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Virgin Islands Again Questions Epstein Estate Transactions

A top law enforcement official in the U.S. Virgin Islands contends a small bank set up there by the convicted sex offender Jeffrey Epstein engaged in a series of unexplained transactions involving tens of millions of dollars before and after his death.

The attorney general for the Virgin Islands, Denise N. George, said in a court filing last week that representatives for Mr. Epstein’s estate “have not explained these irregularities” over the transactions. Ms. George offered that as one reason she was opposed to lifting a criminal-activity lien she placed on much of the financier’s $600 million estate because of the federal sex-trafficking allegations against him before he died.

The transactions — totaling $39 million — involved Southern Country International, which Mr. Epstein established in 2014. The bank was an international banking entity permitted to handle money only from nondomestic customers, and Ms. George said some of the transactions appeared to violate the bank’s charter.

Andrew Tomback, one of a team of lawyers working for the estate, did not respond to a request for comment. But in an email included as an exhibit by Ms. George’s office, Mr. Tomback said the issues raised about the bank transactions were “based upon both incomplete information and faulty assumptions, and thus are incorrect.”

In the filing, made Thursday, Ms. George said her office could find no record of a $15.5 million loan the estate said Southern Country had made to Mr. Epstein to pay for his criminal defense. The estate had cited the loan as the reason for some $12 million in net transfers to the bank in December.

Her office also said there was an unexplained transfer of $24 million from the bank to Southern Trust, a company that Mr. Epstein founded and said was engaged in DNA research and analysis.

In April, the estate said Southern Country had repaid a loan late last year to a company associated with Mr. Epstein’s estate, but that filing did not disclose the name of the company or the amount of the payment.

“It is perplexing that one set of transactions is confirmed by relevant records, but that the questioned $15.5 million loan is not,” lawyers for Ms. George’s office wrote in a letter included in the exhibits.

In the same letter, the lawyers also noted that accounts controlled by Darren Indyke and Richard Kahn, the coexecutors of Mr. Epstein’s estate, had deposited about $9 million into the bank in November. Both men were longtime business advisers to Mr. Epstein.

Ms. George’s office imposed the lien after filing a civil-forfeiture lawsuit in January against Mr. Epstein’s estate. Her office has previously criticized the estate for the lack of transparency about its finances. Last month, however, she dropped her objections to the estate’s plan to establish a compensation fund for Mr. Epstein’s accusers.

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Attorney General Sees Too Much Secrecy in Epstein Estate

Some of the same furtive techniques that Jeffrey Epstein employed in life are showing up in the litigation over dividing up the wealth he left behind when he died.

There are mysterious companies, lingering nondisclosure agreements and contractual clauses that some lawyers fear could protect anyone who took part in Mr. Epstein’s wrongdoing.

The estate’s lawyers say they have a plan to fairly distribute money to dozens of women who have accused Mr. Epstein of sexually abusing them as teenagers. But the attorney general of the U.S. Virgin Islands, where Mr. Epstein built a complex web of corporate entities, says Mr. Epstein’s money is still buying silence.

And in the middle is a fortune estimated at well over a half-billion dollars.

“We have a lot of concerns with respect to the transparency of the estate and its finances and the accounting of the estate,” the attorney general, Denise N. George, said in an interview last month.

Ms. George filed a civil forfeiture lawsuit against the estate in January, roughly five months after Mr. Epstein committed suicide while being held in federal custody in Manhattan after his arrest on sex trafficking charges. She said she sued to protect the interests of Mr. Epstein’s accusers and recoup some of the money that Mr. Epstein made during his two decades in the Virgin Islands.

The estate has insisted it is acting in the best interest of Mr. Epstein’s accusers. But it has also provided an incomplete accounting of his finances, according to records reviewed by The New York Times.

At least one business — IGO Company L.L.C., a corporate entity established by Mr. Epstein in December 2006 — was left out of the estate’s court filings. The company, which lists Mr. Epstein as its sole owner, was still active and in good standing as of Monday, according to a U.S. Virgin Islands government site.

Lawyers for the estate did not respond to a request for comment. The co-executors of the estate are Darren Indyke, a lawyer, and Richard Kahn, an accountant. Both men worked closely with Mr. Epstein for many years and were listed as officers for some of his businesses.

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Credit…Gabriella N. Baez for The New York Times
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Credit…Gabriella N. Baez for The New York Times

Much of the fighting between the estate and Ms. George’s office involves a plan to establish a victims’ compensation fund, which would allow accusers to receive payments from the estate without a potentially costly court case. The estate’s representatives say the proposed fund — which would be set up with the help of the specialist who ran the compensation program for victims of the Sept. 11, 2001, terrorist attacks — would allow accusers to receive money quickly and privately.

But Ms. George said the estate wanted to attach too many strings to those payments.

On April 7, Ms. George’s office told the probate court handling Mr. Epstein’s will that she and the estate had reached an impasse over the estate’s demand that victims who take part in the fund agree to a broad release that would bar them from suing any party “whether they participated negligently or intentionally in wrongdoing themselves.”

To Ms. George, the estate’s conduct was a reminder of the legal maneuvers that surrounded Mr. Epstein’s guilty plea 12 years ago to soliciting prostitution from a minor in Florida. In 2007, federal prosecutors agreed to a wide-ranging nonprosecution agreement that covered Mr. Epstein’s named and unnamed co-conspirators. (A federal appeals court this month rejected a legal challenge brought by one of his victims to the agreement.)

Ms. George’s office said the estate now wanted to “secure similarly broad protection for Epstein’s compatriots-in-crime from their victims.”

Lawyers for the estate reject that argument. In their response, they said Ms. George had mischaracterized the situation and said two lawyers representing several accusers were ready to move forward with the fund. The estate’s lawyers contend the liability release is “modeled on releases employed in multiple voluntary compensation programs.” Its intent, they say, is to make sure a victim does not double-dip by getting compensation from the fund and then suing an individual affiliated with the estate who might be entitled to be legally reimbursed by the estate.

The particulars of how Mr. Epstein made his millions have long been a mystery, in particular after his 2008 conviction. Financial filings the estate has made so far have raised as many questions as they have answered.

In January, the estate filed a required report that, along with routine transactions to pay bills and other expenses, showed the estate had transferred more than $12 million to Southern Country International, a little-known private bank Mr. Epstein had established in 2014.

The magistrate judge overseeing the probate of the will, Carolyn Hermon-Purcell, questioned the estate’s lawyers about the transfers and asked for a fuller accounting. The estate has not yet filed an explanation; the territory’s courts have granted blanket extensions because of the coronavirus outbreak.

But according to four people familiar with the matter, the estate’s $12 million payment to the bank involved preparations for Mr. Epstein’s criminal case. Mr. Epstein used the bank to pay a $12 million retainer fee to the criminal defense attorney Reid Weingarten, according to the people, who spoke on the condition of anonymity because the matter has not been made public.

In mid-December, Mr. Weingarten’s law firm, Steptoe & Johnson, returned the unused portion of that retainer — roughly $11 million, according to the estate’s first quarterly filing. The next day the estate sent that money to the bank.

What happened to the money in Southern Country after that is not clear; the estate reported the bank had a year-end balance of just $500,000.

Southern Country is an unusual kind of bank: an international banking entity, which is limited to conducting business for customers overseas. Mr. Epstein was approved for his license in 2014, but the bank had not commenced doing business as of April 2018, according to a letter the bank sent to its regulator.

According to two people briefed on the matter, Mr. Epstein began to move money to Southern Country last spring after Deutsche Bank, his longtime bank, decided to sever all ties with him in response to a series of stories about Mr. Epstein by The Miami Herald.

Ms. George’s office is small compared with her mainland counterparts, and she has bulked up its resources by hiring a forensic accountant and outside lawyers with Motley Rice, a large plaintiffs’ litigation firm. But it has been active.

In recent weeks, Ms. George’s office sent a subpoena seeking bank records for Mr. Epstein’s businesses in the Virgin Islands, according to two people briefed on the matter. She also subpoenaed some records from the Virgin Islands Economic Development Authority, the government agency that granted lucrative tax benefits to Mr. Epstein’s companies, said Tracy Bhola, an authority lawyer.

According to one person familiar with the matter, Ms. George’s office has also made a demand for information from Mr. Epstein’s former girlfriend and business associate Ghislaine Maxwell, who recently filed a lawsuit against the estate asking it to cover her legal fees for any claims brought against her by his accusers.

Ms. George’s office has also reached out to some of Mr. Epstein’s former employees in the Virgin Islands. She said her office was trying to navigate around nondisclosure agreements that Mr. Epstein had signed with many of his them. She said the estate should commit to releasing the employees from those agreements.

“Just the existence of an N.D.A. casts a shadow or chilling effect on anyone speaking freely,” she said.

While many of Mr. Epstein’s companies — including IGO Company L.L.C. — continue to exist on paper, there is little left of their physical operations.

Those include Southern Trust, once Mr. Epstein’s main business venture, which generated $300 million in profits in just six years. Mr. Epstein had said it was a DNA research firm, although Ms. George said her office had found no evidence it engaged in that kind of work. Southern Trust alone is valued at $234 million, and the estate has yet to disclose where most of its assets are being held.

For months after his death, employees still showed up at the company’s office in the American Yacht Harbor club on St. Thomas. That stopped in late February, and by the start of last month the office doors were secured with a padlock.

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Jeffrey Epstein’s Mystery Bank Came Alive After His Death

In the years after Jeffrey Epstein registered as a sex offender, he closed his money management firm and started a business to develop algorithms and mine DNA and financial databases.

Then he set up a bank.

In a banking license application reviewed by The New York Times, Mr. Epstein described himself as one of the investing world’s “pioneers” and said he wanted to pursue the “dynamic discipline of international banking.”

Officials in the Virgin Islands, the United States territory where Mr. Epstein set up most of his businesses, approved a license for him in 2014 to run one of the territory’s first international banking entities, a specialized bank that can do business only with offshore clients. The approval was unusual, given Mr. Epstein’s status as a convicted sex offender.

The bank, Southern Country International, renewed its license for each of the next five years, but it’s unclear whether it conducted any business or had any customers. Mr. Epstein, who died while in federal custody last summer following his arrest on sex trafficking charges, does not appear to have done any marketing for the bank or hired much staff.

The bank was created under a territorial law that lacked many of the oversight requirements banks are usually subject to, and its regulatory file is largely empty. A lawyer for Mr. Epstein told officials in the Virgin Islands in 2018 that Southern Country had not commenced operations. And regulators in the territory said they did not exercise oversight of the bank because it did not appear to be doing any business.

And yet, after Mr. Epstein’s death, his estate transferred more than $12 million to Southern Country, according to court documents.

On Tuesday, at a court hearing in the Virgin Islands on motions involving Mr. Epstein’s estate, a magistrate judge, Carolyn Hermon-Purcell, questioned the estate’s lawyers about the transfers to Southern Country, saying the disclosure was not satisfactory. The judge said she did not know why Southern Country would be receiving checks from the estate. “There’s no explanation for it,” she said.

A lawyer for the estate responded that some of the payment had been made in error, but the judge was not satisfied with his response and asked him to follow up with a fuller accounting.

The checks — listed in the estate’s transactions for routine payments such as cable-TV bills and phone service for Mr. Epstein’s many properties — stand out. The list of payments were filed with Judge Hermon-Purcell, who is overseeing his $635 million estate, including the possible establishment of a compensation fund for his victims.

That Mr. Epstein was able to get a banking license in the first place is unusual.

His 2008 conviction in Florida on a charge of soliciting prostitution from an underage girl required him to register as a sex offender. Most bank operators doing business in the United States are required to undergo rigorous background checks, and most banking institutions are subject to oversight by the arm of the Treasury that investigates suspicious financial transactions. Neither was required by the Virgin Islands when Mr. Epstein submitted the application in 2013.

The territory had passed its international banking entity law a year earlier, in hopes of enticing investment from overseas. It modeled its law on that of Puerto Rico, where international banking entities have existed for three decades.

Such organizations are attractive to offshore investors because the banks are able to offer more favorable tax treatment than the investors’ own countries can. In return, the territories expect residents to manage the banks, even though they cannot use the banks’ services.

These specialized banks have drawn scrutiny because of their potential for abuse, including money laundering. The Federal Reserve Bank of New York describes international bank entities in the Virgin Islands and Puerto Rico as “high-risk” institutions. Last year, it temporarily suspended applications for them to obtain financial services from the Fed until it can issue stricter rules for them.

Mr. Epstein was carefully evasive in answering a question on the application that was meant to reveal information about an applicant’s criminal record. His response mentioned his guilty plea to state charges in Florida, but it played down other elements of the case.

“For a relatively brief period, in what has otherwise been a productive and accomplished life,” the application said, Mr. Epstein “did face some legal difficulties relating to matters alleged to have taken place seven years ago.” The application noted that a federal investigation had been “discontinued.”

But that answer was misleading, said Richard Scott Carnell, a former assistant secretary for financial institutions at the Treasury Department. The application did not reflect that Mr. Epstein’s plea deal included an agreement with federal prosecutors, who promised not to bring their own charges. The agreement acknowledged that federal authorities had compiled a long list of other possible underage victims.

“Bank regulators expect applicants to be candid,” said Mr. Carnell, now an associate professor at Fordham Law School. “You’d never suspect there was a nonprosecution agreement. As a bank regulator, I’d be outraged to learn that an applicant had misled me in that way.”

In his application, Mr. Epstein listed as references James E. Staley, the chief executive of Barclays who had cultivated a relationship with Mr. Epstein while at JPMorgan Chase. Another reference was Andrew Farkas, a New York real estate tycoon and co-owner of a marina and office complex on St. Thomas with Mr. Epstein. Spokesmen for both men said they had been unaware they were listed as references, along with JPMorgan and FirstBank, a Puerto Rico-based lender with branches in the Virgin Islands that long held some of Mr. Epstein’s accounts.

The application was submitted by Erika A. Kellerhals, a longtime tax lawyer for Mr. Epstein in the Virgin Islands. She did not return requests for comment.

Southern Country had not commenced doing business as of April 2018, according to correspondence between Ms. Kellerhals and the territory’s banking department. Regulators said the bank was a “self-reporting” company and did not require additional regulatory oversight if it was not operational.

But court documents show Southern Country was active for some of last year.

Records filed by the estate on Friday indicate that Southern Country had $693,157 in assets when Mr. Epstein died on Aug. 10. Then, in mid-December, the estate transferred $15.5 million to Southern Country in two checks. Southern Country sent back $2.6 million, leaving the total it received at $12.9 million. The documents filed by the estate do not give a reason for the transfers.

It’s also not clear what Southern Country did with that money. Two weeks later, the year-end value of Southern Country’s assets was $499,759, according to the estate’s filings.

The estate has told officials in the Virgin Islands that it does not intend to renew the bank’s license again.

Around the time the territory granted Mr. Epstein his banking license, it also gave a lucrative tax break to Southern Trust, a company Mr. Epstein said was developing sophisticated algorithms to mine DNA and financial databases. The tax break came from the territory’s Economic Development Authority, which was approved by the territory’s former governor, John de Jongh Jr., while his wife, Cecile, worked for Mr. Epstein. Neither Ms. de Jongh nor her husband returned messages seeking comment.

The tax break, granted in 2013, was a boon for Mr. Epstein. Southern Trust generated about $300 million in profit in six years, and he paid an effective tax rate of about 3.9 percent. The source of Southern Trust’s revenue is not clear; the bare-bones corporate filings made by the company in the Virgin Islands do not list any clients.

Although the Virgin Islands was long a place where Mr. Epstein got his way, it has lately cast itself as one of his victims.

In a lawsuit last month, the attorney general of the Virgin Islands, Denise N. George, said Mr. Epstein had sullied the territory’s reputation with his conduct. She sued Mr. Epstein’s estate, seeking to seize his private islands and dissolve what she said were shell companies acting as fronts for his sex-trafficking enterprise.

The suit seeks to intervene in the administration of Mr. Epstein’s will to safeguard assets for dozens of his victims, claiming the coexecutors may have a conflict of interest because they were officers in many of Mr. Epstein’s companies, including Southern Country and Southern Trust. The coexecutors, Darren Indyke and Richard Kahn, did not return requests for comment.

Judge Hermon-Purcell, the magistrate judge overseeing the administration of Mr. Epstein’s will in the Virgin Islands, heard arguments on the attorney general’s request at the hearing on Tuesday. The judge said she would issue a ruling at a later date.

Freeman Rogers contributed reporting.