The complaint for this class action alleges that a Ponzi scheme built around Towers Financial Corporation (TFC) took millions of dollars from over 200,000 investors between the late 1980s and the mid-1990s. One of the parties to this scheme, Steven Hoffenberg, was convicted and sentenced to twenty years in prison, plus fined and required to apy over $450 million in restitution. This case seeks penalties for The Financial Trust Company (TFTC), Jeffrey E. Epstein, and other entities involved in the scheme.
The class for this action is all investors, noteholders, and bondholders of TFC who, directly or indirectly, bought TFC bonds or promissory notes sold by TFC between 1987 and 1993.
The complaint alleges that Hoffenberg hired Epstein in 1987 as a full-time consultant to work with him at TFC, which provided financial services and assistance to clients, primarily via buying and collecting on debts. It also owned a number of subsidiaries which were engaged in debt collection, issuing bonds, and other businesses.
Later, the company bought two Illinois insurance companies, then issued bonds for them. They used the bonds as collateral in securities brokerage accounts when they attempted to take over Pan American Airways, Inc. The scheme that ultimately failed, in part due to the Pan Am crash over Lockerbie, Scotland, causing the two insurance companies “devastating losses,” the complaint claims. The complaint claims that Hoffenberg and Epstein diverted funds to hide the extent of the losses and also for their own use.
A bad investment in Emery Air Freight then caused further losses. The complaint claims that Epstein then manipulated the price of Emery’s stock to minimize losses, and used insider information to profit for himself. Hoffenberg and Epstein then concealed their actions, and the companies’ losses by other deceptive means.
When TFC became insolvent, the two sold promissory notes, falsely claiming that they had collateral for the notes via receivables owned by TFC. Using falsified financial statements, the complaint says, they were able to sell about $272 million in these notes. The money was used for TFC operating expenses and to profit Hoffenberg and Epstein.
Later, Epstein sold TFC bonds to raise even more money, which was similarly misused, the complaint claims. To pay off the bonds, Epstein used a scheme involving cash that should have been used to buy receivables. To cover up the fraud, cash was moved from one account to another. The company sold roughly $210 million in bonds.
In February 1993, the Securities and Exchange Commission (SEC) filed suit against Hoffenberg and TFC for its fraudulent securities activities. The following month, TFC filed for bankruptcy.
Hoffenberg received a reduced sentence in exchange for cooperation, but the complaint says that only in May 2016 did he release details about Epstein’s involvement in the frauds. Because of this, Epstein was never indicted for his actions. The complaint claims that he and certain companies he formed to assist in the schemes are guilty of fraud and conversion, among other things.