Towers Financial Corporation

Towers Financial Corporation was an American debt-collection and financial-services company based in Manhattan, New York City. Founded in the early 1970s and incorporated in Delaware, the company acquired distressed or apparently uncollectible consumer and institutional debts at heavily discounted prices. Its activities focused on receivables owed to hospitals, banks, telephone companies, and other creditors; it reportedly paid approximately one cent on the dollar for loans or accounts that sellers considered of little value. Steven Hoffenberg was the company's founder, chief executive officer, president, and chairman. During the late 1980s, Towers expanded beyond ordinary debt collection and sought to present itself as a broader financial enterprise. In 1987, Hoffenberg hired Jeffrey Epstein as a consultant and provided him with offices at the Villard Houses in Manhattan. The two men also attempted corporate acquisitions, including unsuccessful bids involving Pan Am and Emery Air Freight. The Pan Am effort coincided with the airline's worsening financial condition after the bombing of Pan Am Flight 103 in 1988. From 1988 through 1993, Towers raised more than $400 million through bonds and promissory notes sold to investors. According to the Securities and Exchange Commission's allegations, the company used misleading financial statements to portray itself as profitable when it was actually suffering substantial losses. Funds from later investors were used to cover operating expenses, repay earlier investors, and support payments to insiders, rather than being generated by a profitable underlying business. Hoffenberg also used company resources to finance an expensive personal lifestyle, including multiple residences, vehicles, and aircraft. In February 1993, the SEC alleged that Towers had falsely reported a profit of $13 million for the four years ending June 30, 1991, while in reality it had incurred a loss of approximately $137 million. Towers filed for protection under Chapter 11 of the United States Bankruptcy Code in March 1993. The collapse left thousands of investors affected and led to criminal prosecutions of senior executives. Hoffenberg pleaded guilty in 1995 to five criminal charges connected with defrauding investors of $462 million. In 1997, he received a 20-year federal prison sentence, a $1 million fine, and an order to pay $462 million in restitution. He was released in 2013 after serving 18 years. Vice chairman Mitchell Brater and chief legal officer Michael Rosoff also received prison sentences of between seven and nine years; Rosoff was additionally disbarred. Epstein was not charged in the Towers case. Later reporting and statements by Hoffenberg attributed a significant role in the scheme to Epstein, but those claims have been disputed or described through retrospective reporting rather than established by a criminal conviction against Epstein in this matter. The company is now defunct and is principally remembered for the fraud, bankruptcy, and prosecutions surrounding its final years.

Towers Financial Corporation originated in downtown Manhattan in the early 1970s as a debt-collection business. Incorporated in Delaware, it purchased distressed receivables from organizations such as hospitals, banks, and telephone companies. These accounts were often regarded by their sellers as practically worthless, allowing Towers to acquire them at very deep discounts and attempt to collect more than its purchase price. Steven Hoffenberg built the company and served simultaneously as its founder, chairman, president, and chief executive. During the 1980s, Towers attempted to broaden its identity from a collection agency into a financial enterprise capable of raising large amounts of capital. Hoffenberg recruited Jeffrey Epstein as a consultant in 1987. Epstein operated from offices arranged by Hoffenberg at Manhattan's Villard Houses, and the pair explored corporate-acquisition opportunities. Their attempted takeover of Pan Am failed, as did a similar 1988 effort involving Emery Air Freight. The company's central collapse developed between 1988 and 1993. Towers sold bonds and promissory notes to investors and raised more than $400 million. Rather than being supported by sufficient operating profits and recoveries from collected debts, the enterprise used incoming funds to pay business expenses, satisfy earlier investors, and enrich insiders. False or misleading financial reporting helped create the appearance of profitability. The scheme therefore depended on continuing access to new investor money, a characteristic that later led it to be described as a Ponzi scheme. The SEC brought charges in February 1993. The agency alleged that Towers had represented a $13 million profit for the four years ending June 30, 1991, even though the company had actually lost approximately $137 million. The business entered Chapter 11 bankruptcy protection in March 1993. The proceedings followed a collapse that affected thousands of investors and exposed the gap between the company's advertised financial condition and its actual results. Hoffenberg surrendered to the FBI in April 1995 and pleaded guilty to five criminal charges. In 1997, federal judge Robert W. Sweet sentenced him to 20 years in prison, ordered $462 million in restitution, and imposed a $1 million fine. He was released in 2013 after serving 18 years. Other senior figures were prosecuted: vice chairman Mitchell Brater and chief legal officer Michael Rosoff received prison sentences of seven to nine years, and Rosoff lost his legal license. Epstein was not charged in the Towers case. In later years, Hoffenberg and journalists described Epstein as having played a major or pivotal role in the enterprise, including alleged involvement in the design of its financing and fraud mechanisms. Those later accounts are part of the public history surrounding Towers, but they should be distinguished from the criminal convictions entered against Hoffenberg and other executives. Towers Financial Corporation did not survive the bankruptcy and is now a defunct company remembered primarily for one of the largest American financial frauds before the discovery of Bernie Madoff's scheme.

• 1997

  Hoffenberg sentenced

  [1]Towers Financial Corporationen.wikipedia.org

  Hoffenberg received a 20-year prison term, a $1 million fine, and an order for $462 million in restitution.

• 1995

  Hoffenberg pleads guilty

  [1]Towers Financial Corporationen.wikipedia.org

  Hoffenberg pleaded guilty to five charges related to the investor fraud.

• 1993

  SEC action and Chapter 11 filing

  [1]Towers Financial Corporationen.wikipedia.org

  The SEC accused Towers of fraudulent financial reporting in February, and the company filed for Chapter 11 bankruptcy protection in March.

• 1988

  Expansion of investor-financing scheme

  [1]Towers Financial Corporationen.wikipedia.org

  The company began the period in which it raised large sums through bonds and promissory notes while using new funds to support earlier obligations and operations.

• 1987

  Jeffrey Epstein joins as a consultant

  [1]Towers Financial Corporationen.wikipedia.org

  Steven Hoffenberg hired Jeffrey Epstein to consult for Towers and arranged offices for him at the Villard Houses in Manhattan.

• Company founded in Manhattan

  [1]Towers Financial Corporationen.wikipedia.org

  Towers Financial Corporation was established in downtown Manhattan in the early 1970s as a debt-collection company.

• Debt collection

  Distressed debt collection

  Towers acquired and attempted to collect debts that hospitals, banks, telephone companies, and other creditors considered difficult or uneconomic to recover. The company's model depended on buying receivables at extremely low prices and generating returns through subsequent collection activity.

• Investment products · 1988

  Corporate bonds and promissory notes

  During its final operating period, Towers raised capital by selling bonds and promissory notes to investors. Regulators alleged that the instruments were marketed using false financial statements and that proceeds were used to pay earlier investors, operating expenses, and insiders rather than being supported by genuine profits.

• 1993

  Towers Financial Ponzi scheme

  Between 1988 and 1993, Towers raised more than $400 million through bonds and promissory notes while allegedly using new investor money to repay earlier investors and cover company expenses. The scheme affected thousands of investors and was described as the largest financial fraud in the United States before the discovery of Bernie Madoff's operation.

  Source

• 1993

  False financial reporting allegations

  The SEC alleged that Towers reported a $13 million profit for the four years ending June 30, 1991, despite an actual loss of approximately $137 million.

  Source

Read more

• 1993

  Chapter 11 bankruptcy filingOther

  Background

  Regulatory allegations and the collapse of investor confidence left the company unable to continue operating normally.

  Action taken

  Towers filed for protection under Chapter 11 of the United States Bankruptcy Code.

  Aftermath

  The filing marked the effective end of the company's business as an independent operating enterprise.

  Source

• 1988

  Pursuit of corporate takeoversStrategy

  Background

  Towers sought to use its financial platform in corporate-acquisition campaigns.

  Action taken

  The company participated in unsuccessful takeover efforts involving Pan Am and Emery Air Freight.

  Aftermath

  Neither bid succeeded, and Towers remained primarily associated with debt collection and investor financing.

  Source

• 1987

  Recruitment of Jeffrey Epstein as consultantStrategy

  Background

  Towers was seeking to expand its financial activities beyond conventional debt collection.

  Action taken

  Steven Hoffenberg hired Jeffrey Epstein as a consultant and provided him with offices in Manhattan.

  Aftermath

  Epstein later became a prominent part of retrospective accounts of the company's final years, although he was not charged in the Towers case.

  Source

1. 1Towers Financial Corporationen.wikipedia.org