The 2007 implosion of two Bear Stearns hedge funds that invested in risky mortgage bonds led to the wider crash of the financial system, and as it turns out years later, a fairly sizable and eyebrow raising settlement paid by mega bank JPMorgan to the convicted pedophile financier Jeffrey Epstein.
The hedge funds went belly-up in the summer of 2007, the first public casualty of the smoldering financial crisis that would take down Bear, then Lehman Brothers, and were it not for a government bailout, the entire financial system in 2008.
After Bear’s collapse, JPMorgan CEO Jamie Dimon, at the insistence of the government, took over the firm, its assets and many of its liabilities, including claims by investors that they were misled about the financial condition of the hedge funds before their collapse.
Epstein was one of those investors, placing more than $57 million of his cash into something called the “Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage hedge fund,” On the Money has learned.
Yes, the fund’s name was a mouthful and should have served as a warning signal to anyone who wanted to invest in it. So it’s a logical question why JPM needed to settle with the creep?
A JPM spokesman had no comment, so we can only speculate. Meanwhile, Epstein’s ties to the hedge funds were buried in the recent New York Times opus about JPMorgan’s long banking relationship with the sexual predator.
The article revealed that JPMorgan actually settled litigation with Epstein over the defunct hedge funds in 2011.
“The bank paid him an additional $9 million. It was to settle a lawsuit that Epstein had brought years earlier against the Wall Street firm Bear Stearns, which JPMorgan bought in 2008,” the Times wrote.
It was to my eye – and I’ve been covering the Epstein imbroglio for years with the distinction of interviewing him just before his 2019 arrest and subsequent suicide – the only item really new in the nearly 7,500-word story, even if the paper didn’t play it that way.
My sources close to JPM say news of the settlement was out there even if I never saw it. They confirmed that the payment was indeed to settle Epstein’s litigation over his hedge fund investment, and a separate action where he claimed he was misled by Bear Stearns officials who were touting the company’s financial strength just as it was on the verge of collapse, so he held its position to the bitter end.
What has not been reported is that Epstein, in turn, sought $70 million form JPMorgan because it was now legally on the hook for Bear Stearns’ liability.
JPMorgan thinks they cut a good deal with Epstein, forking over less than 10% of his original demands. Maybe, or maybe as the Times suggested, the bank was being nice to a controversial but important client that brought it lots of business given Epstein’s high-end wealth management work, before of course, it was forced to cut ties with Epstein over news of his lurid private life.
But again, the payments seem a little fishy. The men who ran the Bear Stearns hedge funds were brought up on criminal fraud charges and acquitted. Bear Stearns management was never charged with misleading investors because it’s nearly impossible to prove intent.
During the financial crisis, a bank could be solvent one minute, and insolvent the next given the fast-moving nature of the banking collapse. Also Epstein was close friends with Bear Stearns’ top officials because he once worked there and was probably a bigger client at that bank than he was at JPMorgan.
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