EXHIBIT 11¶
PART 2¶
At one point, according to Hoffenberg, a broker forged the documents necessary for a $1.8 million check to be written on insurancecompany funds. The check was used to buy moreM in the takeover targets. Meanwhile, in order to throw the insurance regulators off, the $1.8 million was reported as being safely invested in a money-market account.¶
United Fire’s former chief financial officer Daniel Payton confirms part of Hoffenberg’s account. He says he recalls making one or two telephone calls to Epstein (at Hoffenberg’s direction) about the missing bonds. “He said, yeah, they still exist.’ But we found out later that he had sold those assets … leveraged them … [and] used some margin account to take some positions in … Emery and Pan Am.” says Payton.¶
Epstein’s extraordinary creativity was, according to Hoffenberg, responsible for the purchase by the insurance companies of a $500,000 bond, with no money down. “Epstein created a great scheme to purchase a $500,000 treasury bond that would not be shown … [as] margined or collateralized,” he reportedly told the grand jury. “It looked like it was free and clear but it actually wasn’t,” he said.¶
Epstein has denied he ever had any dealings with anyone from the insurance companies. But Richard- says he recalls talking to Epstein at Hoffenberg’s direction and telling him it was urgent they retrieve the missing bonds for a state examination. According to M. Epstein said, “Well get them back.” lie had “kind of a flippant attitude,” says “They never came back.”¶
}1 pstein, according to Hoffenberg, also came up with a scheme to manipulate the price of Emery Freight Min an attempt to minimize the losses that occurred when Hoffenberg’s bid went wrong and the share price began to fall. This was alleged to have A involved multiple clients’ accounts controlled by Epstein.¶
Eventually, in 1991, insurance regulators in Illinois sued Hoffenberg. He settled the case, and Epstein, who was only a paid consultant, was never deposed or accused of any wrongdoing. Barry Gross, the attorney who was handling the suit for the regulators, says of Epstein, “He was very elusive… It was hard to really track him down. There were a substantial number of checks for significant dollars that were paid to him, I remember… lie was this character we never got a handle on. Again we presumed that he was involved with the Pan Am and Emery run that Hoffenberg made. but we never got a chance to depose him.-¶
“From the government’s discovery in the main sentencing against Hoffenberg it would seem the government was perhaps a bit lazy,” says David M, who represented Mitchell Brater. `They went for what they knew they could get … and that was the fraudulent promissory notes [i.e., the much larger and unrelated part of Hoffenberg’s fraud, based in New York State)… What they couldn’t get, they didn’t bother with.”¶
Another lawyer involved in the criminal prosecution of Hoffenberg says, “In a criminal investigation like that, when there is a guilty plea, to be quick and dirty about it, discovery is always incomplete… They don’t have to line up witnesses; they don’t have to learn every fact that might come out on cross-examination.”¶
F pstein was involved with Hoffenberg in other questionable transactions. Financial records show that in 1988 Epstein invested $1.6 million in Riddell Sports Inc., a company that manufactures football helmets. Among his co-investors were the theater mogul Robert Nederlander and attorney Leonard Toboroff. A source close to this transaction claims that Epstein told Nederlander and Toboroff that he had raised his share of the money from a Swiss banker, whose identity they could not be allowed to know. But Hoffenberg has claimed the money came from him, and Towers’s financial statements for that year show a loan to Epstein of $400,000. (Epstein has said he can’t remember the details and has disputed the accuracy of the Towers financial reports.)¶
Around the same time, Nederlander and Toboroff let Epstein come in with them on a scheme to make money out of Pennwalt, a Pennsylvania chemical company. The plan was to group together with two other parties to take a substantial declared position in the-. According to a source, Epstein was supposed to help Nederlander and Toboroff raise $15 million. He seemed to fail to find other investors, say those familiar with the deal. (Epstein has said he was merely an investor.) He invested $1 million, which he told his co-investors was his own money. But in his 1989 deposition he said that he put in only $300,000 of his own money. Where did the rest come from? Hoffenberg has said it came from him, in a loan that Nederlander and Toboroff didn’t know about.¶
Two things happened that alarmed Nederlander and Toboroff. After the group signaled a possible takeover, the Pennwalt management threatened to sue the would-be raiders. Epstein was reluctant initially to give a deposition about his share of the money, telling Toboroff there were ‘reasons’ he didn’t want to. Then, after the opportunity for new investors was closed, co-investors recall Epstein announcing that he’d found one at last: Dick , then C.E.O. of the publisher & Schuster, who wanted to put up approximately S5oo,o00. (Neither Epstein nor can now recall the investment. Yet in the 1989 deposition Epstein said that he had recruited , whom he had met socially, into the deal.)¶
According to a source, Toboroff and Nederlander told Epstein that was too late, but, without their realizing it, Hoffenberg has claimed, wrote a check to Hoffenberg and bought out some of his investment. But then wanted out.¶
“Nederlander started to get these irate calls from t=,) who wasn’t part of the deal, saying he was owed all this money,” says someone close to the deal. Toboroff and Nederlander were baffled.¶
Eventually, a source close to Hoffenberg says, Hoffenberg paid off.¶
jr ust as Nederlander and Toboroff were growing wary of Epstein, he became increasingly involved with Leslie Wexner, whom he had met through insurance executive Robert Meister and his late wife. Epstein has told people that he met Wexner in 1986 in Palm Beach, and that he won his confidence by persuading him not to invest in the• market, just as the 1987 crash was approaching. His story has subsequently changed. When asked if Wexner knew about his connection to Hoffenberg, Epstein said that he began working for Wexner in 1989, and that ‘it was certainly not the same time.”¶
Wherever and whenever it was that Epstein and Wexner actually met, there was an immediate and strong personal chemistry. Wexner says he thinks Epstein is “coy smart with a combination of excellent judgment and unusually high standards. Also, he is always a most loyal friend.”¶
Sources say Epstein proved that he could be useful to Wexner as well, with -fresh” ideas about investments. `Wexner had a couple of bad investments, and Jeffrey cleaned those up right away,” says a former associate of Epstein’s.¶
Before he signed on with Wexner, Epstein had several meetings with Harold Levin, then head of Wexner Investments, in which he enunciated ideas about currencies that Levin found incomprehensible. ‘In fact.” says someone who used to work wen- closely with Wexner, “almost everyone at the Limited wondered who Epstein was; he literally came out of nowhere.”¶
`Everyone was mystified as to what his appeal was,’ says Robert Morosky, a former vice-chairman of the Limited.¶
M uch of Epstein’s work is related to cleaning up, tightening budgets, and efficiencies. One person who worked for Wexner and who saw a contract drawn up between the two men says Epstein is involved in `everything, not just a little here, a little there. Everything!” In addition, he says, “Wexner likes having a hatchet man… Whenever there is dirty work to be done he’d stick Jeffrey on it… He has a reputation for being ruthless but he gets the job done.”¶
Epstein has evidently been asked to fire personal-staff members when needed. “Ile was that mysterious person that everyone was scared to death of,” says a former employee.¶
Meanwhile, he is also less than popular with some people outside Wexner’s company with whom he now deals. “He ‘inserted’ himself into the construction process of Leslie Wexner’s yacht… That resulted in litigation down the road between Mr. Wexner and the shipyard that eventually built the vessel,” says Lars Forsberg, a lawyer whose firm at the time, Dickerson and Reily, was hired to deal with litigation stemming from the construction of Wexner’s Limitless—at 315 feet, one of the largest private yachts in the world. Evidently, Epstein stalled on paying Dickerson and Reily for its work. “It’s probably once or twice in my legal career that I’ve had to sue a client for payment of services that he’d requested and we’d performed … without issue on the performance,” says Forsberg. In the end the matter was settled, but Epstein claims he now has no recollection of it.¶
The incident is one of a number of disputes Epstein has become embroiled in. Some are for sums so tiny as to be baffling; for instance, Epstein sued investment adviser Herbert M, who sold him the Palm Beach house in 199o, for $13.444—Epstein claimed this was owed him for furnishings removed by-.¶
In 1998 the U.S. Attorney’s Office sued Epstein for illegally subletting the former home of the deputy consul general of Iran to attorney Ivan Fisher and others. Epstein paid $15,000 a month in rent to the State Department, but he charged Fisher and his colleagues $20,000. Though the exact terms of the agreement are sealed, the court ruled against Epstein.¶
Wexner offers some insight into his friend’s combative style. “Many times people confuse winning and losing,” Wexner says. “Jeffrey has the unusual quality of knowing when he is winning. Whether in conversations or negotiations, he always stands back and lets the other person determine the style and manner of the conversation or negotiation. And then he responds in their style. Jeffrey sees it in chivalrous terms. He does not pick a fight, but if there is a fight, he will let you choose your weapon.”¶
One case is rather more serious. Currently, Citibank is suing Epstein for defaulting on loans from its private-banking arm for $20 million. Epstein claims that Citibank “fraudulently induced” him into borrowing the money for investments. Citibank disputes this charge.¶
The legal papers for another case offer a rare window into Epstein’s finances. In 1995, Epstein stopped paying rent to his landlord, the nonprofit Municipal Arts Society, for his office in the Villard House. He claimed that they were breaking the terms of the lease by not letting his staff in at night. The case was eventually settled. However, one of the papers filed in this dispute is Epstein’s financial statement for 1988, in which he claimed to be worth $20 million. He listed that he owned $7 million in securities. $1 million in cash, zero in residential property (although he told sources that he had already bought the home in Palm Beach), and $11 million in other assets, including his investment in Riddell. A co-investor in Riddell says: “The company had been bought with a huge amount of debt, and it wasn’t public, so it was meaningless to attach a figure like that to it … the price it cost was about $1.2 million.’ The co-investors bought out Epstein’s share in Riddell in 1995 for approximately $3 million. At that time, when Epstein was asked, as a routine matter, to sign a paper guaranteeing he had access to a few million dollars in case of any subsequent disputes over the sale price, Wexner signed for him. Epstein has explained that this was because the co-investors wanted an indemnity against being sued by Wexner. One of the investors calls this¶
-F1 pstein’s appointment to the board of New York’s Rockefeller University in z000 brought him into greater social prominence. Boasting such social names as Nancy Kissinger, Brooke Astor, and Robert Bass, the board also includes such pre-eminent 4 scientists as Nobel laureate I . ‘Epstein was thrilled to be elected; says someone who knows him.¶
After one term Epstein resigned. According to New York magazine, this was because he didn’t like to wear a suit to meetings. A spokesperson for the Rockefeller board says Epstein left because he had insufficient time to commit; a board member recalls that he was ‘arrogant” and ‘not a good fit.” The spokesperson admits that it is Infrequent” for board members not to be renominated after only one term.¶
Still, the recent spate of publicity Epstein has inspired does not seem to have fazed him. In November he was spotted in the front row of the Victoria’s Secret fashion show at New York’s Lexington Avenue Armory; around the same time the usual coterie of friends and beautiful women were whisked off to Little St. James (which he tells people has been renamed Little St. Jeff) for a long weekend.¶
Thanks to Epstein’s introductions, says Nowak, the biologist finds himself moving front Princeton to Harvard, where he is assuming the joint position of professor of mathematics and professor of biology. Epstein has pledged at least $25 million to Harvard to create the Epstein Program for Mathematical Biology and Evolutionary Dynamics, and Epstein will have an office at the university. The program will be dedicated to searching for nature’s algorithms, a pursuit that is a specialty of Nowak’s. For Epstein this must be the summit of everything he has worked toward: he has been seen proudly displaying Harvard president Larry Summers’s letter of commitment as if he can’t quite believe it is real. He says he was reluctant to have his name attached to the program, but Summers persuaded him. He rang his mentor Wexner about it, and Wexner told him it was all right.¶
An insatiable, restless soul, always on the move, Epstein builds a tremendous amount of downtime into his hectic work schedule. Yet there is something almost programmed about his relaxation: it’s as if even pleasure has to be measured in terms of self-improvement. Nowak¶
says that, when he goes to stay with Epstein in the Caribbean, they’ll get up at six and, as the sun rises, have three-hour conversations about theoretical physics. ‘Then hell go off and do some work, ft-appear, and well talk some more.”¶
Another person who went to the island with Epstein, Maxwell, and several beautiful women remembers that the women ‘sat around one night teasing him about the kinds of grasping women who might want to date him. He was amused by the idea… He’s like a Min his own world.’¶
Mara• people comment there is something innocent, almost childlike about Jeffrey Epstein. They see this as refreshing. given the sophistication of his surroundings. Alan Dershowitz says that, as he was getting to know Epstein, his wife asked him if he would still be close to him if Epstein suddenly filed for bankruptcy. Dershowitz says he replied, ‘Absolutely. I would be as interested in him as a friend if we had hamburgers on the boardwalk in Coney Island and talked about his ideas.’¶
EDITORS NOTE: The original version of this story stated that Jeffrey Epstein was a rnenzber of the New York Academy of Sciences. The academy has since notified Vanity Fair that it has no record of Epstein’s membership.¶
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