It's one of those Wall Street mysteries: How did Jeffrey D. Epstein, the "billionaire financier" and social pal of Presidents Trump and Clinton who was arrested on sex-trafficking charges as investigators raided his Manhattan apartment last week, get to be so rich?
Epstein has told interviewers that he managed private fortunes for rich people, which raised the usual skepticism on Wall Street, given the lack of detailed public records of his clients and performance.
From his prison cell at Fort Dix and later in a string of legal actions, Epstein's former boss, Steven J. Hoffenberg, has for years claimed a simpler explanation. Hoffenberg alleges that Epstein kept the proceeds from Towers Financial Corp., the vast 1990s Ponzi scheme that landed Hoffenberg a 20-year sentence and an order to repay nearly half a billion dollars -- more like $1 billion by now, with interest.
In a string of lawsuits filed by Hoffenberg, and most recently by a pair of Towers investors citing Hoffenberg's claims, Epstein is described as the "unindicted co-conspirator" that federal criminal prosecutors referenced but never filed charges against in the Towers case. That was how 200,000 Americans lost that half billion buying Towers' uninsured high-interest-rate securities, most of which was never recovered.
Epstein's lawyers say Hoffenbgerg's claims are untrue, the alleged fraud occurred too long ago for a civil lawsuit, and that Hoffenberg, has no standing to sue to get investors' money back. Hoffenbueg sent to prison in 2002 and released in 2013 from the lock-up at Fort Dix in Burlington County for orchestrating the Tower fraud.
After Epstein's legal team, headed by New York-based lawyer Frank R. Schirripa, threatened to seek sanctions and costs for the latest attempt to resurrect Hoffenberg's claims in a civil lawsuit, the Tower investors last November withdrew their case, preserving the right to re-file later.
Even so, you can expect to hear more about Hoffenberg's allegations now that Epstein is back in the news, and powerful people worry their names might show up on the guest lists at Epstein's teenaged sex parties. Fueling stories are the controversial Florida legal settlement that put Epstein into a kind of work-release program for a year, and this week, the New York investigation, which arrested Epstein Saturday at Teterboro Airport.
Indeed, as I read the Hoffenberg cases these past two days, his allegations were referenced in a Wednesday New York Times story, and repeated by Hoffenberg in a Quartz article.
Here's what Hoffenberg has alleged:
Hoffenberg was chief executive at Towers from 1975 to 1993, hiring Epstein as his fulltime assistant and to raise capital. Hoffenberg says both men freely appropriated clients' money as their own, and ran illegal deals to make more.