Fugitive ex-hedge fund manager Israel surrenders

By Svea Herbst-Bayliss and Scott Malone

BOSTON (Reuters) - Fugitive former hedge fund manager Samuel Israel III surrendered to police in Massachusetts on Wednesday, ending a four-week manhunt after he faked his own death to avoid a 20-year prison sentence.

"He surrendered at 9:30 this morning," said Peter Coe, dispatcher with the Southwick police, who confirmed the arrest of the former Bayou Group executive.

Israel's mother tipped off U.S. Marshals, who had been hunting the former financier around the country, that the 48-year old was ready to surrender on Wednesday. She had been in touch with her son for weeks and had urged him to give up, officials said.

"Sam Israel was in contact with his mother right before he came in and she called us to let us know," Dave Turner, the Marshals spokesman said. "He gave up because of the intense pressure of the manhunt," Turner added.

Israel then walked into a police station in Southwick, a town in the state's Pioneer Valley near the Connecticut border about 100 miles southwest of Boston.

He will face a federal judge in Springfield at 3 p.m. EDT, a court official said.

The one-time high flier, who engineered the $2 trillion hedge fund industry's most brazen and longest-running fraud, sparked a nationwide search after his GMC Envoy was found on a bridge above the Hudson River on June 9, its engine idling and the words "suicide is painless" etched in dust on its hood.

After his disappearance, police ruled out suicide and issued a "wanted" poster for Israel, the co-founder of Bayou Group, a Connecticut-based hedge fund. He had pleaded guilty in 2005 and was sentenced in April for his role in a scheme to fabricate returns and cheat investors out of $450 million.