by Pam Martens and Russ Martens, Wall St On Parade:

According to a database created by The International Consortium of Investigative Journalists containing files leaked from the law firm Appleby, Jeffrey Epstein, who is under indictment as a sex trafficker and assaulter of underage girls, was the Chairman of Liquid Funding Ltd. from November 9, 2001 to at least March 19, 2007. The offshore business had been incorporated in Bermuda on October 19, 2000 and according to the Fitch ratings firm, it had $6.7 billion in outstanding liabilities in 2006.

In a regulatory filing with the Securities and Exchange Commission in February 2003, Bear Stearns, the Wall Street investment bank that Epstein had resigned from under murky circumstances in 1981, confirmed that it was a 40 percent owner of Liquid Funding Ltd., writing as follows:

“At November 30, 2002, the Company had an approximate 40% equity interest in Liquid Funding, Ltd. (‘LFL’), a AAA-rated special purpose vehicle established to participate in the repurchase agreement and total return swap markets. A subsidiary of the Company acts as investment manager…”

The subsidiary that acted as investment manager for Liquid Funding Ltd. was Bear Stearns Bank Plc in Dublin, Ireland, which functioned outside of U.S. regulatory authority and was a wholly owned subsidiary of Bear Stearns Ireland Limited, which was wholly owned by the U.S.-regulated Bear Stearns Companies Inc.. The U.S.-based Bear Stearns was one of the myriad Wall Street banks that imploded during the financial crisis of 2008 and received both publicly-announced and secret bailouts from the Federal Reserve, the central bank of the United States, via its Wall Street compromised regional bank, the Federal Reserve Bank of New York.

Just who it was that owned the remaining 60 percent of Liquid Funding Ltd. is unknown at this time, but if the off-balance sheet structure follows the typical pattern, a number of those listed in the leaked documents as serving as a director or officer, including Epstein, are likely to have invested funds.

According to an October 24, 2006 announcement from the ratings agency, Fitch, Liquid Funding Ltd. was a Structured Investment Vehicle (SIV) — the same structure that played a major role in blowing up another major Wall Street bank, Citigroup, during the financial tsunami that cratered Wall Street in 2008. (See Law Firm that Silenced Harvey Weinstein Accusers also Involved in SIVs that Tanked Citigroup.)

According to Fitch, Liquid Funding Ltd. could issue liabilities up to $20 billion, made up of commercial paper, guaranteed investment contracts, medium term notes, and repurchase agreements. Both Fitch and Moody’s gave the medium-term notes to be issued by Liquid Funding a AAA-rating as well as gave it a AAA-rating as a counterparty. And, notably, both ratings agencies gave its commercial paper a Tier 1 rating, meaning that it could now end up in money market funds purchased by average Americans seeking a low-risk, liquid investment. (Until 2008, it was rare for money market funds to “break a buck,” meaning give back less than the original principal invested.)

While the ratings agencies acknowledged that they understood the entity could issue up to $20 billion in various instruments, Fitch reported in 2006 that “Liquid Funding is capitalized with $37 million in drawn equity commitments and $63 million in undrawn equity commitments….” We have found nothing, thus far, to explain how $100 millionin equity could support $20 billion in liabilities (other than possibly the fact that Deutsche Bank is still alive). It can’t be that Bear Stearns was guaranteeing the liabilities because Bear stated in a regulatory filing that “The Company’s maximum exposure to loss as a result of its investment in this entity is approximately $5.0 million.”

As a result of those Tier 1 ratings on Liquid Funding’s commercial paper, it ended up in some very big name money market funds. Two of JPMorgan’s money market funds held a total of $100 million; two Dreyfus money markets held at least $139 million; and a Frank Russell money market fund held $125 million. Those amounts are very likely the tip of the iceberg that ended up in money market funds.

The amount of toxic debris that had parked itself in supposedly safe money market funds in 2008 led to unprecedented action by the U.S. Treasury, which had to step in with a guarantee plan after a run commenced when it was learned that the bankrupt Lehman Brothers had sold its instruments to money market funds.

And that was just the beginning of bailing out the unprecedented greed and corruption that turned the Wall Street gambling casino into a ward of the U.S. taxpayer. If you were a hedge fund for billionaires or a foreign bank and the insolvent U.S. insurance company, AIG, owed you money because you failed to do your due-diligence in the selection of a derivatives counterparty, you got secretly bailed out at 100 cents on the dollar.

If you were Goldman Sachs and sold a billion dollar investment to clients after knowingly allowing John Paulson’s hedge fund to secretly stuff it with instruments designed to fail and then make $1 billion for the hedge fund by shorting the deal, you got off without any key executive going to jail. As for John Paulson, instead of being prosecuted, NYU’s Stern School of Business lauded him in their Alumni Magazine and named an auditorium after him after he sealed the deal with a $20 million donation.

If you were a completely insolvent bank like Citigroup, whose negligent board had allowed its former Chairman and CEO, Sandy Weill, to turn himself into a billionaire through Dracula stock options, you got an unprecedented taxpayer bailout plus a secret $2.5 trillion bailout from the Federal Reserve consisting of revolving loans made at close to a zero interest rate while the bank charged its struggling credit card customers over 19 percent interest. The Fed fought a multiple-year court battle to hide this outrage from the American people. And the guy who helped Citigroup at the New York Fed, Tim Geithner, moved up to become U.S. Treasury Secretary.

A partial accounting of the Fed’s secret actions only came to light as a result of an amendment tacked on to the Dodd-Frank financial reform legislation in 2010 by Senator Bernie Sanders, which forced the Government Accountability Office (GAO) to conduct a Fed Audit, which was released to the public on July 21, 2011.

What the public knew about the bailout of Bear Stearns, which potentially included Liquid Funding Ltd., prior to the Fed audit was the public announcement that JPMorgan Chase was buying the firm in 2008 in a fire sale and further details provided in the final report of the Financial Crisis Inquiry Commission (FCIC). The FCIC report explained that the Federal Reserve Bank of New York had created a Special Purpose Vehicle called Maiden Lane LLC that used proceeds from a $28.82 billion senior loan from the New York Fed and a $1.15 billion loan from JPMorgan Chase to purchase approximately $30 billion of Bear Stearns’ toxic assets on which JPMorgan Chase wanted the Fed to bear the brunt of any losses.

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