Preface: This was written in collaboration with Gemini.

As previously mentioned, Epstein technically hadn't broken any laws or been caught breaking any law up until this point with his crazy complicated web of legal and financial maze to hide money for billionaires to avoid taxes. On top of that, he was able to have information on which offshore accounts funded which politicians, and had access to all the sensitive financial information that he could potentially blackmail people with. 

One of these people was Steven Hoffenberg with Towers Financial. If Epstein’s time at Bear Stearns was his "undergrad," the Towers Financial era was Epstein’s "Master’s Degree in Fraud." This is the period where he transitioned from a clever trader to a full-blown financial predator. In the mid-1980s, Steven Hoffenberg ran Towers Financial Corp, which was ostensibly a debt-collection agency. They bought "uncollectible" medical debts (money patients owed to hospitals) for pennies on the dollar and tried to collect them. Back in 2020, I had $15k debt from being hospitalized for my mental illness, and I looked into a service that helped me negotiate the bill down to $2k, so I’m familiar with hospitals having huge amounts of debts from patients, since I’m not sure if legally they are allowed to turn a patient away because of their financial and insurance status. 

So since hospitals often have these millions in "uncollected" bills . Towers would buy these bills at a discount—say, buying $100 worth of debt for $30. If they collected $40, they made a $10 profit. The debt they were buying was "garbage." It was uncollectible. However, even though the millions of dollars worth of this “junk debt” was bought for pennies, on the account books, they didn’t list the debt at  the pennies they paid, they’d list it at the millions of dollars of the debt at its face value. They were spending more on lawyers and phone calls than they were actually bringing in. The business was bleeding cash from day one. Since the debt collection wasn't working, they needed a new way to get cash. Epstein helped Hoffenberg create Promissory Notes and Bonds. 

They promised investors interest rates of 12% to 15%—which was massive at the time. To a retired person in Florida or a small-town investor, this looked like a "safe" investment backed by medical receivables. They thought, "People always have to pay their hospital bills, right?" Because the business was losing money, they couldn't pay that 12% interest using profits. So, they used the $100,000 from Investor B to pay the interest to Investor A. This is the classic definition of a Ponzi Scheme.

The victims of the Towers Financial scandal weren't the "Wall Street sharks" or billionaire institutional investors. Instead, Epstein and Hoffenberg specifically targeted people who had significant savings but lacked the sophisticated legal teams to spot a fraud. These were middle-class and upper-middle-class people who had worked hard for 40 years. They were looking for a safe place to park their money that paid better than a bank's 5% interest. In one of the most cynical moves of the era, the fraud managed to pull in money from religious organizations and small charities. Religious institutions often have endowment funds that need to be managed conservatively. Hoffenberg and Epstein used the "Medical Debt" angle to make the investment seem socially responsible. On top of that, while giants like Goldman Sachs stayed away, several "second-tier" mutual fund managers bought Towers bonds to boost their rankings. These managers were desperate to show higher returns than their competitors. They took a gamble on Towers' high interest rates and lost their clients' money. 

Even doctors and lawyers fell for the trap. Epstein’s office in the Villard Houses in Manhattan—a gold-leafed mansion—was designed specifically to impress. If a successful doctor or lawyer visited, they weren't met by a salesman in a cheap suit. They were met by Epstein, who talked about physics and philosophy in a room that looked like it belonged to a European prince. These professionals felt they were part of an "exclusive club." They believed they were getting access to a "special" high-yield product that the general public didn't know about. This scheme was effective, because the early investors were getting paid. Epstein and Hoffenberg were using the money they got from later victims, to pay the earlier victims, so that return seemed “real”. That is, of course, until the scheme fell apart. 

Epstein knew exactly how long this illusion could last. By the time the SEC realized the "Face Value" on the books didn't match the "Cash Value" in the bank, Epstein had already collected his millions in consulting fees and resigned. He left Hoffenberg to explain to the government why $475 million in "assets" had suddenly turned into $0. 

Reading until now, you might be asking, why did Hoffenberg start this business when it was clearly going to be a failure? That’s because initially he wanted to swindle this money and use the cash flowing through Towers to launch hostile takeovers of massive, legitimate companies. In the late 80s, Hoffenberg and Epstein actually tried to buy Pan Am Airlines and Emery Air Freight. It was unsuccessful, of course. However, if they could successfully "raid" a giant company, they could strip its assets, take its legitimate profits, and use that wealth to cover up the holes in the Towers Ponzi scheme. They were essentially trying to "steal their way into legitimacy." 

For their purpose, a failed business model is actually better for a Ponzi scheme than a successful one. If a business is simple and makes a steady 5% profit, it’s easy for auditors to check. But "Medical Debt Collection" is messy, complicated, and involves thousands of tiny transactions. It’s the perfect place to hide "accounting noise." Epstein knew that if you make the math complicated enough, the regulators at the SEC will get bored or confused and look the other way.

By the late 1980s, the "outflow" (paying interest to old investors) was becoming larger than the "inflow" (new investors). Hoffenberg and Epstein tried to buy Pan Am and Emery Air Freight to get their hands on massive corporate cash reserves and failed.  The bids failed because Wall Street banks looked at Towers Financial’s books and realized the numbers didn't make sense. They refused to provide the financing. Without a "Big Score" to save them, the scheme began to starve. By 1991-1992, the SEC (Securities and Exchange Commission) started receiving complaints from retirees who weren't getting their monthly checks. In February 1993, the SEC officially sued Towers Financial for fraud. The company collapsed instantly, and Hoffenberg was eventually arrested. This is the most controversial part of the story. While Hoffenberg went to prison for 18 years(he was sentenced 20 years, but served 18 years). Epstein was never even indicted. Epstein was smart enough to see the iceberg years before the ship hit it. As soon as he realized the Pan Am raid was failing and the SEC was sniffing around, he began to distance himself. 

When investigators started looking at Towers, Epstein argued that he was just a "contracted consultant," not an officer of the company. He claimed he was just "providing mathematical models" and had no idea Hoffenberg was using them for fraud. Because he didn't sign the final fraudulent SEC filings (Hoffenberg did), he had "plausible deniability." Hoffenberg later claimed that Epstein "stole" millions from the scheme before leaving. Epstein allegedly took a $2 million loan from Towers that he never repaid, along with millions in "consulting fees." Hoffenberg believed Epstein used some of that money and the "intelligence" (dirt) he had gathered on powerful people to ensure the Department of Justice didn't come after him. Whether it was high-priced lawyers or "leverage," Epstein managed to stay off the indictment list. 

Hoffenberg became the "Fall Guy." He was the loud, public face of the company. He received a 18-year prison sentence. Epstein, on the other hand, became the "Ghost." He took the cash, moved to a mansion in New York (provided by Wexner), and rebranded himself as a "Private Billionaire Money Manager." By 1988, he had officially resigned from his primary consulting role at Towers. Crucially, he had already secured his "Next Whale"—Leslie Wexner. He didn't need Towers anymore; he had found a much bigger, cleaner source of wealth. By the time the 20,000 victims of Towers Financial were crying in court in 1995, Epstein was already flying around the world on private jets, completely untouched by the scandal.  ☀️