Palm Beach billionaire Jeffrey Epstein left the Palm Beach County jail just before dawn today, after serving 13 months of his 18-month sentence for soliciting prostitution.
There are still mysteries around the money manager’s sexual habits but perhaps not enough people are asking the question: is Epstein running a Ponzi scheme?
This 2002 New York magazine piece on Epstein raises several red flags. It tells us that Epstein got his start in finance when he was hired by Ace Greenberg to work at Bear Stearns. A few years later, he launched his own money management firm, J. Epstein & Co. As with many private managers, his client list is kept secret, although there are rumours (and denials) that David Rockefeller and Linda Wachner had money with Epstein. His only confirmed client is Leslie Wexner, the founder of clothing chain The Limited. This kind of secrecy and exclusivity, viewed in the light of Bernie Madoff, is at the very least suspicious.
Another red flag is the way the money is managed. In 2002, Epstein’s company reportedly had around 150 employees, based in Manhattan; New Albany, Ohio; and St. Thomas, where he reincorporated his company as Financial Trust Co. several years ago. But these employees are all said to be “administrative.” He reportedly employs no analysts, portfolio managers or traders. All of the investment decisions are said to be made by Epstein himself, Landon Thomas reported in that 2002 article.
Is there any other multi-billion-dollar financial company run this way?
Here’s another red flag: Epstein reportedly only accepts investments of $1 billion or more. There aren’t many people out there who can place $1 billion with anyone, much less entrust it to a single individual. If this is a scam, we expect that Epstein lowers the billion bar for “friends” who are permitted to place much smaller sums with him.
Yet another red flag is that Epstein takes absolute control of the money, leaving investors with no options about how it is invested. According to rumours, he gives them little information about what he does with it.
The way Epstein is compensated is also a bit suspicious. Last year in the New York Times, Landon Thomas reported that Epstein charges a flat fee on the assets entrusted to him, anywhere from $25 million to $100 million, but doesn’t collect any portion of the profits. This is oddly reminiscent of Bernie Madoff’s compensation scheme.
Here’s something else: how could Epstein’s one-man show not fall apart while he was in jail during one of the most volatile years in history? We don’t know for sure that Epstein’s business has kept humming along. But if an allegedly multi-billion investment company fell apart, we’d expect that there would be some news or at least rumours about it. We suppose he could have moved his clients to all cash before he got locked up.
We do know, however, that Epstein actually has invested money with both Citigroup and Bear Stearns (he was a big investor in those Ralph Cioffi run hedge funds that blew up). So if there is a scam aspect to his operations, it’s not as pure as Madoff’s. Epstein was putting money to work.
On the other hand, there are no SEC filings disclosing Epstein’s holdings. Not one. It’s hard to see how he could be managing billions without ever tripping a disclosure trigger, unless he avoids the stock market altogether and only invests in private deals. This is another red flag.
One thing we don’t know is what kind of returns Epstein delivers to his clients. If they were very modest and subject to regular market fluctuations, this would suggest that maybe he isn’t running a scam.
We have no concrete evidence that Epstein is running a scam. But given the red flags and the fact that he reportedly controls billions of dollars, isn’t it something worth looking into?
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