Feb. 17 (Bloomberg) -- Daniel Marino, the former finance chief of the bankrupt hedge-fund firm Bayou Group LLC, lost a bid to overturn a 20-year prison sentence for defrauding investors of at least $400 million.

The U.S. Court of Appeals in New York today upheld the sentence in a four-page ruling. Marino, 49, sought leniency due to his cooperation with prosecutors and told the appeals court his sentence was unreasonable.

“We might ourselves have given greater weight than apparently did the district court to Marino’s plight -- his almost complete deafness and accompanying sense of loneliness, his lack of self-esteem, his bouts with cancer, his apparent fear of and deference to Israel -- and his assistance to the government,” the court said. “But it is not for us to substitute our judgment for that of the district court.”

At least 16 corporate executives have been sentenced to 20 years or more in prison since 2003.

They include former WorldCom Inc. Chairman Bernard Ebbers, who received 25 years for fraud, and former Enron Corp. Chief Executive Officer Jeffrey Skilling, who got a 24-year term.

Bayou, based in Stamford, Connecticut, was among the biggest hedge-fund firms to come under federal scrutiny for missing money. It filed for bankruptcy in May 2006, prompting lawsuits that claimed it operated a Ponzi scheme that paid off old investors with money from new ones.

Co-Founder’s Sentence

Bayou co-founder Samuel Israel, Marino’s codefendant, was also sentenced to 20 years. Israel disappeared for three weeks last June after faking his suicide the day he was to report to prison. He surrendered to police in Massachusetts.

Marino is in a low-security prison in Forrest City, Arkansas.

The case stems from a scheme hatched by Israel and Bayou co- founder James Marquez to falsify financial statements after Bayou sustained substantial losses in 1998.

Israel and Marquez had Marino form a sham accounting firm, named Richmond-Fairfield Associates, to sign off on fake financial documents sent to clients. The fraud collapsed when Seattle-based Silver Creek Capital Management sought to withdraw $53 million in August 2005. Prosecutors said investors lost more than $400 million.

U.S. District Judge Colleen McMahon in sentencing Marino cited the size and length of the eight-year fraud and Marino’s role as its linchpin.

Marino’s lawyer, Andrew Bowman, didn’t immediately return a call.

Marquez was sentenced to serve 51 months in prison for a limited role in the fraud.

The case is U.S. v. Marino, 05-cr-1036, U.S. District Court, Southern District of New York (Manhattan).

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To contact the reporter on this story: David Glovin in New York federal court at dglovin@bloomberg.net.

Last Updated: February 17, 2009 13:40 EST