Court records show Jeffrey Epstein's Liquid Funding made the margin calls that broke America's tenth-largest mortgage lender in July 2007, was the only lender paid in full before it died, and was never once raised with him by the prosecutors he later cooperated with.
Liquid Funding's lawyers to the Delaware bankruptcy court, September 2007: the demand "before 9:00 a.m.," the amount, the five o'clock deadline, the default.
A Bermuda company built and chaired by Jeffrey Epstein made the cash demands that pushed American Home Mortgage into bankruptcy in the first week of August 2007, according to court filings reviewed by Narativ for Chapter 10 of The Greatest Heist, published Saturday. The company, Liquid Funding Ltd., was paid in full five days before the lender collapsed. No other lender was.
The timing is the story. On July 31, 2007, the day American Home told the market it was out of money, U.S. Attorney Alex Acosta met Epstein's lawyers in Miami and agreed to drop the federal sex-crimes case against him. The next morning Epstein's company collected. Six days later the lender was bankrupt, and nine days later the world's credit markets froze. Nine million American families lost their homes in what followed. Two years on, Epstein left jail early as a cooperating witness against Bear Stearns, and no prosecutor asked him about the company he had run.
American Home Mortgage held the loans of 197,000 families and employed 7,500 people in Melville, New York. Its lawyers gave the Delaware bankruptcy court a table of every margin call the company received in the thirty days before it failed. Eight of them came from one lender, more than from any other, and the first came nine days before anyone else's. The lawyers hid each lender behind a letter. Liquid Funding's own lawyers supplied the name six weeks later, in an objection that quotes the demand.
On Monday, July 30, 2007, before nine in the morning, Liquid Funding demanded $13,626,390 in cash by five o'clock that afternoon. At 9:40 a.m. Bear Stearns demanded another $3,372,508.64 on the same deadline. American Home could not sell a mortgage that week at any price, its chief executive Michael Strauss later told the court, and the deadline passed unpaid.
On Wednesday, August 1, Bear Stearns Bank in Dublin, which ran Liquid Funding day to day, declared the lender in default. American Home sold mortgages to EMC, Bear's servicing arm, and used the cash to pay Liquid Funding what it owed. On Friday the company fired 6,500 of its 7,500 employees. On Monday, August 6, it filed for bankruptcy. On Thursday, August 9, BNP Paribas froze three funds in Paris because nobody could price American mortgage bonds, the day most historians use as the start of the financial crisis.
Liquid Funding was no ordinary lender. Bear Stearns and Epstein set it up in Bermuda in 2000 with $100 million of capital and a rating that let it borrow up to $20 billion against that. By 2006 it owed $6.7 billion, borrowed overnight in the money markets, and used the cash to buy Bear's mortgage bonds and to lend to the companies writing the mortgages. Bear owned 40 percent. Epstein chaired it from November 2001 until March 19, 2007, when a clerk at the Appleby law firm in Hamilton recorded his resignation, and he left the board eleven days later. He kept his shares through a Delaware holding company. JPMorgan bought him out in March 2011.
Epstein signed Liquid Funding's lending lines to American Home in 2005 and 2006, the filings show. The company therefore sat on both sides of the lender: it bought the bonds made from American Home's loans and it held the right to call the cash that funded them.
The same month Epstein resigned, FBI agents in Palm Beach were interviewing teenage victims and a federal prosecutor was drafting his indictment.
The chapter also corrects a story that has stood for eighteen years. In April 2007 an investor pulled $57 million out of Ralph Cioffi's Bear Stearns hedge fund, the redemption that forced the fund to sell bonds into a dead market and started the run. Cioffi sold bonds to pay it, the ABX index of credit default swaps that Wall Street used as its daily price for mortgage paper fell, and every lender re-marked every loan against it and gained the right to demand cash. That is how one sale in Manhattan became a fax on Long Island. Page Six and most accounts since named Epstein as that investor. He was not. Cioffi's own defense filing names the investor's representative, Brant Behr of Concord Management of Tarrytown, New York, who met Cioffi on April 18, 2007. Epstein's own 2011 settlement with Bear lists his stake in the fund at $20,155,344, and he stayed in and lost on it. Bear, by then owned by JPMorgan, paid his companies $9.2 million in August 2011 to settle.
Marcus Klug, who sat on Liquid Funding's board for four years for an Austrian insurer, told the Miami Herald in 2019 that the board never met and that he never met Epstein. "I never met him," Klug said.
When Bear Stearns itself failed in March 2008, Liquid Funding's noteholders were paid at full value, the last of them on April 7, 2008, and the company was wound down in Bermuda without a bankruptcy. On March 12, 2008, two days before the Federal Reserve stepped in to rescue Bear, Bear moved Liquid Funding's loan book onto its own London arm, Bear Stearns International. Who paid is not in the public record.
Epstein left jail in July 2009, six months early. Page Six reported the next morning that he was cooperating with federal prosecutors against Cioffi and his partner Matthew Tannin. A Brooklyn jury acquitted both on November 10, 2009. No one asked Epstein about Liquid Funding, and no Bear Stearns executive was charged over the firm's collapse.
Concord Management, the firm that pulled the $57 million, managed money for one client. He was Russian. That is Chapter 11.
The full chapter, with the 22-page document pack, is available to paid subscribers. All 23 chapters of The Greatest Heist are at thegreatestheist.com.
