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By Gregory Zuckerman and Inti Pacheco
Jeffrey Epstein worked closely with some of the world's largest investment banks to build a fortune of more than $500 million. But he cut a course through Wall Street that was marked by disagreements, lawsuits and acrimony.
On the heels of his suicide, lawyers and others involved in the case expect the sex-trafficking investigation to expand into Mr. Epstein's lengthy financial dealings. Federal investigators have obtained Mr. Epstein's financial records from at least one bank, and a close look at his finances may help answer murky questions unresolved after his death: How did he make his money? Who worked with him and when?
Mr. Epstein left Bear Stearns Cos. in the early 1980s. He struck out on his own but used the firm for dozens of transactions, former Bear Stearns executives said. For years, Mr. Epstein enjoyed a close bond with James Cayne, these people said. Mr. Cayne, who became the chief executive in 1993, sometimes called underlings to ask that they "take care of" Mr. Epstein, one former executive recalls. Mr. Cayne didn't respond to requests for comment.
When he traded with his own money, Mr. Epstein transacted at prices that produced profits for both himself and his former employer. But he changed his tune after he started investing for Leslie Wexner, then an up-and-coming Ohio retail magnate whose company controlled Abercrombie & Fitch. Mr. Epstein drove a hard bargain with Bear Stearns, becoming a difficult client, according to a former employee who worked on several of the transactions.
"He wanted the best deal in the entire world anyone has ever seen," the former employee said, calling him "ferocious" and "a tiger" in his conduct.
Mr. Epstein's relationship with Bear Stearns came apart as the firm did. He had put his own money into two Bear Stearns hedge funds and owned shares in the bank itself. He lost $57 million in the funds, and his firm still held 100,000 shares when Bear Stearns was sold for $2 a share to JPMorgan Chase & Co. in March 2008.
As the bank's problems deepened in August 2007, Mr. Epstein sold more than 56,000 shares at a price of $101. He intended to sell more, he later said in a lawsuit filed in the Virgin Islands, but in a series of phone conversations, Mr. Cayne insisted that Mr. Epstein retain the rest of his shares, arguing that the firm's problems were contained, Mr. Epstein's complaint said.
Mr. Epstein also filed a complaint before the Financial Industry Regulatory Authority against former Bear Stearns Co-President Warren Spector. A judge in the Virgin Islands ordered the transfer of Mr. Epstein's lawsuit to the Southern District of New York for its inclusion in a class-action suit filed against the bank. The lawsuit was ultimately dismissed.
Mr. Epstein had a relationship with what became Citigroup Inc. that turned combative. In 1987, Mr. Epstein began dealing with the big bank on behalf of Mr. Wexner, according to people close to the matter and a lawsuit later filed by Mr. Epstein against the bank. By 1993, Mr. Epstein was working closely with Dayle Davison, then a vice president in the firm's private-banking division, according to the people and the lawsuit. She and her colleagues would visit Mr. Epstein's Upper East Side residence, which doubled as his office, according to the lawsuit.
By 1999, Mr. Epstein himself was a client of Citigroup's private bank. That year and in 2000, Ms. Davison helped Mr. Epstein receive two $10 million loans that he used to invest in a debt-related vehicle called a collateralized bond obligation as well as in an investment fund, both managed by outside parties, according to the lawsuit.
By 2002, the investments were in trouble. Mr. Epstein defaulted on both loans, even after Citigroup extended their repayment deadlines, the bank later claimed. Mr. Epstein filed a lawsuit in District Court of the Virgin Islands claiming Citigroup had defrauded him and misrepresented information related to the investments, which he said had been made on the recommendation of Ms. Davison, who "aggressively solicited my participation." Through a spokeswoman, Ms. Davison declined to comment.
Citigroup filed its own suit in the Southern District of New York for repayment of the loans. Both parties dropped their suits in 2005. Mr. Epstein's relationship with Citigroup was severed in 2006, according to people close to the matter, around the time Mr. Wexner stopped working with Citigroup, the people say. A spokesman for Mr. Wexner declined to comment.
"Mr. Epstein was a client for a short period of time, before his abhorrent behavior came to light," a Citigroup spokeswoman said.
From the 1990s through about 2013, Mr. Epstein had a relationship with JPMorgan, one that proved lucrative for the bank. The Wall Street Journal previously reported that JPMorgan gained a stream of private-banking clients and referrals from Mr. Epstein. The bank ended the relationship in the midst of concern about its reputation, the Journal reported, years after a 2007 nonprosecution agreement with the government related to a Florida sexual-misconduct investigation into Mr. Epstein.
A spokesman for the bank declined to comment.
Soon, Deutsche Bank AG was helping Mr. Epstein move millions of dollars in cash and securities through dozens of private-banking accounts, playing a key role in his financial dealings, the Journal also reported. The German bank severed its relationship with Mr. Epstein this year, the Journal reported.
Deutsche Bank has said it is "closely examining any business relationship with Jeffrey Epstein, and we are absolutely committed to cooperating with all relevant authorities."
It wasn't just banks with whom Mr. Epstein had fraught business relationships. Mr. Epstein sued a powerboat company about modifications, was sued by a New York law firm for unpaid bills and fought with an interior designer hired to work on his 70-acre property in the U.S. Virgin Islands. (Mr. Epstein dropped the powerboat suit, was ordered by a judge to pay the law firm and settled with the interior designer.)
"It was a nightmare," said Juan Pablo Molyneux, the interior designer, who installed a bronze desk for Mr. Epstein, along with velvet, upholstered chairs, terrestrial globes with designs based on a John Ford movie and bronze cabinetry with shapes of marine fauna.
He described Mr. Epstein as an unpleasant client who was very insecure and would constantly change his mind.
"It was dreadful, exhausting and abusive," Mr. Molyneux said.
Jenny Strasburg contributed to this article.
Write to Gregory Zuckerman at email@example.com and Inti Pacheco at firstname.lastname@example.org
(END) Dow Jones Newswires
August 28, 2019 05:44 ET (09:44 GMT)
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