By Jennifer Reingold
July 20, 2012

FORTUNE — Forget Bernie Madoff. If you want a really crazy story about a Ponzi scheme –one where the scheme itself is actually the least interesting part of the whole sordid saga — take a look at Guy Lawson’s Octopus: Sam Israel, the Secret Market, and Wall Street’s Wildest Con (Crown). The story features not just rampant fraud, to the tune of $450 million invested in Israel’s firm, the Bayou Hedge Fund Group, but guns, supposed CIA double agents, drugs, JFK’s assassination, and oh yes, world domination by a handful of elites. Did I mention that this is a nonfiction book?

 Octopus opens with Sam Israel III faking a suicide leap off the Bear Mountain Bridge in New York State in hopes of avoiding his 20-year prison sentence for fraud. It works, to a point: Israel eventually turns himself in and now resides in a medium-security federal facility in North Carolina that’s also home to Madoff. But he stays on the lam for two months, which makes the scheme more successful than all the other zany capers Israel tried to cover up the fact that his fund never earned any of the amazing returns it claimed.

Israel is the overconfident, underethical scion of a New Orleans family known for its century-old commodity trading firm, ACLI. He cooperated fully with Lawson for this book, as did Dan Marino, Bayou’s CFO. Strange as it may seem, Lawson portrays Israel almost sympathetically, as a well-intentioned finance guy who wanted to make his own money without relying on his famous family. But he got sidetracked in his first job, where a trader named Freddy Graber allegedly introduced Israel to the beauty of the insider tip.

Though Lawson never attempts a diagnosis of Israel’s mental state, it’s clear early on that the guy has major clinical issues. He’s also funny, self-deprecating, and charming, all key attributes of a successful conman. Israel develops a proprietary computer program, “Forward Propagation,” that he’s sure can spot market inefficiencies. He opens a hedge fund called Bayou Partners to trade on that information, and recruits the hapless Dan Marino as CFO.

The first six months are great. But when the program stops working as planned, Israel and Marino conspire to fake the numbers, just temporarily of course, until things turn around. In the meantime, the fake numbers attract more and more money, and Bayou’s “success” continues to build.

Desperate for a way out, Israel turns to the (still) darker side. He meets a shady character named Jack O’Halloran who hints about a secret proprietary trading program called PROMIS, currently under the control of a cabal called The Octopus that, yes, controls the world. You’d think a born con man would not fall for such hooey, but Israel does. By now addicted to painkillers, he falls under the spell of an even more mysterious dude named Robert Booth Nichols, a supposed former CIA agent gone rogue. Nichols tells Israel that he can get him access to the computer program — and, later, a secret treasure called “Yamashita’s Gold” — as long as he transfers many millions to a “special” account.

At this point the book goes from simply surreal to full-on Twilight Zone. Israel begins spending most of his time in London, waiting for “approval” from the grand masters of Octopus to make the illegal trades that will rescue his fund. Not only does it never happen, but Israel becomes increasingly paranoid, spinning a web of wide-eyed recollections of secret bank accounts, offices, and surveillance cameras. Israel even claims that he killed a man, although Lawson says there is no evidence that he actually did — and suggests that the killing itself may have been faked in order to make Israel even more paranoid.

The irony — and it is a big one — is that while Israel was terrified of being knocked off by the secret underworld, he had little, if any fear that the good old Feds would figure out that he was bilking his investors of many millions. And why should he have? Like Madoff, he had operated in plain sight for years, his trades cleared by a unit of Goldman Sachs (GS). It’s almost an accident that he and Marino finally get nabbed — and for this reader at least, that’s where conspiracy theories might gain some real traction.

Is Israel telling the truth about any of this? I have absolutely no idea. Lawson goes out of his way not to pass judgment on his subject, simply letting him spin an outrageous but definitely movie-worthy tale. Lawson’s reporting is prodigious (he spent three years on the book), but by the time I finished, I was sure of only two things. First, the conman got conned. Second, I’m really glad I keep my money in index funds.

Our Weekly read column features Fortune staffers’ and contributors’ takes on recently published books about the business world and beyond. We’ve invited the entire Fortune family — from our writers and editors to our photo editors and designers — to weigh in on books of their choosing based on their individual tastes or curiosities.

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