How exactly did Jeffrey Epstein make his money?

The New York attorney wanted to ask me something. We were at a fraud conference in Cambridge. He was a regular at the event, as was I. He’d flown over to speak and to catch up with old friends.

Over coffee, he said: “You’ve been following the Jeffrey Epstein case, right?” I said: “Of course, hasn’t everyone?” Then he said, “Let me ask you this: how did he make his money?” I shrugged and replied that it was from managing the finances of the super-rich. He pulled a mocking face and shook his head. “Nah, if he did, we can’t find any trace. There’s no evidence of him earning enough to fund his lifestyle and if he did manage other people’s cash there’s no sign of it. Where did he invest it? What did he do with it? We don’t know.”

This is one of the odder, but telling, aspects of the Epstein affair. He lived in a mansion off Central Park, had a private island, a ranch and other properties. He went everywhere by private jet. He entertained the wealthy, famous and powerful. Because he did all this, we assumed he was fabulously rich himself. That’s what we do: we fill TV shows and magazines with fawning items about “billionaires” and “multi-millionaires” without checking if they really are as they seem.

If they dress the part and have the right trappings, we want to believe them; if they don’t, if they drive a battered car and wear cheap suits but claim to be on the rise, we’re sceptical.

My first introduction to this phenomenon was many years ago. A senior colleague on a newspaper told me Mohamed Al-Fayed was off-the-scale loaded. This, at a time when Fayed was being accused, rightly, of having bought Harrods using someone else’s money. My colleague knew Fayed was rich, he said, because “when you go to his apartment in Park Lane, you come out of the lift and wherever you look, there’s real marble”.

I did not have the courage – he was one of my bosses – to question how he knew that Fayed owned the apartment. If so, had Fayed acquired it with his own money? How would he recognise real marble as opposed to “marble-effect”, which was quite different, not least in price? I could have raised many questions but my colleague was prepared to take it at face value that Fayed was super-wealthy and therefore was fully capable of finding the funds to buy the famous department store.

One person who might have been able to shed some light on Epstein’s finances who died this week – coincidentally during the same week that Ghislaine Maxwell was found guilty of grooming underage girls for Epstein to abuse – was Jimmy Cayne. He was the former Bear Stearns chief executive who indulged in games of bridge and reportedly smoked marijuana.

Epstein worked there from 1976 to 1981 and remained a client of the bank until its collapse in 2008 (the fall triggered the banking crisis). As ever with Epstein, his period at Bear Stearns and his subsequent dealings with the bank are shrouded in mystery. Even how he came to be employed there was strange.

He was a physics and maths teacher at the Dalton School on Manhattan’s Upper East Side. The Dalton, which educated the children of Manhattan’s rich, was run by Donald Barr, father of William, who became attorney-general under US presidents George Bush Senior and Donald Trump. Epstein had no teaching qualifications. He lasted nearly two years at the school before being fired for poor performance. Later, it was claimed that Epstein had become “too close” to some of his pupils, although this was not the reason for his going.

One of the parents was Alan Greenberg, then-chief executive of Bear Stearns. He offered Epstein a job at the bank, as a junior assistant to a floor trader. You cannot get any lower in the banking pecking order but it made little difference to Epstein. His rise was meteoric – within four years he was a fully-fledged options trader, working in the bank’s “special products” division, then an adviser to its wealthiest private clients.

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After he left the bank in the early 1980s over a technical violation and set up on his own, Epstein continued to deal with Bear Stearns. Cayne, who became the bank’s chief executive in 1993, personally handled his business and told the staff that they must “take care of” Epstein.

Epstein was an investor in the Bear Stearns high-grade structured credit strategies enhanced leverage hedge fund, which invested in mortgage-backed securities. In 2007, as he was under investigation for offences relating to sex with minors, Epstein sought to withdraw his investment, $57m. That does not seem like a huge amount, but the Bear Sterns fund was highly leveraged – for every $1 of investment it was borrowing multiple times that sum.

Positions had to be unwound to meet Epstein’s demand. Mortgage-backed securities went into spasm, and three months later, the fund collapsed, to be followed by Bear Stearns itself.

It would be an exaggeration to say that Epstein triggered the 2008 banking crash. More, that the fund was so overstretched that virtually any redemption – and there were others – would be enough to send it and Bear Stearns down.

How much Epstein recovered was not revealed. It’s possible, given the speed of the fund’s demise, that he lost the lot.

They were smoke and mirrors: the fund; Bear Stearns; the other banks that were similarly exposed; the bankers; Epstein. There were warnings galore about all of them. Unfortunately, as ever, we saw only what they wanted us to see.