Investors Not Reassured by Apollo Trying to ‘Splain Leon Black’s $188 Million in Payments to Serial Child Rapist Jeffrey Epstein

Apollo’s efforts to contain the fallout from co-founder and now former CEO Leon Black having paid boatloads in fees and loans to Jeffrey Epstein after he was convicted of child prostitution are not succeeding.

As we’ll discuss shortly, Apollo had commissioned an whitewash investigation by law firm Dechert to reassure investors that nothing too unsavory had happened, and get them to stop their capital strike against the giant fund. However, the Financial Times reported yesterday that the UN’s pension fund is keeping Apollo on a watch list and the Pennsylvania Public School Employees Retirement System is sticking to its guns: From the Financial Times:

A report by lawyers for Apollo Global Management into the ties between Leon Black and the late paedophile Jeffrey Epstein is “not enough” to remove the company from a watch list of investments that require extra scrutiny, a top UN pension fund official has said…

Apollo was put on the UN Joint Staff Pension Fund’s watch list in July 2019 after reports of Mr Black’s ties to Epstein, a UN official said. The $80.3bn pension fund has invested with Apollo since at least 2013…

The Pennsylvania Public School Employees’ Retirement System, which said in October it was not considering any new investments with Apollo, showed no sign of reconsidering its position in the wake of the Dechert review.

“I refer you to our previous comment . . . and decline further comment,” said Steve Esack, a spokesman for the fund.

The $40bn Connecticut Retirement Plans and Trust Funds said it had “reviewed Apollo this spring and determined, based on a variety of due diligence criteria, they did not meet our standards for making a new capital commitment”.

In fairness, the pink paper did say that the report plus some governance changes at Apollo, like changing the dual-class share structure so as to reduce Black’s grip on the company, were enough to placate some investors, like UK’s South Yorkshire Pensions Authority which had made close to £29 million in commitments to three Apollo funds from 2013 to 2019. But the UN pension fund reaffirming its Apollo red flags will sway other pension funds.

So why are many, and perhaps most, big pension fund investors not satisfied with the Apollo report? The short version is bad headlines plus bad details.

The UN pension fund acted after the first big media story on the troubling close relationship between Black and Epstein: Bloomberg’s Jeffrey Epstein Had a Door Into Apollo: His Deep Ties With Leon Black, in July 2019. But as we pointed out then, most investors, like CalPERS, merely went into pious hand-wringing mode.

The scandal grew to an entirely new level last October, when the New York Times broke the story that insiders reported that Black had paid at least $50 million and perhaps over $75 million in fees to Epstein from 2012 to 2017. After Black’s mumbled denials and foot shuffling failed to calm rattled investors, Apollo commissioned Dechert to poke around and put the best possible spin on the facts.

Apparently just about everyone with an operating brain cell reacted as we did when the report came out: Why Apollo’s Palace Coup Against Leon Black and Further Disclosures on Jeffrey Epstein Are Not Reassuring.

Dechert did say there was no evidence that Black was caught up in Epstein’s illicit activities or that Epstein had even tried foisting an underaged girl on him. However, that was about as good as the good news got.

First, the numbers were so much worse than what the Times had initially found. The report stated that Black had paid $158 million, more than twice as high as the Times’ original top figure, plus $30 million in loans, only $10 million of which had been repaid.

Second was that the claims about what all that money was for were wildly implausible. From our post:

The shock value of the magnitude of the payments to Black may succeed in diverting press and investor eyes from the real scandal here: what was Black paying for? And was Apollo implicated? Bear with me, because the supposedly reassuring excerpts from the report by law firm Dechert actually suggest that Apollo was involved too….

This is how Dechert attemptsed to justify the transfers from Black to Epstein. From the Wall Street Journal:

Mr. Black “believed, and witnesses generally agreed, that Epstein provided advice that conferred more than $1 billion and as much as $2 billion or more” in tax savings, the report states.

It also supports Mr. Black’s contention that he paid Epstein a fee he believed was roughly equivalent to 5% of the value that the late financier generated on an after-tax basis.

We’ll deal with the second howler first, that someone like Black would pay for mere advice on a percentage of results basis. As Black knows well, the people who get rich to very rich attach themselves to capital and get paid a percentage for performance, such as brokerage or asset management fees. Black, who buys legal services from the very best firms in the US in bulk, would know he could hire the most cunning tax lawyers in the US for a fraction of what he paid Epstein. He could even have financed a firm with the very best minds in the industry for this kind of dough. And in earlier accounts, Black also asserted that all of Epstein’s advice was vetted by independent experts.

So it seems reasonable to think that Black was not paying just for advice but some kind of execution too, as in moving funds and engaging in sham transactions to recharacterize the economic substance or apparent ownership of funds.

So it’s hard to see Dechert with a straight face parroting Black’s defense that he was paying 5% of the economic value of what is presented as mere tax advice as if that were a reasonable compensation arrangement.

But let’s go back to the first eyepopper: tax savings of $1 billion to over $2 billion.

Let’s be charitable and use Black’s maximum applicable tax rate: a marginal tax rate of about 50% for Federal, New York state and New York city income taxes. That means the amount of Leon Black personal income subject to Epstein’s wizardry, again charitably assuming he managed to find a way to bring Black’s taxes from 50% to zero, would be double the savings, or $2 to $4 billion.

If you read the post, we worked though the implications. It seems impossible to get to anything like these numbers unless you assume some of the income came from fees and expenses coming directly from the portfolio companies which did not go through Apollo. But for Black to achieve different tax outcomes than he’d received before, the income would have had to be distributed or characterized differently. That requires the cooperation of portfolio company employees, who are managed and controlled by Apollo, not Black personally.

And that’s before getting to the other glaring problem with the Dechert/Black story: it’s hard imagine this much in tax being saved without Black having engaged in tax evasion, as opposed to tax avoidance (which he could buy all day from all sorts of cunning white shoe providers for a mere fraction of what he paid Epstein).1

An indirect confirmation of how fantastically inexplicable the “payments” to Epstein were: the Financial Times almost immediately ran a long and obviously planted story about what great buddies Black and Epstein had been and how Epstein served as Black’s money major domo, handling everything from audits to art buys. This didn’t pass the smell test with the investment-savvy. A non-lawyer, non-accountant as the front person with tax examiners? Epstein as another layer of costs and bureaucracy on top of Black’s family office pros? And the serious art buyers I know give money to the likes of the Fogg Art Museum and the Met, where they can typically get input from museum curators, who are top pros in their fields, on planned major purchases (the understanding being some of those works will be bequeathed, but there’s no way to enforce these understandings). As one business school professor who specializes in private equity said via e-mail:

I read your piece after I read that of the FT. I thought that your point that tax advice is BS to the power ten was spot on and well seen. Amazing that FT journalists and others would not pause a sec and think: hold on Dechert, that’s BS. They just summarize the info they are given, that’s it.

Some experts came up with additional possibilities of the services Black was actually buying from Epstein. A law professor argued it could be blackmail after Epstein had paid bribes on behalf of Black.

The problem I have is the only place where the bribes might have delivered enough value would have been to sovereign wealth fund officials in return for fund contributions. The flip side is the fund contributions are so large that big bribes are possible and you don’t necessarily have to throw in blackmail.

But then you get to the question of why would Black do this sort of thing personally, and not through Apollo. If I am right and some of the targets were foreign officials, that’s an Foreign Corrupt Practices violation, which is criminal. Why would Black put that target on his back, and not Apollo’s?

But then again, if Apollo were caught bribing foreign officials, pretty much no US public pension fund could invest in Apollo. They might even have to renege on their current commitments, since most government entities have strict prohibitions against doing business with firms charged with criminal conduct. That’s why Eliot Spitzer’s threat to indict AIG gave him the leverage to force the resignation of Hank Greenberg: many legal experts argues the mere filing of a criminal case would force many government players to halt activity with AIG. So Black would be less exposed than Apollo would be in this scenario.2

As much as this may sound like a stretch, recall that Apollo has paid what amounted to bribes, although a tremendous amount of energy has been expended on the fiction that Leon Black was victimized by former CalPERS board member, later placement agent Al Villalobos.3 Apollo paid $48 million in placement agent fees to Villalobos, some of which wound up as cash in paper bags as a bribe to CalPERS’ CEO, Fred Buenrostro. Villalobos committed suicide after he was indicted; Buenrostro was sentenced to four and one-half years in Federal prison.4

But here’s the mystery of that case. Apollo supposedly paid $48 million to get meetings at CalPERS. To this day no one who know CalPERS can fathom why Apollo paid a big fee, much the less any fee, to Villalobos. Apollo didn’t need Al Villalobos to get meetings at and big commitments from CalPERS. There is no evidence that the Villalobos intervention resulted in a dime more going to Apollo than it would have gotten otherwise.

So the bribe was unnecessary and Villalobos was a very odd agent to use (as in sleazy). But Villalobos was raising his hand to do the dirty work for anyone. And apparently a lot of the $48 million paid to Villalobos disappeared; it was never found after he committed suicide. So perhaps the money paid with respect of CalPERS was going to other actual or planned dirty work.

The larger point is simple: the official story about Black and Epstein is simultaneously implausible and doesn’t show Black in a good light. That says to pretty much everyone that the real story is worse, potentially much worse. Maybe we’ll find out, but I am not holding my breath. Dead men tell no tales.


1 No one in the PE industry thinks Black was partaking of Epstein’s underage offerings, much the less extorted for having done so. Remember, on deals, even the big honchos will work long hours and so the minions get a good view of their habits. In addition, Black and Epstein were on friendly social terms, whereas it’s hard to imagine anyone being buddy buddy with their blackmailer. Finally, if Epstein started making big demands for his silence, there were plenty of ways to silence him other than paying him nearly $180 million (the fees plus the outstanding loans).

A prosecutor added:

I initially bought the theory that Epstein and Maxwell were fronting a Mossad blackmail operation, but Epstein’s “friends” don’t act toward their purported “blackmailers” the way I would expect people with something that dark to hide to behave. Most pedophiles I have seen in the dock are quite unashamed of themselves, to a shocking degree — just as Epstein seems to have been. At least one of these Masters of the Universe would have preferred exposure to forking-over tens of millions to blackmailers.

I also agree — and your evidence strongly confirms — that Black’s payments weren’t a fee for tax or trust/estate planning. Whatever “planning” was going on involved hiding assets.

On the hiding assets or other outside-the-banking-system transfers: Epstein’s island was 5 miles from the British Virgin Islands. So a helicopter or a small plane could easily surveil the waters and a boat could make a run over with cash. A large suitcase full of $100 bills = $10 million. You could probably several suitcases like that on a private plane without much difficulty.

2 This law professor threw more cold water on the Black/Dechert position that Epstein was actually or implicitly paid on a percentage of tax savings basis:

I’ve only heard of a percentage deal being offered once to an individual lawyer: Marty Ginsburg (RBG’s husband) did a few hours of work for Ross Perot when he sold EDS to GM and saved Perot hundreds of millions. Perot wanted to give him a percentage; Marty insisted on his hourly rate. Perot then decided to endow a chair in Marty’s honor at Georgetown on the condition it go to Marty. Marty, being an incredibly modest guy, said he wouldn’t accept. So Perot threatened to endow the chair at Bob Jones University. Marty relented on the condition that the chair be filled by someone else.

3 Villalobos was a sufficiently accomplished con artist that he got on CalPERS’ board under false pretenses. He was on the State Personnel Board, which then chooses one board member as its CalPERS representative. I’ll update this section when I get the details of Villalobos’ ruse, but my early AM recollection is that Villalobos told his fellow SPB members that the Governor wanted him on CalPERS board. When his story was found to be false, Villalobos was voted off the CalPERS board.

4 For those of you with overactive minds, there is no similarity between Villalobos’ suicide and Epstein’s, as in no lingering mystery. Villalobos went to a shooting range, fired some rounds, then turned the gun on himself.

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  1. Bob

    So wait a minute.

    How is Villalobos different that Ms. Frost ?

    “Villalobos was a sufficiently accomplished con artist that he got on CalPERS’ board under false pretenses. “

  2. Marc Andelman

    This is easy. Why did Epstein have an office at Harvard University and hang around MIT as well?
    Isn’t one of the biggest donors to university endowments Wall street? Isn’t giving to a university a tax write off? Haven’t universities in at least one instance been reported to be investing money back where it came from? I highly doubt that is an isolated instance. Does not take much imagination to think of the possibilities.

    1. Yves Smith Post author

      I don’t mean to sound harsh, but we have repeatedly warned the commentariat that we are in low-tolerance mode regarding comments that violate our Policies. Commenting without having read the post is not on. Had you paid an iota of attention to the post or the underlying story, you would have noticed:

      1. This was all about Leon Black’s personal money paid to Epstein after he was a registered sex offender and persona non grata in respectable circles

      2. The various reports state that Epstein lost $200 million from 2008 (when he was convicted) till 2012 (when Black picked him up) between investment losses and the collapse of his investment business. During that period, Harvard refused to take any donations but bizarrely also didn’t get rid of some of his perks from earlier days.

      None of that has anything to do with Leon Black.

  3. Tom Stone

    Now we know where a little more of “Epsteins’ vast wealth” came from, Wexner gifted Epstein the largest private residence in Manhattan out of the goodness of his heart and Black’s generosity even exceeded that $68 Million gift.
    My guess ( Remember Alex Azar’s remark about the sweetheart deal of 2008?) is that Black’s contribution came about through a combination of Patriotism and the realization that the gratitude of Mossad and the CIA, if fickle, is no small thing.
    It’s clear from the information that has become public that Epstein’s Honeypot was run by Mossad with American Intelligence turning a blind eye and sharing in the take, not uncommon among the “Five Eyes”.
    Epstein needed a LOT of money to keep up the fantasy lifestyle of a 15 year old boy…it had to come from somewhere and it wasn’t his pension from the Dalton school that paid for a private island.

    1. Yves Smith Post author

      Please do not run conspiracy theories. There is no evidence of a Mossad operation and even a prosecutor who has dealt with sex crimes deems that theory to be a non-starter, as we indicated in the post. Fact-free assertions are not on here.

      1. Harry

        Of course you are right, that there is no fact in this conspiracy theory. Just the coincidence of Ghislane being his friend and her father’s daughter. On the other hand it is a small world.

        1. Yves Smith Post author

          This amounts to trying to support this bogus theory. Had you spent even a minute on search, $590 million in stolen pension fund money was missing when Maxwell pere died. There’s reason to believe that the stolen money wound up being Epstein’s starter money, as in Ghislaine had him hide/manage it for a suitably generous cut. That would also be consistent with the idea that Epstein was expert in moving large amounts of money covertly.

          1. Generalfeldmarschall von Hindenburg

            If you think about it for a second. (If you *allow yourself* to), the “Mossad did it” theory is the perfect cover for UK or some freelance supranational operation. Whoever put this honeytrap together, knows that if you put the daughter of a famous Israeli spy in charge (Epstein was not directing this honeytrap, by the accounts of the many victims- it was Maxwell). Just look at the cui bono: Isreal got no tangible benefit. It was probably all about incriminating US and British finance, political and high profile entertainment figures. And if you like, you can add Donald Trump into the mix. Did you know how Mr Trump got hold of Mar A Lago? Look into that. Here’s a clue: Look into the Mary Carter Paint Company and Resorts International. Nixon looms large along with figures you may remember like Bebe Rebozo and Santo Trafficante. That’s the milieu Trump comes from.
            I get people being terrified of parapolitics. The trick is sticking with your first principles even as you question basic premises.

  4. divadab

    Well I would say that very large payments to Epstein, pimp and procurer to Presidents and Princes (by special appointment?), are very large payments to a convicted criminal felon. What other criminal areas did Epstein operate in? I say operate because Epstein was clearly a very slick and intelligent criminal operator.

    This certainly casts a dark light on Mr. Black’s own activities – I mean, you are known by the company you keep, right? Are there investigations into Mr. Black’s activities by various regulators, tax enforcers, and police agencies? There certainly should be, IMHO.

    Further, what kind of fool would entrust their money to Mr. Black? If they were not let into the criminal scheme and coopted, it seems to me any “investor” is in reality a mark.

  5. lincoln

    “Mr. Black “believed, and witnesses generally agreed, that Epstein provided advice that conferred more than $1 billion and as much as $2 billion or more” in tax savings, the report states.”

    It’s possible Epstein had a huge tax scam going on in the US Virgin Islands that may or may not be related to blackmail. A US Virgin Islands attorney general last year issued a civil subpoena to Leon Black seeking financial statements and tax returns for a number of entities, including Black Family Partners and Elysium Management.

    According to a local Virgin Islands news source:

    “Under former (Virgin Islands) Governor John de Jongh, Southern Trust obtained lucrative tax breaks. At the time, de Jongh’s wife, Cecile, on paper, managed Southern Trust operation. Southern Trust gave thousands of dollars in campaign contributions to Virgin Islands politicians, including current members of the Legislature and the territory’s delegate to Congress. When the largesse came to light last year, politicians were quick to distance themselves from Epstein by returning the money or donating equal amounts to charity.”

    And according to the Miami Herald:

    “At issue is Southern Trust, a purported data-mining company that Epstein incorporated in the USVI (US Virgin Islands) in 2011…Southern Trust was given a 90 percent exemption from its income tax and a 100 percent exemption from gross receipts, excise and withholding taxes……the lucrative deal allowed Southern Trust to avoid paying $73.6 million in taxes from 2013 to 2017 on aggregate income of $656 million, according to court documents….“It is clear that Southern Trust Company did not perform the ‘informatics’ business represented to the EDC and could not have generated the business income attributable to that business,” the government said in its amended complaint. “Instead, upon information and belief, Southern Trust Company existed to secure tax benefits for Epstein, to employ individuals associated with the Epstein Enterprise, and to provide a source of income to support his criminal activities and properties in the Virgin Islands.”

    It makes you wonder what other wealthy people might have funneled all their income through this tax washing machine.

  6. Alex Cox

    Regarding lawyers taking a percentage of a client’s income, this wasn’t limited to Ross Perot and Marty Ginsberg. It used to be common in the movie business. The agent got 10% and the attorney 5% plus expenses. This was back in the days when it was still possible to make money as an independent filmmaker.

    1. Thistlebreath

      Ah, the days of yore, when chickens still had teeth and the Investment Tax Credit titans still powered the AFM (American Film Market) schlock-o-rama every year. I once ran across a grizzled UPM (Unit Production Manager) wearily climbing a staircase at the soiree and I opined that the event’s wares had about as much quality content as a convention of plumbing parts. He didn’t miss a step and replied “…yeah, bad plumbing parts.”

    2. Yves Smith Post author

      That is the deal for “managers” of athletes and other dumb money. That is not for providing legal services or tax advice. Black is not remotely in that category.

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