Leon Black has had an extraordinary career on Wall Street. After graduating from Dartmouth and getting his MBA at Harvard, he spent 14 years at the uber firm of the 1980’s Drexel Burnham, where he ascended to head the formidable M&A department and was the co-head of Corporate Finance. In 1990 he founded Apollo Global Management which currently manages over $300 billion and through which he has amassed a personal fortune nearing $10 billion.

As CEO of Apollo and given the nature of its business, he has overseen the buying and selling of dozens if not hundreds of companies, and seemingly possesses a strong familiarity with all the accounting, operational, regulatory, and capital markets know-how that comes with it. And what he or his high powered colleagues are not fully versed in, the heft and profitability of Apollo allows them to hire the best advisors, consultants, lawyers, and lobbyists money can buy. Thus I think it is fair to say that Leon Black is well ensconced in the nexus of high finance. In addition, he’s the Chairman of the Board of Trustees of the Metropolitan Museum of Art, putting him at the pinnacle of not only wealth, but society.

Jeffrey Epstein was not a CPA, or even a college grad. His experience on Wall Street was a stint at Bear Stearns, where he did have some success, but was asked to leave after five years for reasons that remain largely unknown.

Which begs the question “What kind of extraordinary tax advice did Jeffrey Epstein possess that Leon Black was willing to pay him a whopping $158 million for it?”

You won’t find the answer in the Dechert report, which was commissioned by Apollo to conduct a thorough investigation into the Black-Epstein relationship. While the report details the specific issues Epstein worked on, the dollar amounts Black supposedly saved by his doing so, and what Epstein received for each solution, they reveal nothing about what type of sorcery innovations Epstein actually created. Leaving the reader to just accept that 1. Leon Black had some major tax issues, went through his massive rolodex to find the the best accountants and attorneys money could buy, none of whom could provide suitable solutions 2. Jeffrey Epstein got involved 3. Hocus Pocus 4. Black saved a billion or two 5. Epstein got $158 million.

Now, some contend that because of the lack of detail in Step 3, the whole Dechert report was really a whitewash of what the $158 million in payments was for. And this very well may be correct. Yet my first instinct was to take it at face value that Epstein proposed solutions that differed from every other accountant and lawyer, mainly because no other accountant or lawyer would sign off on them. And that they may have somehow involved Epstein’s offshore offshoots. Thus the extraordinarily outsized payment, which back-of-the-envelope I put at 10x the size that the nation’s greatest estate attorneys and accountants would do cartwheels for.

Given what is shared in the report, what is known about Leon Black whom Business Week called “the most feared man in the most aggressive realm of finance,” and what is known about Jeffrey Epstein – no description necessary, I just can’t help but wonder about what exactly the “proprietary” solution was that Epstein offered Black?1 Is it similar to the tax advice he offered other billionaires, and were the taxes avoided of the same magnitude?

Maybe, just maybe, Epstein’s solutions – were they ever to be revealed and potentially laid bare in court – are all above board. Tax law for the maneuvers of the ultra-wealthy is a whole different ball of wax than your standard 1040, and when contested by the IRS become a very hard battle to win, right or wrong. Typically you have a large team of high paid experts with lots of time on one side and a beleaguered staff attorney or two representing the people of the United States of America. So a more aggressive approach laying out this legal “arbitrage” may have been Epstein’s pitch. An approach that Black’s other lawyers didn’t want to officially endorse, but were willing to give “huzzah’s” to, loudly or in sotto voce. The key to answering this question might lie with Carlyn McCaffrey, a tax and estate planner at McDermott Will & Emery, who according to The New York Times is the lawyer who “did most of the early work” on the trust that the Dechert report described as potentially problematic, and where Epstein’s solutions were “the most valuable piece of work Epstein provided Black” according to the report. Carlyn McCaffrey, what say ye to this disparagement?

Finally, we leave you with one final thought, and one that is much bigger than Leon Black and Jeffrey Epstein. What if Epstein’s tax solutions met whatever standard of legitimacy required in the U.S. today. Thus, he conjured envisioned ideas that no other high net worth attorney or CPA had previously and was able to help Leon Black, and possibly other billionaires, avoid paying well over a billion dollars in taxes seemingly out of thin air. In 21st century America is that really right?

Nobody Makes Money Like Apollo’s Ruthless Founder Leon Black

What Jeffrey Epstein Did To Earn $158 Million From Leon Black

Here are the relevant excerpts from the Dechert report, read’em and judge for yourself:

“There was a consensus among witnesses that Epstein offered a unique solution to a potential estate planning problem that arose out of a trust known as the 2006 Grantor Retained Annuity Trust (“2006 GRAT”). Many witnesses opined that this solution – which Epstein offered in the beginning of Black and Epstein’s working relationship in late 2012 – was the most valuable piece of work Epstein provided Black

Both a former Family Office employee and outside counsel agreed that, at the time the issue was identified, the estate tax would have been around $500 million. Witnesses differed on what the value of the estate tax would have been today or in the future if the issues had not been resolved, but they believed the estate tax liability could have been as much as $1 billion or more.

Once the potential issues were identified, Black and his advisors attempted to find a way to resolve them. Although Family Office employees and outside counsel offered various solutions, all witnesses agreed that Epstein proposed the best and most creative solution to the problem. Epstein approached Black with his solution – which Epstein asserted was proprietary – and Black agreed to pay Epstein to implement this solution. Outside legal counsel described the solution as a “grand slam” and one that met all of Black’s financial and estate planning goals.    

By solving an estate tax problem potentially worth at least $500 million, and possibly substantially more, Epstein contributed significant value to Black and his estate.”

Step-Up Basis Transaction: Beginning in fall 2015, Epstein also appears to have provided significant value to a subsequent transaction that addressed certain loans between Black and certain family trusts for the purpose of achieving a potential tax benefit for Black’s children. Although witnesses were less certain of the specific value of this transaction because the extent of savings was not likely to be known until the future, witnesses agreed that this transaction provided significant value. Epstein estimated that this transaction had saved $600 million in value and Black appears to have agreed with that estimate. Outside counsel stated that this was a complicated transaction that took approximately nine months to plan and execute.

1. also, after seeing the solution and describing it as a “grand slam,” did the outside counsel then usurp the idea and use it with other clients? I ask facetiously [↩]