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Tr E s Jourey Epstein tions between Mr. Cayne and anyone else re- garding St. Joe Minerals? A: No. : And still later in the questioning comes this exchange: Q: Have you had any type of business deal- ings with Mr. Cayne? A: There’s no relationship with Bear Stearns. Q: Pardon? A: Other than Bear Stearns, no. Q: Have you been a participant in any type of business venture with Mr. Cayne? A: No. Q: Do you have any expectation of participat- ing injany business venture with Mr. Cayne? A: No. Q: Have vou had any business participations with Mr. Theram? A: No; nor do [ anticipate any. Q: Mr. Epstein. did anyone at Bear Stearns tell you in words or substance that vou should not divulge anything about St. Joe Minerals to the staff of the Securities and Exchange Com- mission? A: No. Q: Has anyone indicated to you in any way. either directly or indirectly. :n words or sub- stance. that vour compensation for this past year or any future monies coming to you from Bear Stearns will be contingent upon vour not divulging information to the Securities and Exchange Commission? A: No. Despite the circumstances of Epstein’s leaving, Bear Stearns agreed to pay him his annual bonus—which he anticipated as be- ing approximately $ 100.000. The S.E.C. never brought any charges against anvone at Bear Stearns for insider trading in St. Joe. but its questioning seems to indicate that it was skeptical of Epstein’s answers. Some sources have wondered why, if he was such a big producer at Bear Stearns. he would have given it up over a mere $2,500 fine. Certainly the vears after Epstein left the firm were not obviously prosperous ones. His luck didn't seem to change until he met Hoffenberg. ne of Epstein’s first assignments tor Hof- fenberg was to mastermind doomed bids to take over Pan American World Airways in 1987 and Emery Air Freight Corp. in 1988. Hoffenberg claimed in a 1993 hearing before a grand jury in Illinois that Epstein came up with the idea of financing these bids through Towers's acquisition of two ailing Illinois insurance companies, Associated Life and United Fire. “He was hired by us to work on the securities side of the insurance companies and Towers Financial, supposedly to make a profit for us and for the companies.” Hoffen- berg reportedly told the grand jury. He also alleged that Epstein was the “technician.” ex- ecuting the schemes, although, having no broker’s license, he had to rely on others to make the trades. Much of Hoffenberg’s sub- sequent testimony in his criminal case has proven to be false, and Epstein has claimed he was merely asked how the bids could be accomplished and has said he had nothing to do with the financing of them. Yet Rich- ard Allen, the former treasurer of United Fire, recalls seeing Epstein two or three times at the company. He and another ex- ecutive say they had direct dealing with Ep- stein over the finances. And in his deposition of 1989, Epstein stated that he was the one who executed “all” Hoffenberg’s instructions to buy and sell the stock. He called it “mak- ing the orders.” He could not recall whether he had chosen the brokers used. To win approval from the Illinois insur- ance regulators for Towers’s acquisition of the companies. Hotfenberg promised to in- ject $3 million of new capital into them. In fact. in his grand-jury testimony Hoffenberg claimed that he. his chief operating officer. Mitchell Brater. and Epstein came up with a scheme to steal $3 million of the insurance companies’ bonds to buy Pan Am and Em- ery stock. “Jeffrey Epstein and Mitch Brater arranged the various brokerage accounts for the bonds to be placed with in New York, and I think one in Chicago. Rodman & Ren- shaw.” Hoffenberg reportedly said. Then. said Hoffenberg. while making it appear as though they were investing the bonds in much safer financial instruments. they used them as collateral to buv the stock. “Ep- stein was the person in charge of the trans- actions. and Mitchell Brater was assisti him with it in coordination on behalf of the insurance companies’ money.” Hertenberg claimed at the time. At one point. according to Hoffenberg. a broker forged the documents necessary for a $L8 million check to be wntten on insurance- company funds. The check was used to buy more stock in the takeover targets. Mean- while. in order to throw the insurance regula- tors off. the $1.8 milion was reported as being safely invested in a money-market account. United Fire's former chief financial officer Daniel Payton confirms part of Hotlenberg’s account. He says he recalls making one or two telephone calls to Epstein (at Hoffen- berg’s direction) about the missing bonds. “He said. “Oh. yeah. they still exist. But we found out later that he had sold those assets ... leveraged them ... [and] used some mar- gin account to take some positions in... Emery and Pan Am.” says Payton. Epstein’s extraordinary creativity was, ac- cording to Hoffenberg. responsible for the purchase by the insurance companies of a $500.000 bond, with no money down. “Ep- stein created a great scheme to purchase a $500.000 treasury bond that would not be shown ... fas] 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 deal- ings with anyone from the insurance com- panies. But Richard Allen 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 Allen, Epstein said, “We'll get them back.” He had “kind of a flippant atti- tude.” says Allen. “They never came back.” pstein. according to Hoffenberg. also came up with a scheme to manipulate the price of Emery Freight stock in an at- tempt to minimize the losses that occurred when Hoftfenberg’s bid went wrong and the share price began to fall. This was alleged to have involved multiple clients’ accounts con- trolled by Epstein. Eventually, in 1991, insurance regulators in Illinois sued Hoffenberg. He settled the case. and Epstein. who was only a paid consul- tant. 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 signineant dollars that were paid to him, I remem- ber.... He 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 Hotfenberg it would seem the government was perhaps a bit lazy” savs David Lewis. 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 ot Hollenberg says. “In a erim- inal 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.” E pstein was involved with Hotfenberg in other questionable transactions. Finan- cial records show that in [988 Epstein in- vested $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 Neder- lander and Toborolf that he had raised his share of the money from a Swiss banker, A 233 Public Records Request No.: 17-205 * < a DOJ-OGR-00032076 i 0) 17.:1 Page 37 of 151