A Question That Should Have Been Asked Long Ago

According to Michelle Clarier.com:

Michelle Celarier is an award-winning journalist who writes about the world of money and power for New York magazine, Fortune magazine, Institutional Investor, Worth and Slate. She has reported on hedge funds and the men who run them for over a decade, including a four-year stint as a tabloid scribe with the New York Post. She was previously the editor of Absolute Return and its successor Absolute Return + Alpha (AR), which won several magazine awards under her leadership.

Ms. Celarier recently posted an article at New York magazine about Jeffery Epstein.

The article notes:

Long before Jeffrey Epstein pleaded guilty to prostitution charges in Florida more than a decade ago, his fellow Palm Beach resident and hedge-fund manager Douglas Kass was intrigued by the local gossip about his neighbor.

“I’m hearing about the parties, hearing about a guy who’s throwing money around,” says Kass, president of Seabreeze Partners Management. While stories about young girls swarming Epstein’s waterfront mansion and the sex parties he hosted for the rich and powerful were the talk of the town, Kass was more focused on how this obscure person, rumored to be managing billions of dollars, had become so wealthy without much of a track record.

Kass was well-connected on Wall Street, where he’d worked for decades, so he began to ask around. “I went to my institutional brokers, to their trading desks and asked if they ever traded with him. I did it a few times until the date when he was arrested,” he recalls. “Not one institutional trading desk, primary or secondary, had ever traded with Epstein’s firm.”

When a reporter came to interview Kass about Bernie Madoff shortly before that firm blew up in the biggest Ponzi scheme ever, Kass told her, “There’s another guy who reminds me of Madoff that no one trades with.” That man was Jeffrey Epstein.

“How did he get the money?” Kass kept asking.

For decades, Epstein has been credulously described as a big-time hedge-fund manager and a billionaire, even though there’s not a lot of evidence that he is either. There appears little chance the public is going to get definitive answers anytime soon. In a July 11 letter to the New York federal judge overseeing Epstein’s sex-trafficking case, Epstein’s attorney offered to provide “sealed disclosures” about Epstein’s finances to determine the size of the bond he would need to post to secure his release from jail pending trial. His brother, Mark, and a friend even offered to chip in, if necessary.

The article notes some unusual things about Jeffery Epstein’s investment success:

To begin with, there is much skepticism among the hedgies Intelligencer spoke with that Epstein made the money he has — and he appears to have a lot, given a lavish portfolio of homes and private aircraft — as a traditional money manager. A fund manager who knows well how that kind of fortune is acquired notes, “It’s hard to make a billion dollars quietly.” Epstein never made a peep in the financial world.

Epstein was also missing another key element of a typical thriving hedge fund: investors. Kass couldn’t find any beyond Epstein’s one well-publicized client, retail magnate Les Wexner — nor could other players in the hedge-fund world who undertook similar snooping. “I don’t know anyone who’s ever invested in him; he’s never talked about by any of the allocators,” says one billionaire hedge-fund manager, referring to firms that distribute large pools money among various funds.

The article notes one very believable theory on how Jeffrey Epstein became a billionaire:

Given this puzzling set of data points, the hedge-fund managers we spoke to leaned toward the theory that Epstein was running a blackmail scheme under the cover of a hedge fund.

How such a scheme could hypothetically work has been laid out in detail in a thread on the anonymous Twitter feed of @quantian1. It’s worth reading in its entirety, but in summary it is a rough blueprint for how a devious aspiring hedge-fund manager could blackmail rich people into investing with him without raising too many flags.

Kass and former hedge-fund manager Whitney Tilson both emailed the thread around in investing circles and both quickly discovered that their colleagues found it quite convincing. “This actually sounds very plausible,” Tilson wrote in an email forwarding the thread to others.

“He somehow cajoled these guys to invest,” says Kass, speaking of hypothetical blackmailed investors who gave Epstein their money to invest, but managed to keep their names private.

The fact that Epstein’s fund is offshore in a tax haven — it is based in the U.S. Virgin Islands — and has a secret client list both add credence to the blackmail theory.

The article concludes:

In the 2015 filing, Giuffre claimed that Epstein “debriefed her” after she was forced into sexual encounters so that he could possess “intimate and potentially embarrassing information” to blackmail friends into parking their money with him. She also said photographic and video evidence existed — an assertion that looms especially large now that federal investigators have found a trove of images in Epstein’s home safe.

There are other theories about how Epstein made his money–a Ponzi scheme, work for the intelligence community, money laundering, and offshore tax schemes. Now that Epstein’s New York City residence has been cleared of evidence by authorities, it will be interesting to see who is involved in his financial dealings (and other activities).

Things That Surprise Me

Yesterday The New York Magazine posted an article about a recent panel discussion held at the Heritage Foundation. This article will be rated PG-13, so proceed at your own risk.

The article reports:

It might be a sign of the end-times, or simply a function of our currently scrambled politics, but earlier this week, four feminist activists — three from a self-described radical feminist organization Women’s Liberation Front — appeared on a panel at the Heritage Foundation. Together they argued that sex was fundamentally biological, and not socially constructed, and that there is a difference between women and trans women that needs to be respected. For this, they were given a rousing round of applause by the Trump supporters, religious-right members, natural law theorists, and conservative intellectuals who comprised much of the crowd. If you think I’ve just discovered an extremely potent strain of weed and am hallucinating, check out the video of the event.

I’ve no doubt that many will see these women as anti-trans bigots, or appeasers of homophobes and transphobes, or simply deranged publicity seekers. (The moderator, Ryan Anderson, said they were speaking at Heritage because no similar liberal or leftist institution would give them space or time to make their case.) And it’s true that trans-exclusionary radical feminists or TERFs, as they are known, are one minority that is actively not tolerated by the LGBTQ establishment, and often demonized by the gay community. It’s also true that they can be inflammatory, offensive, and obsessive. But what interests me is their underlying argument, which deserves to be thought through, regardless of our political allegiances, sexual identities, or tribal attachments. Because it’s an argument that seems to me to contain a seed of truth. Hence, I suspect, the intensity of the urge to suppress it.

The underline is mine.

The article concludes:

We just have to abandon the faddish notion that sex is socially constructed or entirely in the brain, that sex and gender are unconnected, that biology is irrelevant, and that there is something called an LGBTQ identity, when, in fact, the acronym contains extreme internal tensions and even outright contradictions. And we can allow this conversation to unfold civilly, with nuance and care, in order to maximize human dignity without erasing human difference. That requires a certain amount of courage, and one thing I can safely say about that Heritage panel is that the women who spoke had plenty of it.

I have nothing to add.