Schemes and scams: Jeffrey Epstein was hit with a class action lawsuit for running an alleged Ponzi scheme

Jeffrey Epstein is being accused of running a $500 million Ponzi scheme for decades in a class action lawsuit that was filed in US District Court for the Southern District of New York.

He was able to keep the scheme running for as long as he did by adopting a few highly illegal practices according to the complaint, including the execution of fake stock buys to manipulate the market and trading on insider information.

Then, when the money ran out, Epstein came up with a new plan according to the complaint.

In 1988, Epstein began pushing 'promissory notes ... that resulted in the sale of approximately $272 million throughout the United States.'

The success of that plan also hinged upon some illegal practices according to the complaint.

'Epstein fraudulently induced investors to purchase the [Towers Financial Corporation] Promissory Notes by assisting in the preparation and the distribution of financial statements which used falsified income and asset figures to deceitfully conceal TFC’s true financial condition,' states the complaint.

'The falsified income and asset figures were a key component of continuing Defendant Epstein’s Ponzi scheme.'

Claims: Epstein also allegedly executed fake stock buys to manipulate the market and traded on insider information

Marvin Gerber and Kalma Koenig filed the suit on behalf of themselves and any other 'noteholders and bondholders of Towers Financial Corporation, claiming that some lost millions of dollars while Epstein enriched himself and supported his own lavish lifestyle.

The lawsuit claims that Epstein's scheme began shortly after he started working at Towers in the mid-1980s with his then-friend Steven Hoffenberg.

Hoffenberg was sentenced to 20 years in prison back in 1997 for his role in the same same Ponzi scheme that is described in the complaint against Epstein.

He is also named as a non-party affiant in the lawsuit.

The promissory notes sold by Epstein 'were used to pay TFC’s operating expenses, including personal expenses of the conspirators, and to pay interest on the TFC Promissory Notes which were not properly collateralized,' according to the complaint.

Two years into that scam, Epstein employed another scam states the class action suit, which was just as profitable for the convicted pedophile.

'Between July 1990 and May 1992, TFC sold approximately $210million dollars in TFC Bonds. Like the TFC Promissory Notes, the financial statements provided to potential investors used falsified income and asset figures to conceal TFC’s true financial condition,' state the court papers, submitted in August of last year.

The complaint also details Epstein's disastrous attempts to take over two companies.

'Hoffenberg and Epstein used ... bonds as collateral in securities brokerage accounts, controlled by Epstein, in a failed take-over attempt of Pan American Airways, Inc,' reads the court filing.

'When the take-over failed, largely due to the bombing of Pan Am Flight 103 over Lockerbie, Scotland, United Fire and Associated suffered devastating trading losses, resulting in attendant losses for investors in TFC.'

Those loses were further compounded by the duo's next business move.

'Between December 1987 and June 1998, Hoffenberg and Epstein again used Associated and United Fire bonds as collateral in securities brokerage accounts, controlled by Epstein, to purchase and sell stock and options in a number of high risk investments, including one in Emery Air Freight,' according to the lawsuit.

'Similar to the situation with Pan Am, TFC’s attempted take-over of Emery was a dismal failure, resulting in massive trading losses to TFC.'

As was the case both before and after this setback, Epstein allegedly had a quick and illegal fix.

'Epstein manipulated the price of Emery stock to minimize the losses when the share price began to fall. In order to do so, Epstein opened and maintained a number of brokerage accounts to execute false trades in order to artificially inflate the price of Emery stock – while the company was in reality useless,' states the filing.

'Because Epstein did not have a license to trade, Epstein traded, purchased and sold stocks, bonds and other securities by what he referred to as “making the orders” through licensed brokers.'

This all came crashing down however in 1993, when Towers Financial was forced to file for bankruptcy, and a year later Hoffenberg was indicted in Illinois and later New York.

'In the course of the trial, Prosecutors in this District offered Hoffenberg a reduced sentence in exchange for information about his co-conspirators in the TFC Ponzi Scheme – namely Defendant Epstein’s role,' reads the court filing.

'However, Hoffenberg did not disclose any details about Defendant Epstein’s involvement, let alone orchestration, of the fraudulent scheme. It was only in May 2016 that Hoffenberg provided the first insight to the public and authorities regarding Defendant Epstein’s role.'

Hoffenberg sued Epstein as well in 2016, shortly after he was released from prison.

He alleged that that Ponzi scheme was twice as big, valuing the operation at $1 billion .

Epstein not only avoided charges, he was also able to keep the profits he ahd illegally obtained according to the suit.

'As a result of Hoffenberg’s refusal to implicate Defendant Epstein, Epstein was never indicted for his role in the TFC Ponzi Scheme. Epstein was never charged with any crime in connection with the TFC Ponzi Scheme,' reads the complaint.

'Rather, Epstein has been permitted to use the ill-gotten gains and misappropriated investor funds from his role in the TFC Ponzi Scheme to start and grow Defendant TFTC.'

In determining the number of victims and their losses, the plaintiffs turned to the filings submitted during Hoffenberg's trial.

The complaint estimates that 'the victims of the TFC Ponzi Scheme include over 200,000 individuals, who are directly or indirectly the Noteholders and Bondholders of TFC, and are entitled to $475,157,340, plus interest, which now totals approximately one billion dollars.'

Those individuals will now have to file suit against the estate of Epstein, joining a long list of victims seeking restitution for the pedophile's alleged wrongdoings.