HEDGE FUNDS

Bayou Principals Plead Guilty

Two top officers of the scandal-ridden Bayou hedge fund emerged from hiding and admitted engaging in a fraud that allegedly cost investors about $450 million. Bayou founder Samuel Israel III and finance chief Daniel Marino, both 46, pleaded guilty in federal court in White Plains, N.Y., to mail fraud, investment adviser fraud and conspiracy to commit those crimes. Marino also pleaded guilty to wire fraud. The maximum penalty of the most serious offense is 20 years in prison.

Separately, the Securities and Exchange Commission sued Bayou Group, Israel and Marino, accusing them of defrauding investors. The SEC requested a court order freezing their assets and the appointment of a receiver to take control of them.

Israel and Marino "defrauded current investors, and attracted new investors, by grossly exaggerating the funds' performance to make it appear that the funds were profitable and attractive investments, when in fact, the funds had never posted a year-end profit," the SEC said.

INSURANCE

AIG Sues Former CEO's Company

American International Group sued for control of $17.7 billion of its stock held by Starr International, a company run by former AIG chief executive Maurice R. "Hank" Greenberg. It filed the suit in New York federal court after Starr said it planned to use most of its 290 million AIG shares as an investment vehicle. AIG said that the stock, which represents nearly 12 percent of its outstanding shares, was never intended to be used as anything but deferred compensation for its employees.

REGULATION

Ex-Guidant Workers Questioned

Criminal investigators for the Food and Drug Administration questioned two former employees of Guidant Corp., according to Dhulsini De Zoysa, an analyst with S.G. Cowen. Citing unidentified company managers, De Zoysa said in a note to clients that the questioning had "no apparent connection to" Guidant's recalls of defibrillators earlier this year.

The FDA, Guidant and Johnson & Johnson, which plans to buy Guidant, declined to comment. The investigation may raise concerns about the $25.4 billion purchase, De Zoysa said in a separate note.

LABOR

Boeing Machinists Ratify Contract

Machinists at Boeing approved a new labor contract, ending a four-week strike that shut down the company's commercial airplane assembly plants. About 80 percent of those voting accepted the three-year pact, union leaders said. Union leaders had recommended that the 19,000 members accept the revised offer, which improves pension payouts and doesn't increase health care premiums. While workers can resume their jobs immediately, they won't be required to return to work until Oct. 12.

MORTGAGES

30-Year Rates Hit 5-Month High

Rates on 30-year mortgages jumped to the highest level in five months, reflecting financial-market anxieties about inflation. Freddie Mac said the nationwide average for 30-year, fixed-rate mortgages rose to 5.91 percent, up from 5.8 percent last week. It was the third consecutive weekly increase and pushed the 30-year rate to its highest level since mid-April.

PepsiCo said profit in its fiscal third quarter dropped 37 percent, to $864 million, because of a charge related to repatriation of overseas earnings. Sales in the quarter ended Sept. 3 rose 13 percent, to $8.18 billion.

Compiled from staff and news service reports.

Boeing machinist Joann Shearer observes union members voting on the company's proposed contract. The union overwhelmingly ratified the new contract, ending a four-week strike.