Leon Black considered Jeffrey Epstein a “confirmed bachelor with eclectic taste, who often employed attractive women.”
The private equity titan was willing to overlook that Epstein had spent 13 months in a Florida prison after soliciting an underage prostitute. That was partly because Epstein claimed the girl lied about her age, while Black co-founded Apollo Global Management Inc. believed in second chances, especially for his well-connected friend.
Thus, the relationship between the men continued outlined in a report released Monday by law firm Dechert, on behalf of the Apollo board following news stories about their financial ties. The investigation found that between 2012 and 2017, Black Epstein paid $ 158 million – after the sex offender found guilty of felony in 2008 – for counseling services that helped increase the wealth of one of America’s richest men.
The report made it clear that Apollo never retained Epstein for services and that he never invested in Apollo-managed funds. Dechert found no evidence that Black, 69, was in any way involved in Epstein’s criminal activities, and the billionaire claims he had no knowledge of Epstein’s abuse of underage girls. Still, the findings showed how the disgraced tax system advisor and skill to manage the affairs of the ultra-rich helped Black save at least $ 1 billion and possibly more than $ 2 billion.
At the same time as Apollo revealed details of the report, the company said Black would step down as chief executive officer. He remains chairman.
Tax Savings
The Dechert report describes a friendship dating back to the 1990s, in which Black was impressed by Epstein’s connections to prominent figures in business, politics and science, including researchers at Harvard University and the Massachusetts Institute of Technology. Black was a frequent visitor to Epstein’s Manhattan mansion, entrusting him with personal matters and visiting his homes around the world.
Dechert also explained how Epstein was useful to Black, who, according to the Bloomberg Billionaires Index.
The business agreement began in 2012, according to the law firm, which reviewed more than 60,000 documents.
Black had established a Grantor Retained Annuity Trust, or GRAT, a few years earlier. Popular with extremely wealthy Americans, these vehicles are structured so that valuation of assets placed in a GRAT can go to heirs without paying U.S. estate and gift taxes. But Black’s was at fault, and there was a risk of a $ 500 million tax bill, which could go up to $ 1 billion or more if not resolved.
Epstein offered what the report described as a “unique solution.” It was the first project Epstein worked on for Black and possibly the most valuable.
In 2015, Epstein helped out with another transaction designed to save Black’s children from taxes, known as a step-up basic transaction. The complicated scheme, which took nine months to implement, involved loans between Black and trusts and the avoidance of capital gains tax for its beneficiaries. Epstein claimed the move saved $ 600 million.
Yachts, airplane
Born in Brooklyn, Epstein has puzzled many within and outside the financial world. He attended Cooper Union and New York University’s Courant Institute of Mathematical Sciences, but left both without a degree. He briefly had a job with Bear Stearns Cos. And worked extensively for lingerie magnate Les Wexner before his first arrest. The founder of L Brands cut ties with Epstein after his first conviction and later accused him of embezzling “enormous sums of money from me and my family.” But Epstein had helped Wexner with his finances and purchases, such as real estate.
He did many of those same things for Black.
Photographer: Patrick T. Fallon / Bloomberg
Epstein helped respond to audits and advised on the management of Black’s art, yacht, and aircraft, according to the Dechert report.
“Epstein would delve into obscure issues about which otherwise highly skilled Family Office employees would have no knowledge,” the report said.
One of Epstein’s contributions, according to the report, was to convince Black to focus on these issues, as well as meet his family and explain how the estate was organized. He would prepare detailed ‘fire drills’ plans, testing how Black’s estate would be taxed under different scenarios.
‘Caustic Power’
Black’s full-time staff did not always appreciate Epstein’s contributions. He was “generally a disruptive and biting force within the family office,” the report said, someone who “had a habit of over-dramatizing even minor perceived errors.”
Epstein took credit for the ideas of others, compiling long lists of his own. Much of his creative estate planning regulations didn’t hold it under control. According to witnesses, including Black, “part of the challenge of working with Epstein was to separate the good from the bad.”
But payments were increasing. Black paid Epstein $ 50 million in 2013, $ 70 million in 2014, and $ 30 million the following year. He also made a $ 10 million donation to Gratitude America, a charity affiliated with Epstein, in October 2015.
But as of 2016, “Black and Epstein’s professional and personal relationship deteriorated,” the report said. The dispute was over a payment tied to the step-up transaction, where Black refused to pay Epstein tens of millions of dollars that Epstein believed he had earned. Epstein pushed the matter back through emails calling out his friendship with the billionaire and referencing personal matters shared in confidence.
Black’s last payment to Epstein was made in April 2017, and in 2018, Epstein repaid a portion of two outstanding loans to Black, but never repaid the balance, the report said. Black and Epstein stopped communicating in 2018, the year before Epstein was arrested on charges of sex trafficking minors and later died in prison. His death was labeled a suicide.