Epstein’s tax advice and the mysterious $158M ‘work of art’ for Leon Black
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“Leon, you hired me to produce a work of art. it was not inexpensive,” Epstein wrote in a
Epstein’s art, as he saw it, was a complex plan to help Black minimize taxes. The cost: $158 million, which Black paid to the convicted sex offender between 2012 and 2017, and which Epstein himself found difficult to justify in itemized fashion.
“I guess the value is in the eye of the beholder,” he wrote in an email. “It reminds me of those people looking at a modern art piece and saying ‘my child could do that.'”
Yet seven years after Epstein died in jail, and after the public release of millions of documents related to his crimes and business dealings, it is still not clear if his fees were solely tied to his self-professed financial artistry or whether they somehow overlapped with the private proclivities that made him a global villain. To many observers, most notably Senator Ron Wyden, the documents have only intensified the questions about how Epstein — famously a college dropout with no formal legal training — earned such massive payments from one of Wall Street’s most powerful figures.
“On the surface, the only remarkable aspect of this planning is the price tag,” said
The House Oversight Committee was scheduled to depose Black on Thursday, but he sued the committee hours before he was to appear. Black had refused in June to answer questions from the panel about his use of nondisclosure agreements related to women in Epstein’s orbit and in the lawsuit filed on Thursday alleged that the two subpoenas issued to him were invalid. Black, co-founder of Apollo Global Management, has repeatedly said he had no knowledge of his former friend’s sex crimes and testified in June that he never abused women and wasn’t blackmailed by Epstein.
In a statement, his lawyer, Susan Estrich, said the committee “is on a fishing expedition that oversteps its authority and completely ignores its responsibility. This is no longer about finding the truth about Epstein. It is about trying to destroy Mr. Black.”
Last month, Wyden, an Oregon Democrat, released a 67-page report that raised additional questions about their dealings. Among other things, it found that
That appears to conflict with a 2021 Apollo-commissioned report by an outside law firm, Dechert, that found no wrongdoing by Black. It said Epstein’s strategies collectively saved Black between $1 and $2 billion in taxes, citing Black himself and more than 20 witnesses. The report concluded that the $158 million in fees, while they “far exceeded” what Black paid his other advisors, were for legitimate advice related to taxes and estate planning.
Wyden, the ranking member of the Senate Finance Committee, has said he believes at least some of the payments equated to hush money.
“It defies belief that Epstein’s tax advice was worth the vast sums of money Black paid him. No one, and I mean no one, believes that Black’s usual world-class professional advisors needed Epstein’s help to execute routine tax planning structures,” Sen. Wyden said in an emailed statement.
A spokesperson for Black declined to comment further about the lawsuit filed on Thursday or the issue of Epstein’s fees. In Black’s opening statement to the House committee in June, he said he believed Epstein had “remarkable acumen” about taxes and other financial matters. “Epstein solved a massive estate problem for me, that none of the experts and lawyers I consulted had been able to solve,” Black said. “It was a problem that would have destroyed enormous value for my family and in Apollo, the company I had founded.”
The Epstein files released by the Justice Department contain emails, financial records and other documents showing sophisticated arrangements that generated significant tax benefits for Black. The files also show how a dispute over Epstein’s fees ultimately was a key factor in the unraveling of their friendship.
At one point, as the relationship deteriorated, Black even invoked their shared Jewish faith in an effort to get Epstein to repay a $30 million loan.
Many of the tools Epstein employed in the tax transactions cited in the Dechert report have been used by other billionaires to generate massive tax savings. Those include using grantor-retained annuity trusts, or GRATs, a specialized type of time-limited trust which can allow individuals to bypass estate taxes; leveraging the tax code to defer capital gains taxes on art deals; and splitting assets into multiple holding vehicles to enjoy discounts to their taxable values.
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Indeed, numerous lawyers specializing in trusts and estates who spoke with Bloomberg disagreed with the Dechert report’s characterization of Epstein’s strategies as creative and original, saying that some of the most significant transactions actually relied on techniques that were already well-established components of the tax lawyer’s arsenal — or, in some cases, simply weren’t good advice at all.
Experts in estate planning also said it would not be considered remarkable for an advisor to generate more than $1 billion in tax savings for someone with Black’s considerable assets.
“The $1–2 billion figure is entirely plausible and unsurprising,” said Haneman. “The federal estate tax rate is 40%. A billionaire who moves $3–5 billion of assets and appreciation outside the taxable estate saves $1–2 billion by arithmetic, not by wizardry. You can achieve this result with relatively off-the-shelf estate planning.”
Haneman noted that while there were instances in which the documents show execution strategies that were slightly aggressive, the overall architecture of the estate was rather conventional.
A problem arises
Black founded Apollo with his former Drexel Burnham Lambert colleagues Marc Rowan and Josh Harris in 1990, and they built it into one of the world’s largest private equity firms.
By 2013, Black’s net worth had swelled to more than $5 billion. (He is now worth $18.4 billion, according to the
By 2012, though, Black had a problem. His lawyers had realized that the trust had been overpaying him — over the past six years, it had
The Dechert report said that an employee at Black’s family office and outside counsel agreed that the error could have put Black on the hook for around $500 million in potential unintended estate taxes, and witnesses believed that the damage could have grown to more than $1 billion if the issue was not resolved.
Epstein then came up with a solution that he asserted was proprietary, according to the Dechert report.
Under the deal Epstein formulated, Black agreed not to receive any future distributions from the trust. In exchange, the independent trustees — who were Black’s business partner and his brother-in-law — agreed not to try and claw back any excess distributions.
That solved the immediate issue of the potential clawback. But it left much of Black’s Apollo equity stuck in a trust where he couldn’t access any of the dividends or distributions coming out of it.
Epstein’s idea was to
The note was structured as an art-backed loan, using some of Black’s personal collection as collateral.
“I think we shouls use the power of substituuion and remove the stock. from the 2006 trust , form the new entity contribute the new corpus, it could be shares of an entity that had a collateral note ( collaterialize.d by both the stock and art for example. or bank note or letter of credit backed,” Epstein wrote in an April 2, 2013
According to the Dechert report, outside legal counsel described Epstein’s solution to the potentially defective trust as a “grand slam” and multiple witnesses described Epstein’s plan as superior to other proposals brought forward.
“This was the first project that Epstein worked on for Black and Epstein’s success on this project appears to have validated Black’s trust in him and strongly influenced Black’s decision to continue to use Epstein’s services going forward,” said the report.
Yet at least one central component of this plan — Epstein’s idea of substituting the trust’s stake in Apollo with a promissory note — was far from original. In fact, McCaffrey, Black’s longtime estate-planning lawyer, gave a presentation at a major conference on a similar topic in 2005, nearly a decade earlier. She didn’t respond to a request for comment.
The so-called power of substitution has “been boilerplate in grant trust drafting for decades. That was standard Heckerling circuit material by the time it happened,” said Haneman, referring to University of Miami’s Heckerling Institute on Estate Planning, the trade’s largest annual conference.
Documents also show that Epstein was discussing details of the plan, including the substitution power and using art to collateralize a loan, with an outside estate attorney from Paul, Weiss who was also working on Black’s estate, earlier in 2013.
Turning art into tax savings
Over the following years, Epstein also helped to minimize Black’s tax liability by transferring some of the Apollo equity he’d successfully extracted from the 2006 trust into a series of trusts. By dividing the asset into smaller chunks, Black was able to enjoy what’s known in the trusts-and-estates practice as a valuation discount: Because the smaller chunks don’t hold a controlling stake in the broader asset and can be harder to sell than the whole enchilada, they can be discounted, which can yield substantial tax benefits.
One of those discounts was scrutinized by the IRS in 2016, documents
Epstein also leveraged Black’s vast art holdings in other ways, most notably through his ownership of Phaidon, the venerable London-based maker of art books that Black bought for £41 million in 2012.
The Dechert report cited tax matters related to the acquisition as one of the most significant issues Epstein was involved with.
As Phaidon ran up losses, Epstein helped craft a transaction to sell a stake in the business at a sharply reduced valuation. For a billionaire who regularly generated enormous taxable gains from his Apollo holdings, the losses could be valuable.
This is one instance in which the execution might have been aggressive, because the proposed buyers were Brad Wechsler, the head of Black’s family office, and Richard Ressler, the co-founder of developer CIM Group and Black’s brother-in-law. That raised red flags for Richard Bronstein, a Paul Weiss lawyer working on the transaction, according to emails in December 2015.
Black “is dealing with an employee and his brother-in-law, neither of whom really want to own this business,” Bronstein wrote. ‘They are doing this only because LDB asked them to.”
The proposed structure also included terms that would have allowed the buyers to sell their stake back after a set period, further raising questions about whether they were taking on meaningful economic risk.
“Frankly, we can dress the transaction up all we want, but I think the IRS will not approve,”
The transaction eventually went through in a revised form and without the involvement of Ressler, the documents show. In a September 2016 memo, Wechsler says the transaction saved $7.6 million in federal and $4 million in state taxes.Transactions between related parties aren’t inherently improper, but often require careful documentation to demonstrate that the buyers were independent and paid a justified price, tax experts said.
Disputes about fees Epstein felt he was owed for transactions on Phaidon would ultimately become a central factor in the breakdown of their relationship.
The relationship unravels
Another contributor to their split came after Epstein agreed to help Black in 2016, when the latter was trying to sell art that had significant capital gains associated with it.
Under rules in place at the time, collectors could defer taxes on appreciated artwork by reinvesting the proceeds into other art through a like-kind exchange, known as a 1031.
When Black’s dealer, Larry Gagosian, failed to find a buyer for some of the works, Epstein stepped in and agreed to buy the pieces himself. Discussions on the logistics of the purchase began just a day before a November 2016 deadline to complete the sale.
Epstein wired Black $30 million for two pieces, the Figure Moyenne II sculpture by Alberto Giacometti and Le Gueridon by Georges Braque.
Epstein had been assured he could sell the art quickly. But by early 2017, Black’s art advisor suggested they would need to try the auction houses. Epstein forwarded the email to Black, with a simple “????!!!”.
Over the following weeks, Black sent $30.5 million to Epstein. Deutsche Bank flagged the payments, asking Epstein for an explanation. Epstein called them advisory fees, though financial records show both men treated them as a loan.
Black and his art advisor then helped Epstein and his team negotiate favorable sales terms with Christie’s and Sotheby’s. Still, the affair appeared to be deeply frustrating for Epstein. In August of that year
By the next year, the relationship was on life support and Epstein began to
“if asked i will need to disclose the 1031 . which will cost him more than the 30 much as it will open up all previous 1031 s which are horrible & not done by me or with my guidance”
Meanwhile Black was still
“Knowing what a moral person you are and knowing that tomorrow is the start of Yom Kippur by which time traditionally all debts should be repaid, I thought the next 24 hours would be an appropriate Call to Action…your friend, L.”
Epstein paid Black $10 million of the loan, but never the remainder. An
According to the Dechert report, Epstein’s failure to repay the balance led Black to sever ties later that year. Weeks later, renewed reporting on Epstein’s criminal conduct would bring fresh scrutiny to his relationships — including the one that had just unraveled.
