Jeffrey Epstein’s Hedge-Fund Bets Gone Bad

Photo-Illustration: Photo: Rick Friedman/Corbis via Getty Images

Much of convicted sex offender Jeffrey Epstein’s wealth remains a mystery — and the cursory financial disclosures he has made in his sex-trafficking case in a New York federal court haven’t shed much light on the matter.

But one thing is becoming clear: Epstein has endured some financial fiascos along the way to amassing what prosecutors now say is a $559 million fortune that apparently also includes some diamonds tucked away in his now-cracked-open safe.

There’s still no evidence Epstein was ever the world-beating hedge-fund manager he professed to be. And moreover, his financial disclosures were “unverified” and “unaudited,” New York district court judge Richard Berman said at Epstein’s bail hearing Monday. However, those disclosures do show that his assets include $195 million in hedge funds and private equity, though the names of those funds are not given.

Also not mentioned in the disclosures are some troubled hedge-fund investments, which included the loss of tens of millions of dollars.

The biggest of those investments was an $80 million bet, made between 2002 and 2005, in a hedge fund called D.B. Zwirn Special Opportunities Fund that was shut down in 2008 after accounting irregularities triggered a Securities and Exchange Commission investigation.

Like so much else in Epstein’s life, the investment was closely tied to his network of friends and supporters. The fund was launched by Dan Zwirn, a former senior portfolio manager at Highbridge Capital Management, a hedge fund founded in 1992 by longtime Epstein pal, Glenn Dubin. Epstein became friendly with Dubin through his wife, Eva Andersson-Dubin — a former Miss Sweden and now a well-known physician who also was a former girlfriend of Epstein’s. Epstein also put money into Highbridge in 1998, according to an individual with knowledge of the investment.

When Zwirn decided to start his own fund, Dubin advised Epstein to invest in it, according to Epstein’s lawyers. “Dubin prevailed upon Epstein to invest substantially in the Fund, touting Zwirn’s reliability and business and investment acumen,” they wrote in a 2010 court pleading. Dubin and Highbridge were “investment advisers” to Epstein’s firm, Financial Trust Co., according to filing.

An individual familiar with the situation said that Dubin took a stake in a Zwirn fund too, and “lost a lot of money.” (Highbridge invested $500 million in the fund, according to a court document.)

Things got messy in 2006 after Zwirn informed Epstein about some accounting irregularities at the fund. According to Zwirn, the fund’s CFO had used investor money to buy a $3 million Gulfstream jet for Zwirn without his knowledge. At that point, Epstein tried to withdraw his money — which he claimed had grown from an $80 million initial investment to $140 million. Zwirn refused. Epstein’s lawyers said he enlisted Dubin’s help in trying to get the money back, but to no avail.

Many hedge funds, especially those that buy debt that can’t be sold quickly, have years-long lockups on their capital, and any request to withdraw money must be made in writing 60 to 90 days ahead of time. (Zwirn and Epstein bickered over whether he had made the proper notifications.)

And an $80 million investment is sizable, even by hedge-fund standards, says one billionaire hedge-fund manager. Indeed, Epstein’s firm “was a very large investor in the fund and one of the fund’s first investors,” lawyers for Epstein argued in the 2010 court pleading, part of Epstein’s long-running effort to get his money back.

But even that context might understate how important this investment was for Epstein at that time. In 2002, around the time Financial Trust began making what would eventually become an $80 million investment in Zwirn’s fund, it reported $88 million in total capital, according to a disclosure form obtained by Thomas Volscho, a sociology professor at the College of Staten Island who is working on a book about Epstein.

The accounting scandal led to the 2008 collapse of Zwirn’s hedge fund, amid a rush to the exits by spooked investors. Its assets were taken over by Fortress Investment Group, an industry giant, and Epstein’s case to reclaim his money went to arbitration in 2010. The results of the arbitration are unknown. A Fortress spokesman did not respond to a request for comment. Zwirn, who now runs a hedge fund called Arena Investors, declined to comment.

Dubin also declined to comment on the Zwirn fund, but he and his wife maintained a relationship with Epstein even after he was convicted in Florida on sex crimes and spent 13 months in prison.

“Epstein is both a personal friend of mine and a long-time investor in [Highbridge Capital],” Dubin wrote in an affidavit filed with the court February 3, 2010. He said that Zwirn had worried that Epstein’s redemption could cause a “run on the bank” on Zwirn’s fund.

A source familiar with Highbridge said Epstein stayed in Highbridge until 2013, the year that Dubin gave up his CEO role at the fund. (Dubin now runs another investment firm, called Dubin & Co.)

Following the recent indictment of Epstein on sex-trafficking charges, the Dubins renounced him. “The Dubins are horrified by the new allegations against Jeffrey Epstein,” they said in a statement. “Had they been aware of the vile and unspeakable conduct described in these new allegations, they would have cut off all ties and certainly never have allowed their children to be in his presence.”

The Zwirn fund was not the only hedge-fund investment of Epstein’s to go sideways — he lost a small fortune in a Bear Stearns fund focused on mortgage-backed securities that collapsed during the financial crisis.

The two men running that hedge fund, Ralph Cioffi and Matthew Tannin, were charged with securities fraud. Epstein, who had $57 million in the fund, was one of their largest investors. Regulatory filings show that Epstein’s firm had voting power over 10 percent of the equity in the fund.

In 2007, Epstein also tried to withdraw money from the Bear Sterns fund, again unsuccessfully. But by the time the Bear Stearns fund failed, Epstein was also in the midst of negotiating the lenient plea deal he ultimately made with federal prosecutors in Miami.

As part of those negotiations, Epstein provided prosecutors with “unspecified information,” according to the Miami Herald. That information was never identified, but the Herald found evidence that Epstein cooperated with the prosecution during the trial of the two Bear Stearns executives for securities fraud. In a surprise upset, however, both of the execs were acquitted of the charges.

Jan. 14, 2022: This article has been updated concerning details about Epstein’s investment with D.B. Zwirn Special Opportunities Fund.

Jeffrey Epstein’s Hedge-Fund Bets Gone Bad