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SCOTT JAGOW: As far as corporate fraud goes, this one was a raw slap in the face to investors.It involved a hedge fund called Bayou management. Bayou lost hundreds of millions of dollars, and then the CEO vanished. He eventually came out of hiding to admit to all kinds of mean and nasty things. Now, Bayou has filed for bankruptcy. Sarah Gardner tells us the story.

SARAH GARDNER: Last fall Bayou founder Samuel Israel and his CFO pleaded guilty to federal fraud and conspiracy charges. They'd raised over $400 million from investors over the course of nine years. But even as they were losing money they told their wealthy clients they were making profits and then created a phony auditing company to confirm the lies. Securities law expert Henry Hu:

HENRY HU:"This is a very crude kind of fraud that one doesn't see all that often."

Still, Hu says many institutional investors now hire private detectives to check the backgrounds of hedge fund managers. If they'd checked on Bayou, they would have found everything from trading fines to a false resume to a whistleblower lawsuit in 2003.

Along with this week's Chapter 11 filing, Bayou's court-appointed administrator filed suit to recover returns earned by certain investors before Bayou's collapse. He said it was unfair that some investors made money on the hedge fund while others lost everything.

I'm Sarah Gardner for Marketplace.

Follow Sarah Gardner at @RadioGardner