It turns out that the smoke around private equity kingpin Leon Black’s business dealings with convicted sex offender Jeffrey Epstein was a sign of a real fire. Four sources told the New York Times that Black wired Epstein at least $50 million in fees after Epstein’s 2008 conviction; two said Black could have paid as much as $75 million.

Alert readers may recall that this is roughly the same level of money that Apollo spent in bribes, um, placement agent fees, to CalPERS. It’s never been made clear what exactly Apollo thought it would be getting for the $48 million it gave to former board member Al Villalobos, some of which wound as cash in paper bags to CalPERS CEO Fred Buenrostro, who is now in Federal prison.

The relationship between Black and Epstein is murkier and more troubling since it’s not clear at all what Black thought he was getting from Epstein. Keep in mind all the fees in question were paid by Black personally, not by Apollo.

Black claims he was buying investment and tax advice. This is an insult to intelligence. First, someone at Black’s level could easily hire the very best tax attorneys in the world, and similarly any financiers who had know-how that Black might value. Second, the fees Black paid to Epstein are astonishingly rich, particularly since Epstein didn’t have a brand name or even any meaningful credentials. Third, Black admits much of what Epstein supposedly did for him couldn’t be relied upon; substantial areas of his “work” had to be redone or were at best napkin doodles that had to be fleshed out by real pros. From the Times:

“Mr. Black received personal trusts and estates planning advice as well as family office philanthropy and investment services from several financial and legal advisers, including Mr. Epstein, during a six-year period, between 2012 and 2017,” said Stephanie Pillersdorf, a spokeswoman for Mr. Black. “The trusts and estate planning advice was vetted by leading auditors and law firms.”

Fourth, private equity barons are notorious skinflints; the idea that Black would pay so much for an uncredentialed individual with minimal relevant expertise and virtually no other clients strains credulity. Remember how Apollo was caught out keeping law firm discounts for itself rather than sharing them with its limited partners? This sort of chiseling is rampant in private equity.

Recall that Epstein’s marquee and likely sole meaningful client prior to his prosecution was Les Wexner of the Limited. Wexner dumped Epstein in 2007, the year after the first sex crime accusations against Epstein became public. Wexner apparently did let Epstein run his money, which isn’t what he was allegedly doing for Black. Wexner later accused Epstein of embezzlement; the Times reported that Epstein had returned “at least” $100 million.

Moreover, there’s a guilty look to how Black went about paying Epstein. If Black were paying professional fees for investment and tax advice, even at a ludicrously high rate, there would be no reason to do it in such a stealthy manner. Again from the Times:

Some of the payments from Mr. Black are described in an internal report by Deutsche Bank, which served as Mr. Epstein’s primary banker from 2013 into 2019…

Portions of the report reviewed by The Times describe a payment of $22.5 million in 2017 by a company called BV70 LLC, which the bank said owned Mr. Black’s yacht, to Plan D, the company that managed Mr. Epstein’s Gulfstream jet. When an employee in Deutsche Bank’s anti-financial-crime division inquired about the payment, she was told by another bank employee that it was a fee for consulting services provided by Southern Trust Company, one of the dozens of entities Mr. Epstein operated in the Virgin Islands. There was no explanation for why the payment went to Plan D.

The Deutsche Bank report also shows that BV70 made a $10 million donation in 2015 to a charitable foundation started by Mr. Epstein, Gratitude America, which made several million dollars in grants while Mr. Epstein was casting himself as a philanthropist. BV70 also planned to make another payment of $10 million to Mr. Epstein for advisory work, according to the report, although it was unclear if that payment was ever made.

And in 2014, Mr. Epstein received several million dollars in fees from Narrows Holdings, a company that Mr. Black — the chairman of the Museum of Modern Art — has used to purchase much of his billion-dollar art collection, according to two of the people with knowledge of the transactions. The details of the services Mr. Epstein provided in exchange for those fees are also unclear.

The Times describes how Epstein’s “investment” business collapsed in 2008, between the loss of Wexner and perhaps others, and the market rout. His firm lost $150 million from 2008 to 2012, and showed only $200,000 in fees in those years.

The article suggests that Black was key to Epstein’s revival of sorts:

The same year [2012], Mr. Epstein established a new business, Southern Trust Company, which he told territorial officials was primarily a DNA data-mining and genetic research provider with a “financial arm.” There’s little evidence the company — which had no scientists on its nine-member staff — ever did any research.

Southern Trust collected more than $180 million in fees between 2013 and 2017. (In 2018, the year Mr. Black said he cut ties with Mr. Epstein, Southern Trust reported no fee income.)

As we recapped earlier, Black and Epstein had a long-standing relationship. From a 2019 post:

But back to the current scandal, which has a Master of the Universe looking like he’s been caught with his pants down. Not only is Leon Black’s name in Epstein’s infamous black book, but Epstein was an “original trustee” of the Leon Black Family Foundation, dating from 1997. Black has attempted to disavow state filings that reported Epstein as still on the board through 2012, years after Epstein pleaded guilty in 2008 to solicitation of prostitution. Black has tried claiming that the filings were in error and Epstein left the board in 2007.

Three years after Epstein’s prosecution, Black and his four children invested in an Epstein venture; two sons are board members.

Recall also that in 2019, Bloomberg described how Black had pushed his partners at Apollo to promote Epstein as a financial/tax adviser, and they had regarded the notion as bizarre.

So what could be the basis for such a long and apparently close relationship?

While it’s possible the two men shared recreational interests, Black would be certain to be aware of the risk of being extorted by Epstein. Black came out of Drexel and Drexel attempted to entrap its clients with sex. Connie Bruck’s The Predators’ Ball described the famed annual bash for Drexel’s raiders. One part was when the heavy hitters were brought to a room full of enticingly beautiful women. Bruck recounts how, almost comically, none of the men took the bait: they huddled with their drinks well away from the sirens.

So another possibility was that Black was indeed paying for illicit services, but of the financial, not the sexual, type. To give an unrealistically simple-minded example, what if these “fees” were just a way to create tax deductions, and only a fraction of the nominal fees were intended to be compensation to Epstein? This scenario would at least be logical from a hard-nosed business perspective; the other vague explanations that Black has offered don’t make much sense.

Black is already too close to Epstein’s bad habits for comfort:

The attorney general of the Virgin Islands, Denise N. George, filed a civil forfeiture lawsuit against Mr. Epstein’s estate this year, claiming that Mr. Epstein had deceived officials to get Southern Trust a lucrative tax break and used his island retreat to engage in sex trafficking. Ms. George’s offices said in court filings that she intended to serve subpoenas on Mr. Black and several of his business entities. (Ms. George has said she intends to serve a subpoena on Mr. Dubin as well.)

Mr. Black’s representatives have been gathering documents to hand over to the attorney general’s office. Mr. Black was prepared to cooperate with Ms. George’s request, Ms. Pillersdorf said.

Black needless to say is still defending his virtue, and wrote to his investors that:

…..there has never been an allegation by anyone, including The New York Times, that I engaged in any wrongdoing or inappropriate conduct.

I dunno. Pushing your “partners” at your firm, as in people who work for you but are senior enough to have independent reputations and relationships, to push their contacts to engage an unqualified professional who also happens to be a convicted sex offender as a tax whiz sends a very strong Something Is Wrong With This Picture message.

Recall that CalPERS, which remains very close to Apollo and Black despite Apollo having shafted the giant fund in its pay to play scandal (CalPERS has never recovered from having a CEO indicted for bribery) has been embarrassed by being tainted with the Black-Epstein connections. Bloomberg’s piece on Epstein included a section on CalPERS asking Apollo to ‘splain itself.

And this unsavory-looking connection is a legitimate business story, as Dan Primack explained a while back:

I can’t speak for other media, but my interest in this story isn’t because it’s salacious or because Leon Black is rich. It’s because he continues to refuse to answer a central question about judgement ⁠— why he donated $10 million years after Epstein plead guilty ⁠— and Black’s judgement is a big part of what Apollo sells its shareholders and limited partners and portfolio companies. So, yeah, this will continue for a while.

It sure looks like other shoes will drop.

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