bayou Secur ities LLC has vanished -

including its founder, Samuel Israel III . . . [a]nd those who could be found aren't talking ."

71 . On August 29, 2005, The Wall Street Journal reported that a "suicide note an d

confession " had been found at offices of defendant Bayou Management . That suicide

note/confession was supposedly written by defendant Marino, directly implicated defendant s

Marino , Israel and Marquez , and consisted of a six-page account of some .of the details of

financial fraud that had been conducted by the Bayou Defendants beginning in 1996 (th e

"Marino Confession") . It was reported that Eric Dillon, a money manager for Silver Cree k

Capital LLC in Seattle , Washington , had found the Marino Confession on August 16, 2005 an d

that federal and local authorities had commenced investigations regarding the Bayou fraud base d

in part on the Marino Confession .

38

72. As reported in The Wall Street Journal on the August 29, 2005, the Marin o

Confession begins with the statement, "This is my suicide note and confession", and went on to

make numerous shocking revelations including, among others :

a . On the last trading day in December 1998, defendant Israel held a franti c

meeting with defendants Marino and Marquez . Marino recalled that all three men knew Bayou' s

situation was dire -- in that the Bayou Hedge Funds' losses had vastly overwhelmed their gain s

for at least more than two years . In addition, Marino recalled that just three months earlier ,

another hedge fund known as Long-Term Capital Management had collapsed, causin g

widespread disruption in the financial world . Marino summed up the situation in plain words :

"Something had to be done, and fast ."

b . According to Marino, the solution, devised by Israel and Marquez, was

simple : produce a fake audit of the funds' performance, and try to make up the losses th e

following year. The plan to recoup Bayou's past trading losses, as outlined by Marino, involve d

two steps . First, Israel would raise fresh funds from investors and trade his way to outsize d

gains on that money. Second, at least part of the commissions generated by the Bayou Hedg e

Funds' trades -- which were executed by Israel's own brokerage firm, defendant Bayo u

Securities -- would be credited back to the Bayou Hedge Funds to help offset and hide the losses .

Those commissions were substantial given defendant Israel 's daily "rapid-fire trading" activity.

However, in order to engage in such a blatant fraud, the defendants determined that the existin g

outside auditor, Grant Thornton LLP, would need to be replaced by a newly-created bogu s

accounting firm -- defendant Richmond-Fairfield .

39

c. Defendants Israel, Marino and Marquez then quickly implemented thei r

fraudulent plan . With that plan in place, Bayou falsely reported its 1998 performance t o

investors as representing a gain of 17 .55%, with December 1998 being touted as an especially

good month , showing a profit of 3 .14%.

73. For a period of time, the Bayou Defendants ' Ponzi scheme provided significant

cash flow from :Bayou's new investors . Defendants Israel and Marino used significant amount s

of that cash flow to fund their own extravagant life styles . For example, by 2003, defendant

Marino, who had previously been driving a used Maxima and living at his mother's house i n

Staten Island, began driving Bentley and Ferrari automobiles and moved to a six-bedroom hom e

in Westport, Connecticut acquired for some $2.9 million -- which he paid for in large part wit h

Class member investors' cash . Similarly, that same year, defendant Israel, who was then in th e

midst of a marital divorce, moved into a luxury estate that had originally been built for ketchu p

magnate H .J . Heinz -- at a cost of $32,000 per month, again subsidized or largely paid by Clas s

member investors' cash .

74. During the Class Period, defendants Israel and Marino created entities that wer e

used to unlawfully receive Class members' Bayou investor funds, and thereafter either converte d

those funds personally to their own use or invested those funds in other investments for their

own personal interests . For example, Israel and Marino wrongfully funneled some $40 million

to defendant IM Partners during the period in or about 2003 to 2004 . In addition, defendants

Israel and Marino converted significant portions of those proceeds for their own personal use ,

and invested other such proceeds for their own personal benefit in several other companies,

including firms such as Kycos Ltd., Debit Direct Ltd., Adam Aircraft, GS Capital, Vectrix, and

40

other entities, despite knowing that these funds were beneficially owned by Class membe r

investors . Similarly, Israel and Marino funneled other Bayou investor monies to defendant IM G

which were likewise wrongfully converted and used to make additional private investments for

the personal benefit of Israel and Marino . In fact, defendants Israel and Marino reportedl y

created defendants IM Partners and IMG for the express purpose of helping conceal and launder

the assets they stole from Class members, and in fact used defendants IM Partners and IM G

expressly for such purposes .

75. Over time, the Bayou Defendants' scheme began to unravel as new investment s

were outpaced by investment withdrawals, expenses, losses and unlawful conversions . In or

about April 2004, the Bayou Defendants made a last-ditch effort to keep their scheme afloat .

Without informing Plaintiffs or other Bayou investors, the Bayou Defendants then secretl y

stopped all securities trading and liquidated the Bayou Hedge Funds . At or about that same time,

the Bayou Defendants then transferred the remaining proceeds of the Bayou Hedge Funds

directly to defendant Israel, with the substantial assistance and direct participation of defendant

Citibank.

Citibank Wrongfully Distributes Bayou Hedge Fund s

76. Citibank aided and abetted the Bayou Defendants ' fraud and other misconduct by

distributing wrongfully to defendant Israel personally some $161 million of Class member

investor proceeds in circumstances where Citibank knew and disregarded that such proceed s

were fiduciary funds beneficially owned by Class member investors .

77. In or about April 2004 -- following the Bayou Defendants' liquidation of th e

Bayou Hedge Funds -- defendants Israel and Marino instructed Citibank to transfer $150 million

41

from the Bayou bank accounts held at the Citibank branch in Bronxville, NY . Israel and Marino

wired those funds to a trading account at Barclay's Bank in London . Thereafter, Israel and

Marino reportedly transferred the $150 million back to Bayou's Citibank accounts in Bronxville .

78 . Following those initial transfers, Citibank then permitted defendant Israel t o

personally withdraw many millions of dollars of Class member investor funds, and transferre d

such funds to bank accounts individually owned by, and under the sole control of, defendant

Israel . Indeed, according to a September 1, 2005 article in The Wall Street Journal, the Bayo u

Defendants reportedly emptied five Bayou accounts held by Citibank over the course of six days ,

withdrawing some $161 million . Four of those accounts held money for -- and, very

significantly, explicitly and directly in the name of -- four specific Bayou Hedge Funds (Bayo u

Super Fund, Bayou No Leverage Fund, Bayou Affiliates Fund and Bayou Accredited Fund), and

the fifth account held money directly in the name of Bayou Management.

79. Despite the fact that Citibank knew or disregarded that those monies were Bayo u

Class member investor funds, Citibank nevertheless permitted defendant Israel to personall y

withdraw and transfer those funds to accounts he himself alone owned and controlled .

Specifically, on or about July 8, 2004, Citibank directly wired $120 million from Bayou' s

Citibank accounts in New York to one or more offshore bank accounts in defendant Israel' s

name personally at Deutsche Postbank in Hamburg, Germany . Other transfers of Class member

investor funds from the Citibank accounts, including an additional $32 million wire transfer

reportedly somewhere within the United States, are unaccounted for.

80. Citibank knew or disregarded that it was holding the Bayou fund proceeds for the

benefit of the Bayou Class member investors . In fact, Citibank knew as of the time the Bayo u

42

Defendants established these accounts that such accounts included Class member fiduciary

investment dollars . Moreover, that Citibank understood clearly that it was holding fiduciary

proceeds beneficially owned by Class member investors is confirmed further by the fact that

many Class members originally invested in the Bayou Hedge Funds by making wire transfers

and other deposits directly to Citibank . Indeed, according to the Wire Transfer Instructions

supplied by Citibank in connection with Bayou Hedge Fund investments, such funds were to be

held and maintained in the names of the Bayou Hedge Funds . For example, the Wire Transfer

Instructions supplied by Citibank for plaintiff Broad-Bussel Family directed that Broad-Bussel

Family wire transfer its investment for the Bayou Super Fund directly to Citibank NA, 95

Pondfield Road Br 165, Bronxville, New York 10708 . Those wiring instructions also provided

the specific ABA number and bank account number for the Citibank account ; the account name

specified by Citibank was "Bayou Management, L .L.C. Special Account as agent for Bayou

Superfund LLC" ; and the wire transfer to Citibank included "Reference : Broad-Bussel Family

L .P." .

81 . In allowing wrongfully defendant Israel in or about July 2004 to personall y

misappropriate Class member investor funds from the Bayou accounts Class member s

beneficially owned, Citibank also knew, among other things, that :

a. defendant Israel and the other Bayou Defendants were essentially makin g

an abrupt and wholesale withdrawal of Bayou Class member investor funds held by Citibank ;

b. the funds being withdrawn were funds held by Citibank as a fiduciary fo r

the benefit of Plaintiffs and the members of the Class who invested in the Bayou Hedge Funds ;

and

43

c. the fiduciary funds being withdrawn were being transferred to a foreign

bank account and were being deposited, not in the name of the Bayou Hedge Funds, Bayou o r

even any Bayou-related entity, but in fact wrongfully into one or more of defendant Israel's ow n

individual accounts .

82. At a very minimum, Citibank negligently permitted Israel to personally withdra w

proceeds it knew or disregarded were beneficially owned by Class member investors . Moreover,

defendant Citibank's acts in transferring at least $120 million directly to accounts wholly owned

by, and personally in the name of, defendant Israel were particularly inexcusable in the

circumstances here given that Citibank had received directly from Class members many millions

of dollars in proceeds earmarked for investment in the Bayou Hedge Funds and, hence, knew or

disregarded that such proceeds were fiduciary funds beneficially owned by Class membe r

investors .

Laundering of Converted Proceed s

83. After draining the Bayou bank accounts , Israel and Marino began a series o f

additional covert transactions aimed at laundering the $161 million by transferring those monies

through bank accounts in financial institutions around the world, including New York, London,

Germany, Hong Kong, Pennsylvania and New Jersey . Ostensibly, the transactions were

purported to relate to legitimate private placement programs, which were to produce "above

average returns -- and in some cases, 100% per week". In reality, however, the funds being

transferred by Israel and Marino were part of an elaborate scheme to unlawfully launder the

remaining assets of the Bayou Hedge Funds through several financial institutions in connection

with their illegal conversion of those monies .

44

84. In May 2005, the Arizona Attorney General seized $101 million from severa l

Wachovia Bank accounts in Flemington, New Jersey . In an August 30, 2005 press release, the

Arizona Attorney General stated that the assets had been seized "after an investigation indicated

the funds might be involved in a complex financial fraud" . Since the seizure of the $101 million

from Wachovia by the Arizona Attorney General in May 2005, defendants Israel and Bayou

Management have filed claims for those monies with the Arizona Superior Court .

85 . On September 29, 2005, defendants Israel and Marino both pleaded guilty t o

felony criminal charges that they "defrauded investors in the recently collapsed Bayou group o f

hedge funds of more than $450 million ." In pleading guilty to the multiple-count felony

informations filed by the United States Attorney in Manhattan :

a . Defendant Israel admitted "that he conspired with MARINO, the 45-year-

old Chief Financial Officer and Chief Operating Officer of Bayou, to defraud investors by

creating false financial statements that were distributed to investors", and that "between 1996,

when the funds were set up, and 2005, when the funds collapsed, the funds sustained consistent

losses, but, at his direction, investors were regularly told that the funds were reaping substantial

gains ."

b. Defendant Marino admitted "that he and ISRAEL, along with anothe r

former employee and co-founder of the Bayou Funds, hatched the scheme after the funds began

sustaining losses . At the time, the three agreed that MARINO, a Certified Public Accountant,

would form a sham certified public accounting firm named Richmond-Fairfield Associates, to

sign off on the false financial statements showing fake profits that were used to lure future and

current investors ."

45

c . Defendant Israel pleaded guilty to criminal conspiracy, mail fraud and

investment advisor fraud. Defendant Marino pleaded guilty to conspiracy, mail fraud, wire frau d

and investment advisor fraud . As a result, each defendant faces a possible sentence of 30 year s

in prison . In addition , both defendants also face fines on each count of $250,000 or twice the

gain or loss resulting from the crime ; an order of restitution ; and forfeiture of the proceeds of

their admitted fraudulent scheme , among other things, including by the U .S . Attorney's office for

the Southe rn Dist rict of New York. Reportedly , defendants Israel and Marino are scheduled t o

be sentenced for their crimes on April 10, 2006 .

Bayou Defendants' Material Misrepresentations and Omissions

86. During the Class Period, the Bayou Defendants made numerous materia l

misrepresentations and omissions regarding the financial results, operations and conditions and

the business practices of the Bayou Hedge Funds (the "Misrepresentations and Omissions") .

The Bayou Defendants' Misrepresentations and Omissions were made as part of a consistent,

uniform scheme to all members of the Class . The Bayou Defendants' Misrepresentations an d

Omissions include, among others, the following :

a . The Bayou Defendants reported fictitious rates of return for the Bayou

Hedge Funds in quarterly reports and mailed those reports to members of the Class .

b . The Bayou Defendants reported fictitious rates of return for the Bayo u

Hedge Funds in weekly newsletters and c-mailed or faxed those newsletters to members of th e

Class .

c. The Bayou Defendants reported individual investors ' inflated accumulated

profits in monthly reports and mailed those reports to members of the Class .

46

d. The Bayou Defendants mailed annual financial statements to members o f

the Class that contained, among other misrepresentations : (i) inflated rates of return on trading ;

(ii) inflated net asset values, and (iii) false certifications that Bayou had been independently

audited by a certified public accounting firm, defendant Richmond-Fairfield .

C . The Bayou Defendants falsely told investors that the Bayou Hedge Funds

were properly audited . In fact, beginning in or about early 1999, the Bayou Defendants create d

the phony accounting firm Richmond-Fairfield Associates and, contrary to the Bayo u

Defendants' representations, neither Richmond-Fairfield nor anyone else conducted independent

audits of the Bayou Hedge Funds during the Class Period.

The Bayou Defendants omitted to disclose the true financial results an d

conditions of the Bayou Hedge Funds and the true net asset valuations for Class members'

investments in the Bayou Hedge Funds, as well as the facts that the Bayou Hedge Funds were

not being independently audited, that Richmond-Fairfield was a sham company, and that the

reported results of the Bayou Hedge Funds were wholly fictitious .

g. The Bayou Defendants also omitted to disclose that in or about the sprin g

of 2004, the Bayou Defendants ceased all trading for the Bayou Hedge Funds, liquidated all

investments in the Bayou Hedge Funds, and withdrew all of the remaining monies from the

Bayou Hedge Funds' bank accounts at Citibank, without being authorized to do so and without

informing -- but instead affirmatively and fraudulently concealing their scheme from -- the

members of the Class . For its part, moreover, Citibank knew or disregarded that the proceeds it

transferred to defendant Israel's offshore accounts personally were in fact Class membe r

47

fiduciary investment dollars, but nevertheless enabled Israel to misappropriate such proceed s

through its own wrongful acts and omissions .

h. The Bayou Defendants omitted to disclose that between in or about th e

fall of 2003 and in or about May 2005, the Bayou Defendants entered and attempted to enter int o

private financial transactions using money from the Bayou Hedge Funds without authorization

and without disclosing to Class member investors the nature of those transactions .

The Bayou Defendants also omitted to disclose that from in or about Jul y

1996 through in or about August 2005, the Bayou Defendants fraudulently induced members o f

the Class to contribute in excess of $450 million to the Bayou Hedge Funds and the Bayou

Defendants then wrongfully converted significant portions of those monies for their ow n

personal use .

87. As one specific example of the Bayou Defendants ' misstatements , the Bayou

Defendants told investors that the purported "audited" financial statements of the Bayou Super

Fund for the year ended December 31, 2003 reported fund assets of approximately $192 million

and a net trading gain of some $27 million . In truth, however, the Bayou Defendants omitted to

disclose that the Bayou Super Fund actually had less than $54 million in fund assets for year end

2003 -- not even one-third of the falsely reported value -- and had not experienced a trading gain ,

but instead had suffered a loss of $35 million .

88. The reports created and distributed by the Bayou Defendants during the Clas s

Period were materially false and also violated numerous of the most basic tenets of GAAP,

including but not limited to the following :

48

a. that revenue can only be recognized if the revenue has been earned and i s

collectible (CON 5, ¶ 83) ;

b. that financial reporting should provide information that is useful to present

and potential investors, creditors, and other users in making rational investment, credit, an d

similar decisions (CON 1, ¶ 34) ;

c . that financial reporting should provide information about the economi c

resources of an enterprise, the claims to those resources, and the effects of transactions, events ,

and circumstances that change resources and claims to those resources (CON 1, 140) ;

d . that financial reporting should provide information about ho w

management of an enterprise has discharged its stewardship responsibility to owner s

(stockholders) for the use of enterprise resources entrusted to it (CON 1, ¶ 50) ;

e. that financial reporting should provide information about an enterprise' s

financial performance during a period (CON 1, ¶ 42) ;

f. that financial reporting should be relevant and reliable in that it represents

what it purports to represent -- a notion that is central to accounting (CON 2, ¶¶ 58-59); and

g. that financial reporting should be complete, which means that nothing i s

left out of the information that may be necessary to ensure that it validly represents underlyin g

events and conditions (CON 2, ¶ 79) .

The Hennessee Defendants Improperly Investigate

and Recommend the Bayou Hedge Funds

89. The Hennessee Defendants held themselves out to plaintiff Broad-Busse] Family ,

the Hennessee Subclass and the investing community generally as highly experienced an d

competent experts, even self-proclaimed "pioneers", in hedge fund consulting .

49

90. For example, the Hennessee Group website posted an open letter to investors ,

signed by defendants Lee Hennessee and Gradante, which states in pertinent part (emphasi s

altered) :

[W]e are committed to a singular mission : achieving theinvestment goals of our clients by applying the expertise, creativityand commitment of our people .

The investor is our client . Our clients trust us to establishrealistic investment objectives and develop diversified hedge fundportfolios. To achieve these goals, we apply our time testedadvisory processes and proprietary research tools.

We are "your strategic partner" in hedge fund investing .

Sincerely ,

E. Lee Hennessee and Charles J. Gradante[ . ]

91 . The Hennessee Group website further boasted that (emphasis added) :

Since the beginning, we have been navigating a course of action

that balances risk and return among a well diversified hedge fundportfolio . We have the expertise and experience to provide clientswith a range of investment advisory se rv ices, which integrates

portfolio size, objectives and suitability .

92. The Hennessee Group also touted its services specifically to plaintiff Broad-

Bussel Family and the members of the Hennessee Subclass based on the supposedly superio r

research, due diligence and monitoring services that it provides (emphasis altered) :

In order to understand your portfolio's performance, you need to

see more than just returns; you should be able to understand how

the returns were achieved and what factors affected them .

We provide clients with various research tools :

Performance analyticsComparative analysesManager newsletters and interviews

50

Risk assessmentsDue diligence reportsMonthly client statement "monitors ".

93. The Hennessee Defendants also touted publicly the value of the consulting an d

advisory services they provide to hedge fund investors . For example, defendant Gradante

provided a written submission to the SEC in connection with a "Roundtable on Hedge Funds",

held on or about May 14-15, 2003 in Washington, D .C. Among other things, Gradante claimed

that hedge funds consultants, like the Hennessee Defendants, are "value added" in providin g

investors with guidance and advice :

The value that hedge fund consultants provide is similar to thevalue consultants provide pensions, endowments, foundations, andgovernment entities, which is fundamentally the analysis of the

customer's investment needs and assistance in determining assetallocations, manager selection, and ongoing monitoring .

Gradante then also further espoused the "special value" of hedge fund consultants, such as th e

Hennessee Defendants, based on the unique characteristics of hedge fund investments, stating a s

follows:

• The hedge fund industry "is relatively difficult to learn

about from public information ."

• Because hedge funds are "less transparent" than otherinvestments, consultants "can provide discernment about a

strategy ."

• "The instruments and strategies used by hedge funds can begenerally more complex than what you find in traditionalmoney management, so hedge fund consultants can be

valued added in identifying inherent strategy risk . "

• "Determinations about suitability and what is in the bestinterest of the client can be a difficult exercise without aconsultant ."

51

Hedge fund consultants "provide professional expertise inevaluating investment opportunities" .

94. The Hennessee Defendants, including specifically defendants Lee Hennessee and

Gradante, told Broad-Russel Family and other members of the Hennessee Subclass that the

integrity, skill, expertise and fidelity of a hedge fund were factors critical to their recommending

hedge fund investments . Moreover, defendants Lee Hennessee and Gradante marketed

themselves personally to plaintiff Broad-Bussel Family and the Hennessee Subclass as being

experts in analyzing fund managers and selecting appropriate hedge fund investments for their

clients . Further defendants Lee Hennessee and Gradante personally solicited plaintiff Broad-

Bussel Family and the members of the Hennessee Subclass to make investments in the Bayou

Hedge Funds and personally purported to investigate Bayou for plaintiff Broad-Bussel Family

and the members of the Hennessee Subclass, and the Hennessee Group was simply the alter ego

of defendants Lee Hennessee and Gradante . Absent the purported reputation, skill and expertise

of defendants Lee Hennessee and Gradante and their alleged experience in properly investigatin g

hedge fund investments, plaintiff Broad-Bussel Family and members of the Hennessee Subclas s

would not have sought advisory services and hedge fund recommendations from the Hennesse e

Defendants .

95 . The investment advisory agreements that the Hennessee Group entered into with

members of the Hennessee Subclass included material terms that were uniform among the Bayo u

Hedge Fund Class member investors . For example, those investment advisory agreement s

obligated the Hennessee Group to perform due diligence investigations and ongoing monitorin g

of investments recommended by the Hennessee Group, including, among other things, as follows

(emphasis added) :

52

a. "provid[e] advice to Client concerning investments in oneor more private investment partnerships (each a "HedgeFund" and collectively, the "Portfolio`) . These services

include the initial selection of each Hedge Fund and

ongoing monitoring of the performance of the Portfolio" ;

b. "perform search, evaluation, selection, and introductionservices (collectively, "Structuring Services") andintroduce Client to one or more Hedge Fund(s) that

Hennessee reasonably believes would be appropriate

investment vehicles for Client to use based upon theinvestment objectives of Client" ; and

c. provide "Ongoing Services to the Client, such as its

obligation to "monitor the performance of the Portfolio

selected by Client and provide continuous and ongoingHedge Fund investment advice" .

96. By virtue of the Hennessee Defendants' superior knowledge and expertise, thei r

representations to the members of the Hennessee Subclass, their roles in rendering financial an d

advisory services to the members of the Hennessee Subclass and their status as registere d

investment advisors with purportedly expert knowledge about the hedge fund industry, th e

Hennessee Defendants owed fiduciary and other duties to the members of the Hennesse e

Subclass . These duties included, among other things, the obligations to : investigate the busines s

practices and fin ancial condition of the investments they recommend ; monitor those

recommended investments which are made by their clients ; render honest and properl y

investigated financial advice regarding investments by the members of the Hennessee Subclass ;

and assist Hennessee Subclass member investors in good faith in managing their investment

funds .

97. In rendering their services to the Hennessee Subclass, the Hennessee Defendant s

recommended that members of the Hennessee Subclass invest in the Bayou Hedge Funds, even i f

53

making such an investment required a withdrawal of funds from an existing investment

previously recommended by the Hennessee Defendants or other parties . In response to and

reliance upon such recommendations, plaintiff Broad-Bussel Family and the members of the

Hennessee Subclass invested in the Bayou Hedge Funds .

98. In making these investment recommendations, the Hennessee Defendant s

provided the members of the Hennessee Subclass with false information regarding the Bayo u

Hedge Funds' purported financial results, operations and condition .

99. For example, the Hennessee Defendants touted the business model and operation s

of the Bayou Hedge Funds, including the Bayou Super Fund . The Hennessee Defendants also

advised that the recommended Bayou Super Fund was a relatively liquid investment vehicle and

that fund withdrawals can be made on a monthly basis simply with a 15 day advance notice . The

Hennessee Defendants advised the Hennessee Subclass as to the total assets of that fund and tha t

the personal investment commitment in that Fund by the portfolio manager, e.g., defendants

Bayou Management and Israel, was "Significant" .

100 . The Hennessee Defendants also advised the Hennessee Subclass that the Bayo u

Super Fund uses "a high velocity trading strategy, based on a proprietary model with constant

human overlay" . The Hennessee Defendants further explained that "[b]efore the markets open,

the investment team formulates a trading strategy for the day based on news, SEC filings, insider

activity, industry reports, etc ." The Hennessee Defendants assured plaintiff Broad-Bussel

Family and the members of the Hennessee Subclass in marketing materials that investment risk

was controlled and monitored by Bayou Management, in that, among other things, "[long/shor t

54

investment] exposures are frequently brought down to zero by the closing bell, to prevent ga p

up/downs" and that "[t]he fund cuts back exposure if daily losses are in the 1% - 1 .5% range . "

101 . The Hennessee Defendants represented to the Hennessee Subclass that the Bayou

Super Fund was based on an "Opportunistic" style, a characterization which was defined by th e

Hennessee Defendants' marketing materials to mean :

Long/short equities managers who maintain a flexible net exposure

to reflect changing dynamics of the market on a minute-to-minuteor daily day trading basis . Managers typically utilize technicaland/or fundamental analysis . Portfolio turnover can be high asmanagers implement trading disciplines such as tight stop losses

and defined exit target prices .

The Hennessee Defendants represented that the Bayou Super Fund had a "Low/Moderate"

expected volatility .

102 . The Hennessee Defendants also touted the historical financial performance of th e

Bayou Super Fund, providing non-publicly available monthly and annual investment returns fo r

the years 1997 through 2003, including for example specifically as follows :

Year Investment Performanc e

2003 10.66%

2002 11 .22%

2001 7.05%

2000 19.62%

1999 26.06%

1998 17.55%

1997 32.52%

AnnualizedCompound Return(1997-2003)

18.22% .

55

103. The Hennessee Defendants also directly facilitated the Bayou investments o f

plaintiff Broad-Bussel Family and the members of the Hennessee Subclass . For example, th e

Hennessee Defendants' made direct requests to Bayou for Bayou offering documents on behal f

of members of the Hennessee Subclass .

104. The Hennessee Defendants knew that the integrity, skill, expertise and fidelity of

the Bayou Hedge Funds, their manager, Bayou Management, and its officers -- including i n

particular defendant Israel -- were critical to a proper due diligence analysis an d

recommendation of investments in the Bayou Hedge Funds .

105. Following the time the members of the Hennessee Subclass invested in the Bayo u

Hedge Funds, the Hennessee Defendants transmitted other false and misleading information, al l

of which omitted to disclosed adverse material facts about Bayou and the Bayou Hedge Funds ,

including as described more fully below .

The "Red Flags" Regarding the Bayou Defendants' MisconductWhich the Hennessee Defendants Missed or Ignored

106. The members of the Hennessee Subclass relied on the expertise of the Hennesse e

Defendants to investigate, analyze and timely report material information regarding the Bayo u

Hedge Funds .

107. The Hennessee Defendants failed to conduct a proper due diligence review of th e

Bayou Hedge Funds, Bayou Management and Bayou's principal officers, including in particular,

defendants Israel and Marino . Similarly, the Hennessee Defendants failed to properly monitor

and advise members of the Hennessee Subclass concerning their investments in the Bayou

Hedge Funds, despite the fact that plaintiff Broad-Bussel Family and other Hennessee Subclass

member investors specifically retained them to perform properly such an investigation . In

56

failing to conduct proper due diligence reviews and ongoing monitoring of the Bayou Hedge

Funds, Bayou Management and Bayou's principal officers, the Hennessee Defendants failed to

uncover or ignored numerous "red flags" (the "Red Flags") that were either indicative of the

Bayou Defendants' misconduct, or should have led the Hennessee Defendants to investigate

further and timely communicate adverse information to the members of the Hennessee Subclass,

examples of which include the following :

a . The Paul Westervelt Action : On or about March 26, 2003, Paul

Westervelt, Jr. ("Westervelt") and his son , Paul Westervelt, III, filed a civil lawsuit in Louisiana

federal court (No. 03-0860 (E.D. La .)) against defendants Israel , Marino, Bayou Management,

Bayou Fund and Bayou Securities , alleging breach of contract , unjustified employment

termination and violation of Louisiana 's Whistleblower Statute, L.S.A.-R.S . 23 :967 (the

"Westervelt Action") . Westervelt alleged that he was hired in or about September 2002 to serve

as a principal of Bayou in connection with hedge fund management . According to paragraph 13

of the Westervelt complaint, after being hired Westervelt "discovered what he perceived to be

possible violations of S .E.C. regulations governing the operation of hedge funds, as well as other

perceived possible violations of S .E .C. and N.A.S.D. rules and regulations ." In addition,

Westervelt allegedly "observed Marino engaged in [certain unspecified] conduct toward the

other employees of Bayou on numerous occasions" that could "expose Bayou . . . to potential civil

liability ." Westervelt, as a Bayou principal, requested that Israel and Marino provide him with

access to "financial documentation relating to Bayou, including income statements, balance

sheets, monthly account statements and other financial documents evidencing the ongoing

business activities of Bayou" ; in response, Israel and Marino denied those requests, an d

57

reportedly "deliberately obstructed" Westervelt' s attempts to access those requested documents .

Nevertheless, Westervelt was able to obtain certain documentation which showed that (emphasis

added) :

Bayou's capital trading account at Spear, Leeds &

Kellogg ("Spear Leeds'), had been depleted bymore than $7 million in December 2002. As

evidenced by the December 2002 account

statement . .. Bayou's capital account at SpearLeeds had a balance of more than $7.8 million onDecember 1, 2002, and a balance of only $379,000as of December 31, 2002 . . ..

Although Westervelt repeatedly asked Israel and Marino to explain this capital account

depletion, Westervelt never received any explanation or further information . Further, the

Hennessee Defendants failed to alert its Class member investor clients to even the existence o f

these proceedings and allegations -- despite being hired for the very purpose of uncovering an d

advising its investor clients precisely concerning such types of Red Flags .

b. Bayou's Statement Regarding the Westervelt Action: On or about

November 3, 2004, defendant Israel, in his capacity as the so-called General Partner of th e

Bayou Group, sent a letter to investors of the Bayou Hedge Funds to address the Westervelt

Action. That letter was also sent to and/or received by the Hennessee Defendants . Israel's letter

attempted to defuse any negative impact that had been created by the Westervelt Action by

trying to discredit Westervelt personally and by denying all allegations of wrongdoing . For

example, Israel claimed that Westervelt had been hired by Bayou because of Westervelt's "self-

described deteriorating situation" with his prior employer ; however, Westervelt alleged that he

"agreed to leave his successful business arrangement" with his prior employer in exchange for

Bayou's promise to pay him an annual salary of $800,000 and give him an immediate 25 %

58

ownership in Bayou Management (Westervelt Complaint, ¶ IX) . Also, Israel claimed that

Westervelt was fired because he "would simply not follow the Bayou trading methods" ;

however, Westervelt alleged that he resigned essentially because he refused to participate in the J

illegal conduct being committed by Israel, Marino and the other Bayou defendants . Israel' s

letter also noted that another Bayou employee, Ray Oelkers ("Oelkers"), had also been fired by

Israel and that Oelkers had also filed a lawsuit . Israel similarly insinuated that Oelkers needed a

job, and that Israel hired Oelkers but then fired him because Oelkers refused to perform "[t]he

duties and responsibilities of the position . . . outlined for him" -- in other words, Oelkers refused

.to participate in the Bayou Defendants' fraud . In sum, such allegations and counter-allegations

are precisely the type of information that the members of the Hennessee Subclass relied upon the

Hennessee Defendants to investigate, uncover, analyze and, at a minimum, timely advise its

client investors of.

c . Admitted Conflicts of Interests : Defendant Israel acted as the Chief

Investment Officer, manager and head trader for the Bayou Hedge Funds . The securities

brokerage and trading functions for the Bayou Hedge Funds were performed by Bayou

Securities, which during the Class Period was owned by Israel . The Bayou Hedge Funds'

proclaimed "trading strategy" consisted of daily, continual high-volume trading activity -- thus

resulting in substantial corresponding commissions for Bayou Securities, and in turn substantial

income personally for defendant Israel . In other words, the more that Israel churned, or turned-

over, the stock portfolios of the Bayou Hedge Funds, the more commissions he would earn . In

fact, according to the Marino Confession, in or about 1997 and 1998, the Bayou Defendants

fraudulently funneled portions of their Bayou Securities' hefty commissions back to the Bayo u

59

Hedge Funds to help conceal trading losses . As their fraud grew, the Bayou Defendants ceased

funneling those comm issions in or about 1998 and simply reported wholly fictitious financia l

results and balances for the Bayou Hedge Funds, with Israel still retaining personally substantial

revenues from those commissions . Such false financial reports were made possible because th e

Bayou Defendants falsely reported that the data had been audited by an independent accountin g

firm, Richmond-Fairfield -- which in actuality was a bogus company that was created, owne d

and registered by defendant Marino, and which never properly performed, or even coul d

perform, such audits .

d . Phoney Audit/Accounting Firm: Richmond-Fairfield was formed in or

about 1998 by defendant Marino with the direct approval and participation of defendants Israe l

and Marquez . Richmond-Fairfield was formed specifically in order to help conceal the Bayo u

Defendants' expanding fraud . In fact, New York state regulatory filings show that the firm was

not even registered with the state of New York, or any other state , until October 10, 2000 .

Moreover, those regulatory filings show that the owner of Richmond-Fairfield is Bayou's CFO,

defendant Marino . As defendant Marino has admitted, the Bayou Defendants concocted thi s

phoney accounting firm in order to facilitate their financial fraud . Among other things, the

phoney firm provided false audit opinions that certified that Bayou's financial statements ,

reported profits , and fund valuations were fairly stated and had been prepared in accordance wit h

GAAP .

e . Complete Absence of Verification : The Hennessee Defendants did not

obtain any independent verification or confirmation as to the Bayou Hedge Funds' asset balance s

or securities transactions . Absent such verification or confirmation, the Hennessee Defendant s

60

could not have performed any reasonable or meaningful due diligence or monitoring of Bayou o r

the Bayou Hedge Funds . At a very minimum, the lack of any such verification or confirmatio n

should have caused the Hennessee Defendants to further investigate and advise plaintiff Broad-

Bussel Family and members of the Hennessee Subclass that the Hennessee Defendants did not

obtain such verification or confirmation, and that they therefore had not performed an y

meaningful due diligence and monitoring of the Bayou Hedge Funds . Nevertheless, plaintiff

Broad-Bussel Family and the members of the Hennessee Subclass invested in Bayou based upo n

the Hennessee Defendants' recommendations and in reliance on the Hennessee Defendants'

reputation, skill and purported investigation of Bayou .

f. Bayou Used Paid Promoters : According to materials provided to the

Hennessee Defendants by Bayou during the Class Period, Bayou acknowledged that it retained

several outside marketers and promoters for the Bayou Hedge Funds and paid those person s

based either on a percentage of assets raised or through commissions to the promoters'

designated brokers/dealers . These practices created clear conflicts of interest, but the Hennessee

Defendants failed to investigate properly and advise the members of the Hennessee Subclass .

These paid promoters included, among others, Aris Partners, Altegris Investments and

Consulting Services Group, some or all of whom reportedly received as much as 3% of the assets

they raised .

g. Israel's Falsified Resume: The Bayou Defendants falsified and materiall y

embellished the professional credentials and biographical information regarding defendant Israe l

-- the manager and ChiefInvestment Officer of the Bayou Hedge Funds . Indeed , there are

several material discrepancies between Israel's curriculum vitae that was included in the Bayo u

61

Group's marketing materials for the Bayou Hedge Funds, which was received by the Hennesse e

Defendants, as compared to the C .R.D. that was on file with securities regulators .' For example ,

the biography Israel used to help market the Bayou Hedge Funds to investors omits several of hi s

prior employers and his history of bouncing from one brokerage firm to another, and falsely

stated that Israel had been a head trader at the respected hedge fund Omega Advisors an d

exaggerated the period of time that Israel worked for that entity .

h . Bayou's Falsified Company History : The Bayou Defendants also falsifie d

the history of Bayou and the Bayou Hedge Funds . These falsified data were used to distort

Bayou's true operating history in order to gloss over and conceal Bayou's track record of poo r

performance . For example, the Bayou Defendants gave prospective investors, includin g

members of the Class, documents that falsely stated that defendant Israel started the Bayou funds

in 1997. In fact, the Bayou funds actually began in 1996. However, Israel and Bayou had

delivered such a poor performance prior to 1997 that the Bayou Defendants simply blotted ou t

the 1996 operations entirely from Bayou's reported history .

i . Prior Regulatory Violation and Fine : On September 10, 2003, the

Connecticut Banking Commissioner entered a Consent Order with respect to Bayou Securities .

The Consent Order stated that Bayou Securities, a Connecticut-registered broker-dealer, failed to

keep the records required by Section 36b-31-14a(a) of the Regulations under the Connecticut

Uniform Securities Act. The Consent Order required that Bayou Securities pay $7,500 to the

department as an administrative fine and provide the Securities and Business Investments

Division with copies of any customer complaints on a quarterly basis for two years .

C .R.D . is a regulatory filing maintained by the NASD that reports the quali fication,

employment and disclosure histories of registered securities employees of NASD member firms .

62

Unusually Favorable Fees and Restrictions : Bayou offered unusuall y

favorable fees and terms for the Bayou Hedge Funds, which successfully served as enticements

for investors, including members of the Class, to choose the Bayou Hedge Funds over other

hedge funds . Indeed, according to the Marino Confession, such favorable terms were use d

precisely to induce Class member investments . For example, unlike most hedge funds, Bayou

did not charge investors the traditional hedge fund management fee of 1% to 2% of the

investment assets, plus a percentage of the gains the fund realizes . Instead, Bayou claimed to

limit its fees to 20% of the funds' gains . However, in actuality, this meant that the more

fictitious gains Bayou reported, the larger Bayou's fees . In addition, the minimum investment

Bayou required of its investors was $250,000 -- an amount that was much smaller than the $ 1

million minimum used by other funds . Also, Bayou did not have a long "lockup" period --

meaning that investors could enter and exit the Bayou Hedge Funds on a monthly basis, a s

opposed to lock-up periods of a year or more that are commonly used by other hedge funds .

108 . The Hennessee Defendants were obligated to reasonably investigate th e

operations, finances and history of the Bayou Hedge Funds that they recommended to the

plaintiff Broad-Bussel Family and the Hennessee Subclass . Indeed, they were hired and paid by

plaintiff Broad-Bussel Family and the Hennessee Subclass expressly for this purpose .

Additionally, after plaintiff Broad-Bussel Family and members of the Hennessee Subclass

invested in the Bayou Hedge Funds, the Hennessee Defendants were required to monitor such

investments and advise promptly plaintiff Broad-Bussel Family and the members of the

Hennessee Subclass of any material information concerning same and whether circumstances

had materially changed regarding such investments . In fact, plaintiff Broad-Busse] Family an d

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the members of the Hennessee Subclass retained and paid the Hennessee Defendants not only t o

advise them regarding the initial investments, but also to timely advise them of any events or

changes thereafter so that they could make informed decisions regarding their investments .

109 . In addition to the foregoing Red Flags, the Hennessee Defendants also had the

ability to inspect the books and records of the Bayou Hedge Funds . Indeed, an inspection of

such records should be part of any reasonable investigation for which plaintiff Broad-Busse l

Family and the other members of the Hennessee Subclass retained and paid the Hennesse e

Defendants . For example, the respective Operating Agreements governing Class membe r

investments in the Bayou Hedge Funds provided as follows :

The books and records shall at all times be maintained at the

principal executive office of the Company and shall be open to thereasonable inspection and examination of the Members, EconomicOwners, or their duly authorized representatives during reasonable

business hours .

110 . The Hennessee Defendants failed to inspect the books and records of the Bayo u

Hedge Funds altogether, or at least to do so in a proper manner, and to timely advise members o f

the Hennessee Subclass as to material adverse information concerning Bayou and the Bayo u

Hedge Funds .

111 . The Hennessee Defendants wrongfully ignored or failed to uncover the foregoin g

Red Flags in recommending that the members of the Hennessee Subclass invest in the Bayou .

Hedge Funds . Had the Hennessee Defendants conducted proper due diligence and monitoring ,

they would have learned the truth about, Bayou or further investigated and alerted members of

the Hennessee Subclass to reject investing in the Bayou Hedge Funds or to withdraw thei r

investments in the Bayou Hedge Funds, thus preventing or mitigating the damages that were

64

ultimately suffered by plaintiff Broad-Bussel Family and the Hennessee Subclass when th e

Bayou Hedge Funds collapsed in or about July 2005 .

Piercing the Corporate Vei l

112 . Defendants Israel and Marino acted in concert with, dominated and otherwis e

controlled the operations of Bayou Group, Bayou Management , Bayou Securities, Bayou

Partners, Bayou Advisors, Bayou Equities, Bayou Super Fund, Bayou No Leverage Fund, Bayou

Affiliates Fund, Bayou Accredited Fund , Bayou Offshore Fund, Bayou Offshore Fund A, Bayo u

Offshore Fund B, Bayou Offshore Fund C, Bayou Offshore Fund D, Bayou Offshore Fund E ,

Bayou Offshore Fund F, Bayou Offshore Master Fund, Bayou Fund, Richmond-Fairfield, IM

Partners and IMG (collectively, the "Bayou Dominated Entities") . In addition, defendants Israe l

and Marino planned, orchestrated and executed the wrongdoing as alleged on behalf of

themselves individually and through the Bayou Dominated Entities, which Israel and Marin o

controlled and operated for their own personal benefit and as their own alter egos . Among other

things, defendants Israel and Marino completely dominated and controlled the Bayou Dominated

Entities (particularly with respect to the Misrepresentations and Omissions regarding Class

member investor funds and the misappropriation and other dissipation of the Bayou Hedge

Funds). Israel and Marino exercised that domination and control to facilitate and enable th e

alleged fraud and other misconduct that resulted in the damages suffered by Plaintiffs and th e

Class. Accordingly, the acts and omissions of each of the Dominated Entities should b e

attributed to one another and to defendants Israel and Marino personally .

113 . Defendants Lee Hennessee and Gradante acted in concert with, dominated an d

otherwise controlled the operations of the Hennessee Group (the "Hennessee Dominated

65

Entity") . In addition, defendants Lee Hennessee and Gradante planned, orchestrated and

executed the wrongdoing as alleged on behalf of themselves individually and through the

Hennessee Dominated Entity, which Lee Hennessee and Gradante controlled and operated for

their own personal benefit and as their own alter ego . Among other things, defendants Lee

Hennessee and Gradante completely dominated and controlled the Hennessee Dominated Entity

(particularly with respect to the failure to perform proper due diligence and monitoring of the

Bayou Hedge Funds) . Lee Hennessee and Gradante exercised that domination and control in

connection with the Hennessee Group's misconduct that resulted in the damages suffered by

plaintiff Broad-Bussel Family and the Hennessee Subclass . Accordingly, the acts and omissions

of the Hennessee Dominated Entity should be attributed to defendants Lee Hennessee and

Gradante personally .

CLAIMS FOR RELIEF

FIRST CLAIM FOR RELIEF

(For Fraud Against the Bayou Defendants)

114. Plaintiffs and the Class reallege each of the foregoing allegations as if fully se t

forth herein .

115 . Plaintiffs and the Class bring this claim for fraud against the Bayou Defendants .

116. During the Class Period, the Bayou Defendants made numerous and continuin g

material misrepresentations and omissions regarding the financial results, operations and

conditions and the business practices of the Bayou Hedge Funds . Among other things, as

alleged above, the Bayou Defendants' Misrepresentations and Omissions included issuing fals e

reports of the Bayou Hedge Funds' rates of return and total value ; false reports of Clas s

66

members' accumulated profits and net asset valuations in the Bayou Hedge Funds ; false reports

that the Bayou Hedge Funds were being independently and truthfully audited when, in fact, the

Bayou Hedge Funds were essentially a sham and the Bayou Defendants were engaged in a

massive fraud on the Class ; and false reports regarding the financial condition and results for th e

Bayou Hedge Funds, when in reality, the Bayou Defendants had wrongfully converted o r

otherwise dissipated hundreds of millions of dollars from Class member investments, all as

alleged more fully above .

117 . Similarly, Plaintiffs and the Class were fraudulently induced to enter int o

contractual, legal, fiduciary and other relationships with the Bayou Defendants, as alleged mor e

fully above. As a result, any contractual or other purported disclaimers of liability or limitatio n

on the plaintiff Class' right to sue are void . ab initio, including without limitation any agreemen t

purportedly requiring some or all of the claims to be submitted to arbitration .

118 . The Bayou Defendants knew or recklessly ignored that their misrepresentation s

and omissions and fraudulent acts and practices in misleading Class member investors and

misappropriating Class member assets would damage the members of the Class .

119. The Bayou Defendants ' Misrepresentations and Omissions and fraudulent act s

and practices were a substantial, direct and proximate cause of damages suffered by Plaintiffs

and the Class .

120. By reason of the foregoing, the Bayou Defendants have committed fraud o n

Plaintiffs and the Class and are liable for the damages caused thereby in an amount to b e

established at trial .

67

SECOND CLAIM FOR RELIEF

(For Violation of the Connecticut UniformSecurities Act Against the Bayou Defendants )

121 . Plaintiffs and the Class reallege each of the foregoing allegations as if fully se t

forth herein .

122 . Plaintiffs and the Class bring this claim for violation of the Connecticut Unifor m

Securities Act, Conn . Gen. Stat . §§ 36b-2 to 36b-33, against the Bayou Defendants .

123 . In connection with the acquisition of interests in the Bayou Hedge Funds b y

Plaintiffs and the Class, the Bayou Defendants, directly or indirectly : (1) employed devices,

schemes and artifices to defraud ; (2) made untrue statements of a material fact and omitted to

state material facts necessary in order to make the statements made, in the light of th e

circumstances under which they are made, not misleading; and (3) engaged in acts, practices, or

a course of business which operated as a fraud and deceit upon Plaintiffs and the Class, all i n

violation of Conn . Gen. Stat . § 36b-4-

124. The Bayou Defendants' deceptive devices, schemes, courses of business an d

misrepresentations of fact concerned the Bayou Hedge Funds' business practices and financial

results, operations and condition, all as alleged more fully above . The Bayou Defendants

engaged in these deceptive acts and practices and made these material misrepresentations and

omissions of fact with the intention that, inter alia, Plaintiffs and the Class would directly or

indirectly rely on them, and Plaintiffs and the Class did directly or indirectly, individually and/or

through their agents, so rely . As alleged more fully above, the Bayou Defendants' deceptive

acts, practices and misrepresentations and omissions of fact concerned the following, amon g

others :

68

a. that the Bayou Hedge Funds' reported financial results, rates of return an d

asset valuations were accurate and represented Bayou's true financial position, operations and

results ;

b. that the accounting for the profits and losses of the Bayou Hedge Fund s

conformed to GAAP;

c . that the Bayou Hedge Funds' were being independently and properl y

audited and that Bayou's purported auditor, defendant Richmond-Fairfield, was legitimate an d

independent when , in fact, it was simply a sham company set up by Bayou 's CFO, defendant

Marino;

d. that between at least in or about the fall of 2003 through in or about Ma y

2005, the Bayou Defendants entered and attempted to enter into private financial transactions

using money from the Bayou Hedge Funds without properly or timely disclosing to Clas s

member investors the actual nature of those transactions ;

e. that in or about the spring of 2004, the Bayou Defendants secretly cease d

all trading for the Bayou Hedge Funds, liquidated all investments in the Bayou Hedge Funds ,

and withdrew all of the remaining monies from Bayou and the Bayou Hedge Funds' ban k

accounts at Citibank, with Citibank's approval, without being authorized to do so and withou t

informing the members of the Class ;

f. that from at least in or about July 1996 through in or about August 2005 ,

the Bayou Defendants fraudulently induced members of the Class to contribute in excess of $45 0

million to the Bayou Hedge Funds at least significant portions of which the Bayou Defendant s

then wrongfully converted for their own personal use; and

69

g. that Bayou and the Bayou Hedge Funds were being operated properl y

when, in fact, Bayou and the Bayou Hedge Funds were essentially being operated as a fraud and

Ponzi scheme on Plaintiffs and the Class .

125. Further, the Bayou Defendants knowingly or recklessly disregarded that

numerous representations made in the reports regarding the Bayou Hedge Funds that they

disseminated to Class member investors were false and misleading and failed to timely and

accurately disclose the true facts, also in violation of the Connecticut Uniform Securities Act .

126 . Plaintiffs and the Class did not know that the Bayou Defendants' statements were

untrue and that the Bayou Defendants had made material omissions of fact and could not, in th e

exercise of reasonable diligence , have timely uncovered the truth .

127 . As a direct and proximate result of the Bayou Defendants ' violations of the

Connecticut Uniform Securities Act, Plaintiffs and the members of the investor Class acquire d

interests in the Bayou Hedge Funds at artificially inflated prices, were fraudulently induced t o

continue holding those interests, and were damaged thereby in an amount to be determined a t

trial .

THIRD CLAIM FOR RELIEF

(For Violation of the ConnecticutUnfair Trade Practices Act Against th e

Bayou Defendants and the Hennessee Defendants )

128. Plaintiffs and the Class reallege each of the foregoing allegations as if fully se t

forth herein, except for allegations related to fraud .

70

129. Plaintiffs and the Class bring this claim for violation of the Connecticut Unfai r

Trade Practices Act, Conn. Gen. Stat . § 42-110a, et seq ., against the Bayou Defendants and th e

Hennessee Defendants .

130 . At all times relevant, the Bayou Defendants and the Hennessee Defendants wer e

engaged in the conduct of trade or commerce pursuant to the Connecticut Unfair Trade Practice s

Act, Conn . Gen. Stat . § 42-11Oa .

131 . In connection with the acquisition of interests in the Bayou Hedge Funds b y

Plaintiffs, the Class and the respective members of the Hennessee Subclass, the Bayo u

Defendants, directly or indirectly, engaged in unfair trade practices by, among other things : (1 )

employing misleading devices, schemes and artifices ; (2) making untrue statements of material

fact and withholding material facts necessary in order to make the statements made, in the light

of the circumstances under which they are made, not misleading; and (3) converting for their

own use or otherwise wrongfully dissipating the Class' invested funds in the Bayou Hedge

Funds, all as set forth more fully above.

132 . In connection with their financial consulting and advisory services to the

respective members of the Hennessee Subclass, defendants Lee Hennessee and Charles

Gradante, directly or indirectly, engaged in unfair trade practices by, among things : (1)

employing misleading devices, schemes and artifices ; (2) making untrue statements of materia l

fact and withholding material facts necessary in'order to make the statements made, in the light

of the circumstances under which they are made, not misleading; and (3) misrepresenting the

services that they rendered to the Hennessee Subclass, all as set forth more fully above .

71

133 . The misconduct of the Bayou Defendants and the Hennessee Defendants wa s

done intentionally or as a result of their own gross negligence or recklessness, and was immoral ,

unethical, oppressive and unscrupulous and offended public policy and established concepts o f

fairness .

134. As a direct and proximate result of their misconduct, the Bayou Defendants and

the Hennessee Defendants violated the Connecticut Unfair Trade Practices Act . Plaintiffs and

the respective members of the Class and the Hennessee Subclass were damaged thereby in a n

amount to be determined at trial .

FOURTH CLAIM FOR RELIEF

(For Conversion Against the Bayou Defendants)



136. Plaintiffs and the Class bring this claim for conversion against the Bayou

Defendants .

137 . During the Class Period, Plaintiffs and other members of the Class transferre d

hundreds of millions of dollars to the Bayou Defendants as investments in the Bayou Hedg e

Funds .

138. Plaintiffs and the Class have, actually or constructively, requested the return o f

their investments and all other related interest, profits, income or other appreciation .

139. The Bayou Defendants have not returned to Plaintiffs and the Class thes e

proceeds, but have instead deprived Plaintiffs and the Class of their rightful investment proceeds .

For example, defendant Israel and Marino received millions of dollars from the Bayou Hedg e

72

Funds based on the phoney profits reported by the Bayou Hedge Funds, which were falsel y

generated by Israel and Marino themselves .

140. The Bayou Defendants were not authorized to withhold and withdraw Plaintiffs '

and the Class' original investments and other monies .

141 . The Bayou Defendants ' unauthorized withholding and misapprop riation of

Plaintiffs' and the Class' original investments and other monies was a substantial, direct an d

proximate cause of damages suffered by Plaintiffs and the Class .

142 . By reason of the foregoing, the Bayou Defendants have committed conversion o f

Plaintiffs' and the Class' property and are liable for the substantial damages caused thereby in a n

amount to be established at trial .

FIFTH CLAIM FOR RELIEF

(For Theft Against the Bayou Defendants)


forth herein .

144 . Plaintiffs and the Class bring this claim for statutory theft, under Conn . Gen. Stat .

§ 52-564, against the Bayou Defendants .

145 . In engaging in unauthorized withholdings of Plaintiffs' and the Class' origina l

investments and other monies related to the Bayou Hedge Funds, the Bayou Defendants intende d

to and did , in fact , deprive Plaintiffs and the Class of their property .

146. By reason of the foregoing, the Bayou Defendants have committed statutory thef t

of Plaintiffs' and the Class' property and are liable for the substantial damages caused thereby i n

73

an amount to be established at trial . Under Conn. Gen. Stat . § 52-564, the Bayou Defendants are

liable to Plaintiffs and the Class in an amount treble their damages .

SIXTH CLAIM FOR RELIE F

(For Breach of Fiduciary Duty Against theBayou Defendants and the Hennessee Defendants)

147. Plaintiffs and the Class reallege each of the foregoing allegations as if fully set


148. Plaintiffs and the Class bring this claim for breach of fiduciary duty against the

Bayou Defendants and the Hennessee Defendants .

149 . The Bayou Defendants were fiduciaries of Plaintiffs and the Class by virtue of

their acts in soliciting, receiving, managing and controlling the investments that Class members

made to the Bayou Hedge Funds ; by holding themselves out as professional and reputable

investment managers ; and because of their superior knowledge concerning hedge fund

investments generally and the Bayou Hedge Funds specifically . Plaintiffs and the Class

reasonably reposed trust and confidence in the integrity and fidelity of the Bayou Defendants in

connection with the investments that Class members made in the Bayou Hedge Funds .

150 . The Hennessee Defendants were fiduciaries of plaintiff Broad-Bussel Family and

the members of the Hennessee Subclass by virtue of their status as financial and investment

advisors ; by having been entrusted with plaintiffs Broad-Bussel Family and the Hennessee

Subclass' confidential and proprietary financial and investment information ; by their acts in

soliciting and advising plaintiff Broad-Busse] Family and members of the Hennessee Subclass in

their investments in the Bayou Hedge Funds ; by their acts and omissions in investigating,

monitoring and managing plaintiff Broad-Busse] Family's and the Hennessee Subclass '

74

investments in the Bayou Hedge Funds; by holding themselves out as professional and reputable

experts in the field of hedge fund investments and as financial advisors ; and by virtue of their

superior knowledge concerning hedge fund investments generally and the Bayou Hedge Funds

specifically . Plaintiff Broad-Busse] Family and the members of the Hennessee Subclas s

reasonably reposed trust and confidence in the integrity, fidelity and adequacy of the Hennesse e

Defendants' business practices, including but not limited to the Hennessee . Defendants '

purported due diligence and monitoring of Bayou and the Bayou Hedge Funds .

151 . As fiduciaries, the Bayou Defendants and the Hennessee Defendants owe d

Plaintiffs and other similarly situated Class members duties of loyalty, due care and fair dealing ,

including, inter alia : to protect the interests of the Class and Hennessee Subclass ; to refrain

from doing any act injurious to, or which would deprive the Class and Hennessee Subclass of,

any profit or advantage ; to provide members of the Class and Hennessee Subclass with accurate

and materially complete information ; and to not elevate their own interests ahead of Plaintiffs

and other similarly situated members of the Class .

152. The Bayou Defendants violated their fiduciary duties to Plaintiffs and th e

members of the Class by, inter alia : engaging in multiple acts of fraud in the management and

operations of the Bayou Hedge Funds ; making numerous material Misrepresentations and

Omissions of fact regarding the Bayou Hedge Funds ; and wrongfully converting Plaintiffs' and

the Class' property for the use of the Bayou Defendants, all as alleged more fully above .

153 . The Hennessee Defendants violated their fiduciary duties to plaintiff Broad-

Bussel Family and the members of the Hennessee Subclass by, inter alia : failing to perform

proper due diligence and ongoing monitoring for Hennessee Subclass members' investments i n

75

the Bayou Hedge Funds ; ignoring or failing to uncover and timely disclose to Hennessee

Subclass member investors the Red Flags identified above; and failing to properly update

Hennessee Subclass members regarding their investments in the Bayou Hedge Funds, all as


154 . As a direct and proximate result of the Bayou Defendants ' and the Hennesse e

Defendants' breaches of fiduciary duties, Plaintiffs and members of the Class and the Hennessee

Subclass were damaged in an amount to be determined at trial .

SEVENTH CLAIM FOR RELIEF

(For Negligence Against All Defendants )



156. Plaintiffs and the Class bring this claim against all of the Defendants .

157. During the Class Period, all of the Defendants owed a duty of reasonable care t o

the members of the Class and Hennessee Subclass in regard to those investors' investments i n

the Bayou Hedge Funds . In particular, the Bayou Defendants had a duty, among other things : to

act as reasonable financial managers of the Class' Bayou Hedge Fund investments ; to provide

the Class with accurate and materially complete information ; and to avoid acting or failing to act

in a manner that would foreseeably injure Bayou investor Class members . Aider/Abettor

Defendants Marquez and Fotta had a duty, inter alia, to properly operate Bayou, and Citibank

had a duty to not transfer to defendant Israel personally millions of dollars in proceeds which it

knew or ignored were fiduciary investment funds beneficially owned by Class member investors .

The Hennessee Defendants had a duty, among other things : to act as reasonable financia l

76

.J

advisors to the Hennessee Subclass ; perform proper due diligence and monitoring of the Bayo u

Hedge Funds ; properly investigate and timely alert Hennessee Subclass members to the Red

Flags alleged above ; and timely advise Hennes see Subclass members of any material

developments regarding their investments in the Bayou Hedge Funds, all as alleged more full y

above .

158 . The Bayou Defendants violated their duties to the Class by, among other things ,

engaging in numerous improper acts and practices and making numerous and materia l

Misrepresentations and Omissions regarding the financial results, operations and conditions an d

the business practices of the Bayou Hedge Funds . Among other things, the Bayou Defendants '

Misrepresentations and Omissions included issuing false reports regarding the Bayou Hedg e

Funds' rates of return and total value; false reports of Class members' accumulated profits and

net asset valuations in the Bayou Hedge Funds ; false reports that the Bayou Hedge Funds were

being independently and truthfully audited; and false reports regarding the propriety of th e

Bayou Defendants' operations when, in fact, the Bayou Defendants had wrongfully converted o r

otherwise dissipated hundreds of millions of dollars from the investments made by the Class i n

the Bayou Hedge Funds .

159 . The Aider/Abettor Defendants violated their duties to the Class in that , inter alia :

a. Defendants Marquez and Fotta were principals of the Bayou Defendant s

and directly controlled the dissemination of the Bayou Defendants' Misrepresentations an d

Omissions. In addition, Marquez was directly involved in orchestrating the Bayou Defendants '

misconduct beginning at least as early as 1998 and oversaw the operations of Bayou Securitie s

and thereby directly or indirectly participated in the wrongdoing. Defendant Richmond-Fairfield

77

was a sham accounting firm created by the Bayou Defendants to render false audit opinions for

Bayou and the Bayou Hedge Funds in order to conceal the misconduct of the Bayou Defendants .

Defendant Eqyty Research received monies that were misappropriated from the Bayou Hedge

Funds and Bayou Securities. Defendant Faust Rabbach & Oppenheim and defendant

Oppenheim violated their duties to the Class by serving as counsel for Bayou during all or some

of the Class Period, and by directly or indirectly participating in planning, orchestrating and/or

executing, approving or ignoring the alleged fraud, including but not limited to the creation and

operation of several of the Bayou Defendants, several of whom maintained their principal place

of business directly at the Faust, Rabbach & Oppenheim offices in New York . In return for their

wrongful participation in allowing the Bayou Defendants to negligently misrepresent and omit to

disclose material facts concerning the Bayou Hedge Funds, Aider/Abettor Defendants Marquez,

Fotta, Richmond-Fairfield, Eqyty Research, Faust Rabbach & Oppenheim and Oppenheim

directly or indirectly received monetary compensation from Bayou which included monies that

rightfully belonged to Plaintiffs and the members of the Class .

b. As alleged more fully above, defendant Citibank aided and abetted the

Bayou Defendants' misconduct by, among other things, allowing defendant Israel to wrongfully

deplete five Bayou bank accounts in or about July 2004 . More particularly, Citibank assisted

defendant Israel in withdrawing and converting some $161 million of Bayou's then remaining

funds, and in actually transferred those funds to one or more of Israel' s personal accounts in

foreign and other banks .

160. The Hennessee Defendants were grossly negligent in violating their respective

duties to plaintiff Broad-Busse] Family and the members of the Hennessee Subclass by failing t o

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properly advise Hennessee Subclass members and monitor their investments in the Bayou Hedg e

Funds . Among other things, the Hennessee Defendants ignored or failed to uncover numerou s

Red Flags concerning the Bayou Defendants' misconduct and failed to timely advise members o f

the Hennessee Subclass of material adverse information regarding Bayou, all as alleged more

fully above.

161, Defendants Lee Hennessee and Gradante also owed a duty of care to plaintif f

Broad-Bussel Family and other members of the Hennessee Subclass because they personall y

rendered financial advisory services to plaintiff Broad-Bussel Family and other Hennesse e

Subclass members ; solicited plaintiff Broad-Bussel Family and other Hennessee Subclas s

members to retain them for such financial advisory services ; personally recommended that

plaintiff Broad-Bussel Family and other Hennessee Subclass members not only invest in the

Bayou Hedge Funds, but also liquidate other existing investments and redirect such funds as

investments in the Bayou Hedge Funds; and continued to recommend that plaintiff Broad-Bussel

Family and other Hennessee Subclass members maintain and even increase their Bayou

investments despite the presence of the numerous Red Flags which the Hennessee Defendants

either knew or ignored and failed to timely and properly disclose . In addition, defendants Lee

Hennessee and Gradante are also personally liable to plaintiff Broad-Bussel Family and the

members of the Hennessee Subclass because they undertook specific acts in connection with the

Bayou investments they recommended to the Hennessee Subclass, examples of which include

the following :

Defendants Lee Hennessee and Gradante were responsible for personall y

investigating, among other things, defendant Richmond-Fairfield and actually knew or shoul d

79

have known well before the August 2005 collapse of the Bayou Hedge Funds that Bayou' s

supposedly independent auditor, Richmond-Fairfield, was registered solely in the name o f

Bayou 's CFO, defendant Marino . Nevertheless , Lee Hennessee and Gradante failed to disclose

this highly material fact to plaintiff Broad-Busse] Family and the other Hennessee Subclas s

members . Moreover, Lee Hennessee and Gradante failed to properly supplement thei r

investigation of Richmond-Fairfield and timely and properly advise the Hennessee Subclass afte r

they learned or should have learned that defendant Richmond-Fairfield was registered solely i n

the name of Marino .

b. Defendants Lee Hennessee and Gradante also investigated personall y

defendant Israel's employment history, reportedly including by speaking directly with Leon

Cooperman -- the head of Omega Advisors, a New York money management firm .

Nevertheless, Lee Hennessee and Gradante failed to properly uncover basic information and

disclose to plaintiff Broad-Bussel Family and the members of the Hennessee Subclass that Israel

had materially misstated his prior employment history and credentials, including for example ,

that Israel was not a "head trader" at Omega Advisors, all as set forth more fully above . To the

contrary, according to recent media reports, the truth was that Israel was simply "an order taker"

and that "Israel was not a fundamental stock picker, and he had no trading authority at Omega ."

Defendants Lee Hennessee and Gradante also failed to properl y

investigate and advise plaintiff Broad-Bussel Family and the other members of the Hennessee

Subclass regarding the Westervelt Action, as alleged more fully above . In particular, defendants

Lee Hennessee and Gradante were specifically aware of the serious allegations of wrongdoing

alleged in the Westervelt Action but failed to investigate properly those proceedings and advis e

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plaintiff Broad-Bussel Family and the other members of the Hennessee Subclass . Indeed, afte r

the Westervelt Action was ordered into NASD arbitration, defendants Lee Hennessee an d

Gradante simply and incorrectly assumed that such action would lead the NASD to fully

"scrutinize Bayou's books", thereby relieving the Hennessee Defendants of any obligation t o

further investigate or even alert plaintiff Broad-Bussel Family and other members fo th e

Hennessee Subclass regarding the highly mate rial facts alleged in the Westervelt Action .

Defendants Lee Hennessee's and Gradante's failure to further investigate Bayou in light of th e

Westervelt Action is particularly inexcusable given that they knew or ignored that the NASD' s

jurisdiction was limited . Indeed , the NASD has stated that it never looked at Bayou ' s hedge-

fund books because it only had jurisdiction over Bayou's NASD-registered brokerag e

operations .

162. It was foreseeable that Defendants' wrongful conduct would cause Plaintiffs an d

the members of the Class and the Hennessee Subclass to suffer damages .

163. Defendants ' negligence and gross negligence were substantial , direct and

proximate causes of damages suffered by Plaintiffs and members of the Class and Hennesse e

Subclass .

164. By reason of the foregoing, the Defendants are liable to the Plaintiffs an d

members of the Class and Hennessee Subclass for the substantial damages they caused in an

amount to be established at trial .

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EIGHTH CLAIM FOR RELIE F

(For Commercial Bad Faith Against Defendant Citibank )


forth herein .

166. Plaintiffs and the Class bring this claim for commercial bad faith agains t

defendant Citibank .

167 . As alleged more fully above, defendant Citibank wrongfully participated in the

Bayou Defendants' misconduct by, among other things, allowing defendant Israel to deplete five

Bayou bank accounts in or about July 2004 and by permitting defendant Israel to withdraw and

convert some $161 million of Bayou's then remaining funds directly to Israel's own persona l

accounts in foreign and other banks . Accordingly, defendant Citibank owed and breached a duty

of commercial good faith to Class members because, inter alia , it knew or ignored that the

transferred proceeds were fiduciary funds beneficially owned by Plaintiffs and other Clas s

member investors . Indeed, defendant Citibank knew or ignored that these .proceeds were

beneficially owned by Plaintiffs and other Class member investors because many of those Class

members initially had sent their Bayou investment funds directly to Citibank for Bayou t o

manage properly .

168 . Defendant Citibank's knowing participation in the Bayou Defendants '

misconduct amounted to commercial bad faith.

169 . Defendant Citibank's commercial bad faith was a substantial, direct an d

proximate cause of damages suffered by Plaintiffs and the Class .

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170. By reason of the foregoing, defendant Citibank is liable to the Plaintiffs and th e

Class for the substantial damages they caused in an amount to be established at trial .

NINTH CLAIM FOR RELIE F

(For Breach of Contract Against the BayouDefendants and Defendant Hennessee Group)

171 . Plaintiffs and the Class reallege each of the foregoing allegations as if fully set

forth herein, except for allegations related to fraud.

172. Plaintiffs and the Class bring this claim for breach of contract against the Bayo u

Defendants and the Hennessee Group . In addition, although Bayou Management is the actual

contracting party in the Subscription Agreements and the Operating Agreements entered by

Class members for the Bayou Hedge Funds, defendants Israel and Marino so dominated and

ignored the corporate form of all of the Bayou Defendants as alleged more fully above, that th e

Bayou Defendants should be deemed one entity and liable as additional contracting parties fo r

purposes of this claim .

173 . The Bayou Defendants entered into , and duly executed, the Subsc ription

Agreements for one or more of the Bayou Hedge Funds with members of the Class . In

accordance with the terms of those agreements, Plaintiffs and other members of the Class mad e

an investment in one or more of the Bayou Hedge Funds in accordance with the terms of th e

Operating Agreement applicable to the specific Bayou Hedge Fund .

174. The material terms of the Operating Agreements . were uniform across the several

Bayou Hedge Funds in that, among other things, all such contracts required that the Bayo u

Defendants: maintain proper and complete records and books ; account fully and accurately fo r

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all transactions and other matters ; compute all profits and losses of the Bayou Hedge Funds i n

accordance with GAAP ; and maintain proper inte rnal controls .

175. The Bayou Defendants materially breached the foregoing contractual obligation s

by materially falsifying the books and records of the Bayou Hedge Funds, reporting phoney

profits and valuations , failing to adhere to GAAP, failing to maintain proper internal accountin g

controls and procedures, and improperly operating the Bayou Hedge Funds, all as alleged mor e

fully above.

176. Similarly, plaintiff Broad-Bussel Family and members of the Hennessee Subclas s

entered into contracts with defendant Hennessee Group for financial advisory and relate d

services.

177. In connection with those agreements , defendant Hennessee Group advised an d

recommended that plaintiff Broad-Busse] Family and the members of the Hennessee Subclas s

invest in one or more of the Bayou Hedge Funds .

178. Defendant Hennessee Group materially breached its contractual obligations t o

plaintiff Broad-Bussel Family and the members of the Hennessee Subclass by failing to properly

perform the advisory, due diligence and monitoring services in accord with its contractual

obligations . For example, the Hennessee Group failed to investigate, among other things :

Bayou's prior and pending litigations ; conflicts of interests in Bayou's business practices ; the

independence and authenticity of Bayou's purported auditor; Bayou's actual financial condition ,

operations and results ; and the accuracy and truthfulness of Israel's resume and Bayou' s

company history and past regulatory violations, all as alleged more fully above .

84

179. As a direct and proximate result of the Hennessee Group's contractual breaches ,

plaintiff Broad-Bussel Family and the members of the Hennessee Subclass invested in and

remained invested one or more of the Bayou Hedge Funds and suffered damages thereby,

including but not limited to their investment in the Bayou Hedge Funds and the fees they paid

directly or indirectly to defendant Hennessee Group in connection therewith.

180. The contractual breaches of Bayou Defendants and defendant Hennessee Grou p

were a substantial, direct and proximate cause of damages suffered by plaintiff Broad-Busse ]

Family and members of the Class and Hennessee Subclass .

181 . By reason of the foregoing, the Bayou Defendants and defendant Hennesse e

Group are liable to the plaintiff Broad-Bussel Family and the members of the Class an d

Hennessee Subclass for the substantial damages they caused in an amount to be established at

trial .

TENTH CLAIM FOR RELIE F

(For Breach of the Implied Covenant of Good Faithand Fair Dealing Against the Bayou Defendants.

and Defendant Hennessee Group)

182 . Plaintiff and the Class reallege each of the foregoing allegations as if fully set


183 . Plaintiffs and the Class bring this claim for breach of the implied covenant o f

good faith and fair dealing against the Bayou Defendants and defendant Hennessee Group . In

addition, although Bayou Management is the actual contracting party in the Class member

Subscription Agreements and the Operating Agreements for the Bayou Hedge Funds, defendants

Israel and Marino so dominated and ignored the corporate form of all of the Bayou Defendant s

85

as alleged more fully above, that the Bayou Defendants should be deemed one entity and liabl e

as additional contracting parties for purposes of this claim .

184. The Bayou Defendants were obligated to act in good faith, to deal fairly, and t o

adhere to the terms and spirit of the Subscription Agreements and Operating Agreements for th e

respective Bayou Hedge Funds entered into with Plaintiffs and the Class, as the common law ha s

long recognized that an implied covenant of good faith and fair dealing exists between part ies to

a contract. These obligations included, among other things, accurate and timely disclosure t o

Plaintiffs and the Class of the actual business practices and financial results, operations and

condition of Bayou and the Bayou Hedge Funds, so that the true value of the Bayou Hedg e

Funds , and consequently the full consideration to which Class members were actually entitled,

could be determined fairly and in good faith .

185 . Defendant Hennessee Group was obligated to act in good faith, to deal fairly, an d

to adhere to the terms and spirit of the investment advisory agreements it entered into with

members of the Hennessee Subclass, as the common law has long recognized that an implied

covenant of good faith and fair dealing exists between parties to a contract . These obligations

included, among other things, proper and timely financial advisory services and proper due

diligence and monitoring of Bayou and the investments in the Bayou Hedge Funds made by

plaintiff Broad-Bussel Family and the members of the Hennessee Subclass .

186. The Bayou Defendants breached their implied covenant of good faith and fai r

dealing that accompanied their performance and obligations under those contracts b y

misrepresenting and omitting to disclose material facts concerning the actual business practices

and financial results, operations and condition of Bayou and the Bayou Hedge Funds, and b y

86

misrepresenting and misappropriating Class member funds in connection therewith, all a s


187 . Defendant Hennessee Group breached its implied covenant of good faith and fai r

dealing that accompanied its performance of, and obligations under, the investment advisor y

agreements it entered into, respectively, with plaintiff Broad-Bussel Family and the members o f

the Hennessee Subclass, through its failure to properly perform the advisory, due diligence an d

monitoring services in accord with the spirit of its contractual obligations . Among other things ,

defendant Hennessee Group failed to investigate Bayou's prior and pending litigations, conflict s

of interests in Bayou's business practices, the independence and authenticity of Bayou's

purported auditor, the actual financial condition, operations and results of Bayou, the accuracy

and truthfulness of Israel's resume and Bayou's company history, and Bayou's past regulatory

violations, all as alleged more fully above .

188. The breaches of the implied covenant by the Bayou Defendants and defendan t

Hennessee Group were a substantial, direct and proximate cause of the damages suffered b y

Plaintiffs and the members of the Class and Hennessee Subclass .

189 . By reason of the foregoing, the Bayou Defendants and defendant Hennesse e

Group are liable to the Plaintiffs and the respective members of the Class and Hennesse e

Subclass for the substantial damages they caused in an amount to be established at trial .

ELEVENTH CLAIM FOR RELIEF

(For Violations of §§ 206 and 215 of the Investment AdvisersAct of 1940 Against Defendant Hennessee G roup)

190. Plaintiff Broad-Bussel Family and the Hennessee Subclass reallege each of th e

foregoing allegations as if fully set forth herein, except for allegations related to fraud .

87

191 . Plaintiff Broad-Bussel Family and the Hennessee Subclass bring this claim for

violation of §§ 206 and 215 of the Investment Advisers Act, 15 U .S .C. § 80b-6 and 15 U.S .C. §

80b-15, against defendant Hennessee Group .

192 . Defendant Hennessee Group offered advisory services in connection with

recommending and advising investments in the Bayou Hedge Funds , and se rved as a registered

investment advisor under the Investment Advisers Act .

193. Defendant Hennessee Group served as an "investment adviser" to plaintiff Broad-

Bussel. Family and the Hennessee Subclass pursuant to the Investment Advisers Act .

194. As a fiduciary pursuant to the Investment Advisers Act, defendant Hennesse e

Group was required to provide services to plaintiff Broad-Bussel Family and the Hennessee

Subclass in a manner in accordance with the federal fiduciary standards set forth in § 206 of th e

Investment Advisers Act, 15 U .S.C . § 80b-6 , govern ing the conduct of investment advisers .

Section 206 provides that : "It shall be unlawful for any investment adviser, by use of the mails or

any means or instrumentality of interstate commerce, directly or indirectly --

(1) to employ any device, scheme, or artifice to defraud any client or

prospective client ;

(2) to engage in any transaction, practice, or course of business which

operates as a fraud or deceit upon any client or prospective client;

(4) to engage in any act, practice, or course of business which is fraudulent,

deceptive, or manipulative . . . .

88

195 . Defendant Hennessee Group breached its fiduciary duties owed to plaintiff

Broad-Busse] Family and the Hennessee Subclass by engaging in a deceptive contrivance ,

scheme, practice and course of conduct pursuant to which it knowingly and/or recklessly

engaged in acts, transactions, practices and courses of business which operated as a fraud or

deceit, upon plaintiff Broad-Busse] Family and the Hennessee Subclass . As detailed above,

defendant Hennessee Group engaged in a deceptive offering and performance of investment

advisory services for plaintiff Broad-Bussel Family and the Hennessee Subclass . Among other

things, the Hennessee Group touted that it performed proper due diligence and ongoing

monitoring in connection with the Bayou investments it recommended to plaintiff Broad-Bussel

Family and the Hennessee Subclass . Indeed, plaintiff Broad-Bussel Family and the Hennessee

Subclass specifically contracted with the Hennessee Group to receive those services, and pai d

the Hennessee Group compensation in connection therewith . Far from performing properly suc h

due diligence and monitoring services, the Hennessee Group failed to adequately perform suc h

investment advisory services in recommending Bayou investments, and also ignored numerou s

Red Flags of the Bayou Defendants' misconduct which should have been recognized and timely

disclosed by the Hennessee Group to plaintiff Broad-Bussel Family and the Hennessee Subclass .

Notwithstanding its failure to perform properly such investment advisory services, th e

Hennessee Group billed and received substantial fees from plaintiff Broad-Bussel Family and the

Hennessee Subclass in connection therewith.

196. The Hennessee Group's multiple breaches of its fiduciary duties owed to plaintif f

Broad-Busse] Family and the Hennessee Subclass, and other misconduct in deceiving plaintif f

Broad-Bussel Family and the Hennessee Subclass violated the Investment Advisors Act .

89

197. As a direct and proximate result of defendant Hennessee Group ' s breaches ,

plaintiff Broad-Bussel Family and the Hennessee Subclass invested in and maintaine d

investments in one or more of the Bayou Hedge Funds and suffered damages thereby, includin g

but not limited to their investment in the Bayou Hedge Funds and the fees they paid directly o r

indirectly to defendant Hennessee. Group in connection therewith .

198. The Hennessee Group' s violations of the Investment Advisors Act were a

substantial, direct and proximate cause of damages suffered by plaintiff Broad-Busse] Famil y

and the Hennessee Subclass .

199. By reason of the foregoing , defendant Hennessee Group is liable to plaintiff

Broad-Bussel Family and the Hennessee Subclass for violation of the Investment Advisors Act .

Accordingly, the investment advisory agreements entered into by plaintiff Broad -Bussel Family

and the other members of the Hennessee Subclass on the one hand, and by the Hennessee Grou p

on the other, are subject to rescission, and defendant Hennessee Group is liable to mak e

restitution to plaintiff Broad-Bussel Family and the Hennessee Subclass for the fees and othe r

compensation such Hennessee Subclass members paid under those agreements to the full exten t

allowable under the Investment Advisors Act . At a minimum, Broad-Bussel Family and the

Hennessee Subclass are entitled to recoup the prior advisory fees they paid to the Hennesse e

Group, and set-off any present or future fees they may owe Hennessee Group, on account of

Hennessee Group's violations of the investment Advisors Act, as alleged more fully above .

TWELFTH CLAIM FOR RELIEF

(For Aiding and Abetting Fraud Againstthe Aider/Abettor Defendants)

200. Plaintiffs reallege each of the foregoing allegations as if fully set forth herein .

90

201 . Plaintiffs and the Class bring this claim for aiding and abetting fraud against th e

Aider/Abettor Defendants .

202 . The Aider/Abettor Defendants participated in a common plan or course o f

conduct, in conjunction with the Bayou Defendants and each other, that was designed to commi t

a fraud upon Plaintiffs and the Class .

203. Each of the Aider/Abettor Defendants participated in the alleged fraudulen t

course of conduct through active participation, aid, encouragement and/or ratification of the

fraudulent misconduct alleged above, for its/his/her own benefit, and did so having known of

that fraud, or but for its/his/her gross negligence or recklessness should have known of the

fraudulent nature of that course of conduct, in particular as follows, all as alleged more full y

above :



Omissions . In addition, Marquez was directly involved in orchestrating the Bayou Defendants '

misconduct beginning in at least 1998 and oversaw the operations of Bayou Securities an d

thereby directly or indirectly participated in the wrongdoing. Defendant Richmond-Fairfield was

a sham accounting firm created by the Bayou Defendants to render false audit opinions for



Funds and Bayou Securities. In return for their wrongful participation in allowing the Bayou

Defendants to misrepresent and omit to disclose material facts concerning the Bayou Hedge

Funds, the Aider/Abettor Defendants Marquez, Fotta, Richmond-Fairfield and Eqyty Research

91

received monetary compensation directly or indirectly from monies that rightfully belonged to

Plaintiffs and the Class .

b. As alleged more fully above, defendant Faust Rabbach & Oppenheim an d

defendant Oppenheim aided and abetted the Bayou Defendants' fraud by serving as counsel fo r

Bayou during all or some of the Class Period, and by directly or indirectly participating in

planning, orchestrating and/or executing, approving or ignoring the alleged fraud, including bu t

not limited to the creation and operation of several of the Bayou Defendants .

Also as alleged more fully above, defendant Citibank aided and abette d

the Bayou Defendants' fraudulent scheme by, among other things : allowing defendant Israel to

wrongfully deplete five Bayou bank accounts in or about July 2004 ; permitting defendant Israe l

to withdraw and convert at least $161 million of Bayou's then remaining funds ; and actuall y

transferring those funds to Israel' s personal accounts in foreign and other banks .

204 . Plaintiffs and the Class were injured by the violations of the Aider/Abetto r

Defendants alleged above . The Aider/Abettor Defendants are therefore jointly and severall y

liable to Plaintiffs and the Class for all damages incurred resulting therefrom in an amount to b e

proven at trial .

THIRTEENTH CLAIM FOR RELIEF

(For Aiding and Abetting Breach of Fiduciary DutyAgainst the Aider/Abettor Defendants)

205 . Plaintiffs reallege each of the foregoing allegations as if fully set forth herein ,

except for allegations related to fraud .

206. Plaintiffs and the Class bring this claim for aiding and abetting breach of

fiduciary duty against the Aider/Abettor Defendants .

92

207. Each of the Aider/Abettor Defendants participated in an alleged course of conduc t

that aided and abetted numerous breaches of fiduciary duties that were committed by the Bayo u

Defendants , all as alleged more fully above .

208 . Each of the Aider/Abettor Defendants actively participated in the Bayo u

Defendants' misconduct and aided, encouraged and/or ratified such misconduct for its/his/he r

own benefit, including more particularly as follows, all as more fully alleged above :


and directly controlled the dissemination of the Bayou Defendants' Misrepresentations and

Omissions . In addition, Marquez was directly involved in orchestrating the Bayou Defendants'

misconduct beginning in at least 1998 and oversaw the operations of Bayou Securities and

thereby directly or indirectly participated in the wrongdoing. Defendant Richmond-Fairfield was

a sham accounting firm created by the Bayou Defendants to render false audit opinions for



Funds and Bayou Securities. In return for their wrongful participation in allowing the Bayou

Defendants to misrepresent and omit to disclose material facts concerning the Bayou Hedge

Funds, the Aider/Abettor Defendants Marquez, Fotta, Richmond-Fairfield and Eqyty Research



b . As alleged more fully above, defendant Faust Rabbach & Oppenheim an d

defendant Oppenheim aided and abetted the Bayou Defendants' breaches of fiduciary duties b y

serving as counsel for Bayou during all or some of the Class Period, and by directly or indirectl y

93

participating in planning, orchestrating and/or executing, approving or ignoring the allege d

breaches of fiduciary duty, including but not limited to the creation and operation of several of

the Bayou Defendants .

c. As alleged more fully above, defendant Citibank aided and abetted the

Bayou Defendants' misconduct by, among other things : allowing the defendant Israel t o

wrongfully deplete five Bayou bank accounts in or about July 2004 ; permitting defendant Israel



209. Plaintiffs and the Class were injured by the violations of the Aider/Abetto r

Defendants alleged above . The Aider/Abettor Defendants are therefore jointly and severall y

liable to Plaintiffs and the Class for all damages incurred resulting therefrom in an amount to b e

proven at trial .

FOURTEENTH CLAIM FOR RELIEF

(For Aiding and Abetting NegligenceAgainst the Aider/Abettor Defendants )

210 . Plaintiffs reallege each of the foregoing allegations as if fully set forth herein ,

except for allegations related to fraud .

211 . Plaintiffs and the Class bring this claim for aiding and abetting negligence agains t

the Aider/Abettor Defendants .

212. Each of the Aider/Abettor Defendants participated in the Bayou Defendants '

misconduct and either knew, or but for their negligence and/or gross negligence should have

known, of the false and misleading information that the Bayou Defendants were providing t o

investors and others regarding the Bayou Hedge Funds .

94

213 . Each of the Aider/Abettor Defendants participated in the alleged fraudulent

course of conduct through active participation, aid, encouragement and/or ratification of th e

negligent misrepresentations and omissions alleged above, for its/his/her own benefit, includin g

in particular as follows, all as more fully alleged above :

a . Defendants Marquez and Fotta were principals of the Bayou Defendant s


Omissions . In addition, Marquez was directly involved in orchestrating the Bayou Defendants '

misconduct beginning in at least 1998 and oversaw the operations of Bayou Securities and

thereby directly or indirectly participated in the wrongdoing . Defendant Richmond-Fairfield was

a sham accounting firm created by the Bayou Defendants to render false audit opinions fo r


Defendant Eqyty Research received monies that were misappropriated from the Bayou Hedg e

Funds and Bayou Securities . In return for their wrongful participation in allowing the Bayo u

Defendants to misrepresent and omit to disclose material facts concerning the Bayou Hedg e

Funds, the Aider/Abettor Defendants Marquez, Fotta, Richmond-Fairfield and Eqyty Researc h



b . As alleged more fully above, defendant Faust Rabbach & Oppenheim an d

defendant Oppenheim aided and abetted the Bayou Defendants' negligence by serving a s

counsel for Bayou during all or some of the Class Period, and by directly or indirectl y

participating in planning, orchestrating and/or executing, approving or ignoring the allege d

95

negligence, including but not limited to the creation and operation of several of the Bayo u

Defendants .

As alleged more fully above, defendant Citibank substantially facilitate d

the Bayou Defendants' wrongdoing by, among other things : allowing the Bayou Defendants to

wrongfully deplete five Bayou bank accounts in or about July 2004 ; permitting defendant Israe l



214. Plaintiffs and the Class were injured by the violations of the Aider/Abettor

Defendants alleged above. The Aider/Abettor Defendants are therefore jointly and severall y

liable to . Plaintiffs and the Class for all damages incurred resulting therefrom in an amount to b e

proven at trial .

FIFTEENTH CLAIM FOR RELIE F

(For Unj ust Enrichment and Restitution Against All Defendants )



216. Plaintiffs and the members of the Class bring this claim against all of th e

Defendants .

217. Plaintiffs and the members of the Class directly or indirectly entered int o

fiduciary, legal and/or other business or other relationships with the Defendants as alleged

above .

218. Plaintiffs and the members of the Class and the Hennessee Subclass conferre d

compensation and other financial benefits upon Defendants in various forms of direct and

96

w .r

indirect fees, compensation and other charges for services that were to be rendered in connectio n

with the management and operations of the Bayou Hedge Funds . In particular, the Bayou

Defendants and defendant Marquez received fees, commissions, salaries and bonuses in

connection with the management and operations of the Bayou Hedge Funds ; defendant Faust

Rabbach & Oppenheim and defendant Oppenheim received monies in the form of legal fees

and/or other payments from Class member investment proceeds in connection with services a s

counsel and agents for Bayou during all or some of the Class Period ; defendant Citibank

received fees and other benefits in connection with its banking services to the Bayou Hedg e

Funds and defendant Israel ; defendants Eqyty Research and Fotta received fees in connectio n

with assisting in operating Bayou and purported stock research; and the Hennessee Defendants

received fees and commissions in connection with recommending the Bayou Hedge Funds as

investments for Plaintiffs and the respective members of the Hennessee Subclass . All of the

foregoing benefits were requested, voluntarily accepted, and retained by Defendants wit h

knowledge of the material facts .

219. Defendants derived benefits from their relationships with Plaintiffs and the

members of the Class . Through their inequitable conduct, Defendants obtained fees ,

compensation and other emoluments and benefits which they did not properly earn or wer e

rightfully entitled to, and Defendants have thus been unjustly enriched . It would be inequitabl e

for the Defendants to retain such fees, compensation and other benefits they derived fro m

plaintiff Broad-Busse] Family and the members of the Class and Hennessee Subclass i n

connection the Bayou Hedge Funds without repaying to members of the Class and the Hennessee

Subclass the value thereof.

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220. By reason of the foregoing, Defendants have been unjustly enriched in an amoun t

to be proven at trial which, in justice and fairness and in the alternative to the extent no t

duplicative of any of the other claims for relief requested herein, and/or to the extent Plaintiff s

and the members of the Class and Hennessee Subclass are for any reason denied relief o n

account of the other claims set forth herein, should be paid over to the Plaintiffs and the othe r

members of the Class and Hennessee Subclass .

BASIS OF ALLEGATION S

Plaintiffs have made the foregoing allegations, other than those concerning themselves ,

based upon the investigation of Plaintiffs' counsel which, among other things, included a review

of various media reports and press releases concerning the Defendants and other persons an d

entities ; public and other documents concerning the financial and business operations, condition

and results of Defendants and other persons and entities ; state and other regulatory filing s

regarding Defendants and other persons and entities ; on-line databases and other computer

research; court filings and proceedings in other litigations, including but not limited to the

criminal charges against, and guilty pleas entered by, defendants Israel and Marino; and a revie w

of other documents and information . Plaintiffs believe that additional evidentiary support wil l

exist for their allegations after they are afforded a reasonable opportunity for discovery .

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs, on behalf of themselves and the members of the propose d

Class and Hennessee Subclass, pray for the following relief :

1 . declaring this action to be a class action properly maintained on behalf of th e

Class under Rules 23(a), (b)(1)(A), (b)(1)(B) and (b)(3) of the Federal Rules of Civil Procedure

98

and certifying plaintiff Broad-Bussel Family and the Michelsohn Plaintiffs as the Clas s

representatives thereof;

2. declaring that the Hennessee Subclass is properly certified as a subclass under

Federal Rules 23(a) and 23(b)(3), and that plaintiff Broad-Bussel Family is certified as the

representative of the Hennessee Subclass ;

3 . finding that Defendants committed the misconduct and violations alleged ;

4 . awarding Plaintiffs and the members of the Class and the Hennessee Subclas s

damages, including but not limited to compensatory, treble and punitive damages, together wit h

interest thereon, to the maximum extent permitted by law ;

awarding Plaintiffs and the members of the Class and the Hennessee Subclas s

their costs and expenses of this litigation, including but not limited to reasonable attorneys' fees ,

experts' fees and other costs and disbursements ;

6. directing that all funds traceable to the Bayou Hedge Funds be placed in a

constructive trust and distributed ratably to Plaintiffs and the members of the Class and th e

Hennessee Subclass consistent with such investors' damages ; and

7 . awarding plaintiff Broad-Bussel Family and the other members of the Hennesse e

Subclass rescission of the investment advisory agreements they entered into with defendan t

Hennessee Group and the return of all fees and other compensation plaintiff Broad-Busse l

Family and the other members of the Hennessee Subclass paid to the Hennessee Group i n

connection therewith in accordance with the Investment Advisors Act, and/or that the fees whic h

plaintiff Broad-Bussel Family and the other members of the Hennessee Subclass paid to th e

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Hennessee Group be subject to recoupment and/or set-off to the full extent permitted by law in

connection with the violations alleged herein; and

8. awarding Plaintiffs and the members of the Class and the Hennessee Subclas s

such other and further relief as may be just and proper in the circumstances .

JURY DEMAND

Plaintiffs, individually and on behalf of the Class and the Hennessee Subclass, demand a

trial by jury of all claims and issues so triable .

Dated : March 6, 2006KOSKOFF, O & BIEDER, P.C .

William . B s , sq.Neal A . oung, Esq.350 Fair field Avenue

Bridgeport , CT 06604

Telephone: (203) 336-442 1

Fax: (203) 368-3244

Attorneys for Plaintiffs Marie-Louise Michelsohn,Michelle Michelsohn and Herbert Blaine Lawson, Jr .

BERGER & MONTAGUE, P .C .

Merrill G . Davidoff, Esq .Lawrence J . Lederer, Esq .Lane L. Vines, Esq .1622 Locust StreetPhiladelphia, PA 19103

Telephone : (215) 875-3000

Fax: (215) 875-4604

Attorneys for Plaintiff Broad-Busse] Family

Limited Partnership

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In Re: Bayou Hedge Funds Investment Litigation 0501762...

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