He has described himself as a mathematician and “finance doctor” to the rich – despite being a college dropout who only had a brief tenure with a traditional Wall Street firm. It has been said that his services were only available to billionaires, whose affairs he mostly handled from a tropical island hideaway.
What did Jeffrey Epstein do to make hundreds of millions of dollars with a handful of wealthy clients like private equity billionaire Leon Black?
The answer: help rich people pay less taxes.
In the case of Mr. Black, executive director of Apollo Global Management, his advice could have resulted in savings of up to $ 2 billion, according to a review of Mr. Black’s business relationships with Mr. Epstein. On Monday, Mr Black announced that he would step down as chief executive of Apollo this year after verification revealed that he had paid Mr Epstein $ 158 million for his services over a five-year period.
Mr. Epstein’s specialty has been teaching high net worth clients ways to use sophisticated trusts and other investment vehicles to lower their tax liability while giving assets to their children. This is evident from documents reviewed by the New York Times and interviews with eleven people familiar with his work. In doing so, he collected high fees – usually based on a cut in expected tax savings.
In the years after 2008, when Mr. Epstein pleaded guilty of prostitution in Florida for a teenage girl, he frequently advised clients on the use of GRATs (Grantor Retained Annuity Trusts), according to three people familiar with his job.
GRATs are a form of sophisticated trust that broke into the mainstream following a high profile court battle with a Walmart heir and has been used by wealthy people, including former President Donald J. Trump’s father, according to published reports. These trusts allow a person to continue to collect income from assets of all kinds – including stocks, real estate, and art – and then pass them on to family members without paying the large gift or estate taxes normally associated with such transfers.
One person who has done business for Mr. Epstein for the past decade said the “shamed financier’s biggest thing is GRATs”. The person, who stopped working with Mr. Epstein in 2018 but spoke on condition of anonymity because he continues to advise wealthy clients, said Mr. Epstein bragged about using GRATs to raise money for a small group of clients, including Mr. Black, to save.
In Mr. Black’s case, the Dechert law firm review found the savings to be enormous: about $ 1 billion for a single GRAT. The report said Mr Epstein’s discovery of a problem in a trust founded in 2006 and its proposed solution was “the most valuable work” he has done.
“An outside lawyer described the solution as a ‘grand slam,'” the Dechert report commissioned at Mr Black’s request after The Times reported in October that he had given Mr Epstein at least $ 75 million Dollars in fees.
The Dechert report – 22 double-spaced pages delivered to Apollo’s board of directors – cleared Mr. Black of any wrongdoing but said he would step down as managing director until he was 70 in July. Another Apollo founder, Marc Rowan, will take on this role, and Mr. Black will remain the company’s chairman. Apollo’s shares rose 7 percent on Tuesday.
The report did not give any details about the problems with the GRAT or Mr. Epstein’s correction William LaPiana, professor and assistant dean at New York Law School and expert on trusts and estates.
Mr LaPiana said GRATs could bring huge savings – especially when filled with assets whose value is expected to increase sharply over time. And a wealthy person would pay dearly for good advice on such trusts.
According to the report, Mr. Epstein was compensated for US $ 23.5 million in 2013 for resolving the GRAT issue under an agreement with Mr. Black. Afterward, they struck a series of agreements that grossed Mr. Epstein more than $ 100 million before the two men split in 2018.
The split was the result of a dispute over Mr. Epstein’s request for a 10 percent fee on another transaction that could have generated savings of $ 600 million, according to the Dechert report. Mr Black ultimately paid Mr Epstein $ 20 million for this transaction, which included inter-trust loans from the Black family to provide a tax benefit for Mr Black’s children, the report said.
In 2019, Mr. Epstein killed himself in a Manhattan prison cell when he was charged with federal sex trafficking.
Jack Blum, a Washington attorney who has led corruption investigations for several Senate committees, said he was surprised at the level of fees charged by Mr. Epstein’s work. “You could be the best lawyer in Manhattan, working on the most complicated trusts and estates, and there would never be anywhere near that much money,” he said.
The Dechert report acknowledged that the compensation that Mr. Black had paid Mr. Epstein far exceeded “any amounts paid to his other professional advisers.”
Mr. Black has repeatedly said that all of Mr. Epstein’s work has been thoroughly reviewed by outside lawyers and accountants. The only law firm mentioned in the Dechert report is Paul, Weiss, Rifkind, Wharton & Garrison, which has performed tax and estate work for Mr. Black for many years. It is also one of Apollo’s key third-party law firms.
The Dechert report does not identify who drafted the identified problematic trust for Mr. Black other than to state that the person was a tax and estate professional recommended by Mr. Epstein. The attorney who did most of the early work for Mr. Black was Carlyn McCaffrey, a tax and estate partner at McDermott Will & Emery, according to three people familiar with the matter who spoke on condition of anonymity.
Ms. McCaffrey, widely recognized as the leading expert on GRATs, said, “We will not comment on any questions about Jeffrey Epstein.”
Mr. Epstein often acted as a source of ideas, who then outsourced part of the work to high-ranking law firms or to the current financial and tax advisors of his clients, according to five people familiar with the agreements.
This is how it worked when Mr. Epstein was advising a technology manager on tax issues, according to a representative of the managing director who agreed to discuss the matter on condition of anonymity. Mr. Epstein offered his help after learning that the executive – an acquaintance he once considered not rich enough to qualify for his services – needed help lowering his taxes on a large stock grant from his employer. The executive believed that Mr. Epstein was offering his services to a friend as a favor because Mr. Epstein referred much of the work to a large law firm that billed the executive for the assignment.
The executive and Mr. Epstein had never discussed a payment, according to the agent, so the executive was surprised when Mr. Epstein sent his own bill – for a sum equal to 10 percent of the tax money saved. The executive initially resisted, but eventually paid to avoid a public spit with Mr. Epstein and never worked with him again.
Although Mr. Epstein often took his pay as a percentage, he also offered services at a flat rate – a fee structure he proposed during a pitch for a New York real estate manager that otherwise contained few details.
In 2013, Mr. Epstein sent the executive a six-page engagement letter which The Times reviewed. It has been suggested that a proprietary “database of financial information” be used to analyze and evaluate estate planning issues for the executive. There was no description of what kind of information the database contained.
For this service, Mr. Epstein suggested fees of $ 10 million for 10 months of work. The executive refused him, according to a representative who spoke on condition of anonymity.
Katherine Rosman contributed to the coverage.