June 19 (Bloomberg) -- A federal appeals court upheld the guilty plea and 20-year prison sentence of Samuel Israel, the co-founder of the Bayou Group LLC hedge-fund firm who admitted that he directed a $400 million fraud.

The U.S. Court of Appeals in Manhattan today rejected two arguments advanced by Israel: that the judge before whom he pleaded guilty should have left the case because she appeared to favor prosecutors, and that his sentence was unreasonable.

“Given the long history of defendant’s criminal conduct and the massive amount of money involved in this case, a 20-year sentence was within the range of permissible decisions,” the appeals court said in a three-page opinion.

Israel pleaded guilty in 2005, then fled for 23 days before he was to be sentenced to prison last year. Before fleeing, he faked his suicide by abandoning his car on an upstate New York bridge with the worlds “suicide is painless” written on the windshield. He is now in prison.

Israel founded Bayou in 1995 with James Marquez. After the company lost money in 1998, Marquez and finance chief Daniel Marino created a sham accounting firm to serve as the company’s external auditor, Israel admitted. Rather than disclose modest losses, Bayou reported profits, Israel said. Bayou filed for bankruptcy in May 2006.

Israel’s sentence, which included a $300 million fine, was one of the stiffest prison terms handed down for a white-collar defendant since the 2001 collapse of Enron Corp.

The case is U.S. v. Israel, 05cr1039, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Glovin in Manhattan federal court at dglovin@bloomberg.net.

Last Updated: June 19, 2009 15:10 EDT