He called himself a math whiz and a “financial doctor” for the wealthy – even though he was a college dropout who had only a brief tenure at a traditional Wall Street company. His services were said to be available only to billionaires, whose business he mainly cared for in a hiding place on a tropical island.
So what did Jeffrey Epstein do to earn hundreds of millions of dollars from a handful of wealthy clients like private equity billionaire Leon Black?
The answer: help the rich pay less taxes.
In the case of Black, the chief executive of Apollo Global Management, his advice could be worth up to $ 2 billion in savings, according to a law firm’s analysis of Black’s dealings with Epstein. On Monday, Black announced that he would step down as chief executive of Apollo this year, after the review found that he paid Epstein $ 158 million over five years for his services.
Epstein’s specialty was suggesting ways for wealthy clients to use sophisticated funds and other investment vehicles to reduce their tax obligations while passing assets on to their children, according to documents reviewed by The New York Times and interviews with 11 people familiar with your job. In the process, he collected heavy fees – usually based on a cut in the expected tax savings.
In the years after 2008, when Epstein pleaded guilty in Florida to charges of prostitution involving a teenager, he frequently advised clients on the use of annuity funds retained by the grantor, or GRATs, according to three people familiar with his work.
GRATs are a sophisticated form of trust that became popular after a legal dispute involving a Walmart heir and has been used by wealthy people, including the father of former President Donald J. Trump, according to published reports. These funds allow a person to continue collecting income from assets of all types – including stocks, real estate and art – and then hand them over to family members without paying the large taxes on donations or real estate normally associated with such transfers.
A person who has done business for Epstein in the past decade said that “the unfortunate financier’s biggest business was the GRATs.” The person, who stopped working with Epstein in 2018 but spoke on condition of anonymity because he continues to advise wealthy clients, said Epstein boasted about using GRATs to save money for a small group of clients, including Black.
In Black’s case, according to the analysis by the law firm Dechert, the savings were enormous: about $ 1 billion for a single GRAT. Mr. Epstein’s detection of a problem in a trust established in 2006 and his proposed solution were “the most valuable part of the work” he did, the report said.
“The outside lawyer described the solution as a ‘grand slam’,” according to the Dechert report, which was ordered at Black’s request after The Times reported in October that he had paid Epstein at least $ 75 million in fees.
The Dechert report – 22 double-spaced pages handed over to the Apollo board – cleared Black of any wrongdoing, but he said he would step down as chief executive when he turned 70 in July. Another founder of Apollo, Marc Rowan, will assume this role, and Black will remain president of the company. Apollo’s shares rose 7 percent on Tuesday.
The report did not provide details about the problems with GRAT or Mr Epstein’s correction, he said William LaPiana, professor and associate dean at the New York School of Law and a specialist in funds and property.
Mr. LaPiana said that GRATs can deliver huge savings – especially when packed with assets that are expected to increase dramatically in value over time. And a rich person would pay dearly for good advice on these funds.
Mr. Epstein was compensated for resolving the GRAT problem as part of a $ 23.5 million deal with Mr. Black in 2013, according to the report. After that, they signed a series of deals that earned Mr. Epstein more than $ 100 million more before the two men split in 2018.
The split was the result of a dispute over Epstein’s demand for a 10 percent fee on another transaction, which the Dechert report said could have been worth $ 600 million in savings. Ultimately, Black paid Epstein $ 20 million for this transaction, which involved loans between Black family funds to obtain a tax benefit for Black’s children, the report said.
In 2019, Epstein killed himself inside a prison cell in Manhattan while facing federal sex trafficking charges.
Jack Blum, a Washington lawyer who led corruption investigations on several Senate committees, said he was surprised by the amount of fees required for Epstein’s work. “You could be the best lawyer in Manhattan working on the most complicated funds and properties and it would never come close to that kind of money,” he said.
The Dechert report admitted that the compensation Mr. Black paid Mr. Epstein “far exceeded any amount” paid to his other professional advisers.
Black repeatedly said that all of Epstein’s work was thoroughly scrutinized by lawyers and outside accountants. The only law firm mentioned in the Dechert report is Paul, Weiss, Rifkind, Wharton & Garrison, who worked with taxes and property for Mr. Black for many years. It is also one of Apollo’s main external law firms.
The Dechert report does not identify who wrote what he described as the problematic trust for Mr. Black, except to say that the person was an expert in tax and estate that Mr. Epstein recommended. The lawyer who did most of the initial work for Black was Carlyn McCaffrey, a tax and real estate partner with McDermott Will & Emery, according to three people familiar with the matter, who spoke on condition of anonymity.
Ms. McCaffrey, who is widely recognized as a leading expert on GRATs, said: “We will not comment on any issues related to Jeffrey Epstein.”
Epstein often functioned as an idea generator who then outsourced some of the work to high-level law firms or his clients’ current financial and tax advisers, according to five people familiar with the agreements.
That is how Epstein advised a technology executive on a tax issue, according to a representative of the executive who agreed to discuss the matter on condition of anonymity. Epstein offered his help when he learned that the executive – an acquaintance he once considered not wealthy enough to qualify for his services – needed help to reduce his taxes on a large share grant from his employer. The executive believed that Epstein was offering his services as a favor to a friend, because Epstein forwarded much of the work to a large law firm, which billed the executive for the assignment.
The executive and Epstein had never discussed any payment, according to the representative, so the executive was surprised when Epstein sent his own bill – for an amount that corresponded to 10% of the tax dollars saved. The executive initially hesitated, but ended up paying to avoid a public fight with Epstein and never worked with him again.
Although Epstein often received his remuneration as a percentage, he also offered services at a fixed rate – a fee structure that he suggested as part of a sales pitch for a New York real estate executive who otherwise lacked details.
In 2013, Mr. Epstein sent the executive a six-page commitment letter, which The Times reviewed. He proposed using a proprietary “financial information database” to analyze and evaluate estate planning issues for the executive. It does not describe what kind of information the database contained.
For this service, Mr. Epstein proposed $ 10 million in fees for 10 months of work. The executive declined, according to a representative, who spoke on condition of anonymity.
Katherine Rosman contributed reports.