Apollo Global Management is to place renewed focus on governance and reputational risk in the wake of Leon Black’s resignation as the firm’s chief executive, as Private Equity International examined yesterday.
Co-founder Marc Rowan will become chief executive, with Black moving to the role of chairman, in the wake of an investigation into the latter’s relationship with convicted sex offender Jeffrey Epstein.
PEI has combed through the investigation by law firm Dechert to find some interesting details you might have missed.
Black believed his payments to Epstein were tax-deductible
Black was under the impression that his payments to Epstein would be tax-deductible – or, in Black’s words, “sixty-cent dollars”. This was what Epstein had told Black, the law firm wrote.
The payments were not typically for specific services but for the “overall value” Black believed Epstein provided through his advice on trust and estate planning, tax, philanthropy and the operation of Black’s family office, Dechert noted.
The realisation that Epstein had “mischaracterized” his fees as being fully tax-deductible was one reason Black eventually severed ties with Epstein in October 2018, the report found.
Epstein resigned from Black’s foundation, but remained registered as a director due to error
In 1997, Black appointed Epstein as one of the first directors of the Black Family Foundation, formed to carry out its philanthropic endeavours.
Epstein resigned in mid-2007. However, due to an oversight, the IRS Form 990s filed for the Black Family Foundation during the period 2008-12 failed to reflect his resignation, Dechert said. Following discovery of the error in or around 2013, the Black Family Foundation issued a confirmation of his earlier resignation.
In 2008, Epstein pled guilty in Florida to counts of procuring a person under the age of 18 for prostitution and solicitation of prostitution, for which he received a 13-month prison sentence.
The Internal Revenue Service describes Form 990s, which must be filed annually, as its “primary tool for gathering information about tax-exempt organizations”.
Epstein created ‘toxic’ environment at Black family office – but got results
Leon felt Epstein was able to identify “significant issues” at the Black family office that other employees and advisors could not, Dechert wrote. This made it difficult to “wean” the family office off Epstein, despite Black’s intention to do so.
Epstein’s overly demanding management style created a “toxic and destructive work environment”, witnesses said. Epstein was “quick to criticize” other employees and “would seek to take credit for good ideas, regardless of his level of involvement”.
At the same time, Dechert concluded that he pushed employees to “achieve greater performance than they might have achieved on their own”. Black believed, in a view generally shared by witnesses, that Epstein provided advice that saved Black more than $1 billion and as much as $2 billion.
Yachts, aeroplanes and artwork
Epstein provided advice to the family office on “myriad esoteric issues”, such as managing Black’s artwork – including the contested ownership of a Picasso sculpture – and advising on issues relating to his yacht and airplane, Dechert concluded.
Family office employees noted that Epstein was particularly knowledgeable when it came to buying and selling aeroplanes, organising aeroplane entities and “the relatively complex and obscure regulations and requirements applicable to airplane usage”.