It's getting harder and harder to ignore the batshit mystery that is [alleged] sex monster "financier" Jeffrey Epstein's invisible financial career. The allure of this enigma is so intense that it has lured two of our favorite hedge funder/detectives into its web.

According to a fun little piece from NYMag.com:

“I’m hearing about the parties, hearing about a guy who’s throwing money around,” says [Doug] Kass, president of Seabreeze Partners Management. While stories about young girls swarming Epstein’s waterfront mansion and the sex parties he hosted for the rich and powerful were the talk of the town, Kass was more focused on how this obscure person, rumored to be managing billions of dollars, had become so wealthy without much of a track record.

Kass was well-connected on Wall Street, where he’d worked for decades, so he began to ask around. “I went to my institutional brokers, to their trading desks and asked if they ever traded with him. I did it a few times until the date when he was arrested,” he recalls. “Not one institutional trading desk, primary or secondary, had ever traded with Epstein’s firm.”

But the hedge fund manager with the mind of Sherlock Holmes and the eyewear of Sally Jesse Raphael wasn't done there:

“How did he get the money?” Kass kept asking.

According to the NYMag piece, Kass and at least a few other hedgies have long been of the opinion that Epstein was running a boutique yet obvious Ponzi scheme, but how he kept the capital was a bit of a puzzler unless you went to the darkest possible hypothesis...

Given this puzzling set of data points, the hedge-fund managers we spoke to leaned toward the theory that Epstein was running a blackmail scheme under the cover of a hedge fund.

Well...yeah. 

But like any good Sherlock, Kass needs a Watson, and luckily there's another mystery -loving hedgie who has some time on his hands...

How such a scheme could hypothetically work has been laid out in detail in a thread on the anonymous Twitter feed of @quantian1. It’s worth reading in its entirety, but in summary it is a rough blueprint for how a devious aspiring hedge-fund manager could blackmail rich people into investing with him without raising too many flags.

Kass and former hedge-fund manager Whitney Tilson both emailed the thread around in investing circles and both quickly discovered that their colleagues found it quite convincing. “This actually sounds very plausible,” Tilson wrote in an email forwarding the thread to others.

We like the idea of Whitney Tilson throwing on a monocle to analyze a tweetstorm, but we're also sensitive to the secondhand stress he must have felt imagining the kind of management nightmare that would come from running a pimp/blackmail/Ponzi operation. It's a trigger, you guys.

That said, we're sure Whitney will bounce back, and we hope he will link up with Kass to solve more mysteries. Like how Steve Cohen can stop Ken Griffin from hurting him, if Neri Oxman is a love witch, and what happens to Tiger Cubs when the money goes away.

Real Hedge-Fund Managers Have Some Thoughts on What Epstein Was Actually Doing [NYMag]

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