Government of the United States Virgin Islands v. JPMorgan Chase Bank, N.A., No. 122-cv-10904 (S.D.N.Y. 2022)/263-37.pdf

EXHIBIT 90 FILED UNDER SEAL Case 1:22-cv-10904-JSR Document 263-37 Filed 08/07/23 Page 1 of 11 Confidential—Subject to Protective Order Government of the United States Virgin Islands v. JPMorgan Chase Bank, N.A.; JPMorgan Chase Bank, N.A. v. James Edward Staley Expert Report of Carlyn Irwin Carlyn Irwin Senior Advisor Cornerstone Research June 23, 2023 Case 1:22-cv-10904-JSR Document 263-37 Filed 08/07/23 Page 2 of 11 Confidential—Subject to Protective Order Page 21 incomplete and contains information that is contradicted by Southern Trust’s 2015 reporting package. For example: a. The spreadsheet indicates that Southern Trust had “Gross Sales” of only , compared to reported on the tax return. 152 b. The spreadsheet indicates that Southern Trust paid , compared to $4.2 million of reported taxes paid in the reporting package. 153 58. In 2016–2018, Southern Trust continued to receive benefits from the EDC program, but at much lower levels due to a significant decline in Southern Trust’s revenues and profitability. See Exhibit 1. III. Summary of Findings and Opinions with Respect to USVI Tax Benefits 59. Between 1999 and 2018, USVI’s EDC awarded Financial Trust and Southern Trust more than $300 million in tax benefits. For those years in which Mr. Epstein’s companies reported positive ordinary business income, the cost / benefit ratio of tax benefits to Financial Trust and Southern Trust was far lower than EDC’s target ratio, as discussed further below: 154 152 VI-JPM-000037452, tab Employment & Taxes; VI-JPM-000007474–533 at 477. 153 VI-JPM-000037452, tab Employment & Taxes; VI-JPM-000007474–533 at 474. 154 Cost / benefit ratios are only shown for years in which Financial Trust or Southern Trust reported positive ordinary business income . In 2016–2018, Southern Trust continued to receive benefits from the EDC program, but at much lower levels due to a significant decline in Southern Trust’s revenues and profitability. In addition, I noted that the 2015 cost / benefit spreadsheet is incomplete and contains information that is contradicted by Southern Trust’s 2015 reporting package. In the September 7, 1999 Executive Session, Mr. Francois Dominique, a Special Assistant in the IDC, stated that See VI-JPM-000018885–917 at 885, 889. Governor Albert Bryan stated in his June 6, 2023 deposition that a good return on investment from that tax benefits [USVI was] given” was “[d]efinitely at least one and a half, two, would be good.” See Deposition of Governor Albert Bryan, Jr., June 6, 2013 (“Bryan Deposition”), 47:9– 20. I present the lower of the target cost / benefit ratios for purposes of this table. Actual cost / benefit ratios for Financial Trust and Southern Trust as listed in the Benefits tab of EDC's cost-benefit analysis spreadsheets. See VI- JPM-000032792; VI-JPM-000032774; VI-JPM-000032775; VI-JPM-000032776; VI-JPM-000032777; VI-JPM- 000032778; VI-JPM-000032779; VI-JPM-000032780; VI-JPM-000093347; VI-JPM-000037451; VI-JPM-000037452; VI-JPM-000020120; VI-JPM-000020331; VI-JPM-000093348. Case 1:22-cv-10904-JSR Document 263-37 Filed 08/07/23 Page 3 of 11 - - Case 1:22-cv-10904-JSR Document 263-37 Filed 08/07/23 Page 4 of 11 Year 1999 2000 2001 2002 2003 2004 2005 2006 2013 2014 2015 2016 2017 2018 Cost I Benefit Ratio Re EDC _______ _._ A. USVI Gave Mr. Epstein Over $300 Million in Tax Breaks 60. During the period 1999 through 2018, USVI's IDC/EDC gave Mr. Epstein over $300 million of tax breaks associated with his 100% ownership of Financial Trnst and Southern Trnst to in centivize him to conduct business in USVI. Attached as Exhibit 1 is a summary of: (i) the taxes and duties paid by Financial Trnst and Southern Trnst to USVI; and (ii) the reported value of the tax exemptions awarded to Mr. Epstein. According to the tax returns submitted by Mr. Epstein's companies to the IDC/EDC each year, Mr. Epstein paid -on earned by Financial Trnst and Southern Trnst during the period 1999-2018. This indicates that as a result of the IDC/EDC awards, Mr. Epstein 's net effective income tax rate companies was only - 1 55 earned by his USVI-based B. Giving Mr. Epstein $300 Million in Benefits Made No Economic Sense 61. As discussed above, based on the methodology used by the IDC in 1999, it was projected that Financial Trnst would generate a cost I benefit ratio of-. 156 This indicates that for 155 --(income taxes paid 1999-2018) divided by-(ordinary business income 1999-2018) eq~mately-. See Exhibit 1. 156 VI-JPM-00001888~ at 888-889. Confidential-Subject to Protective Order Page 22 Confidential—Subject to Protective Order Page 23 every of tax breaks that was to be given to Financial Trust (and Mr. Epstein as he was the sole owner of this pass-through company), USVI expected to receive of economic benefits in the form of increased local employment, local tax receipts, and local investment. 62. However, Financial Trust’s actual cost / benefit was significantly below the IDC’s projections and its so-called “” of to . 157 As reflected in Financial Trust’s annual reporting packages and the available EDC cost / benefit spreadsheets produced in discovery, Financial Trust’s actual cost / benefit ratios in 1999–2001 were: a. 1999 ratio = to ; 158 b. 2000 ratio = to ; 159 and c. 2001 ratio = to . 160 63. Each of these ratios calculated by the EDC were well below: (i) the forecasted ratio of to that was and (ii) the “” ratio of to . 64. Southern Trust’s actual cost / benefit was similarly also significantly below the EDC’s projections and its so-called “” of to . For example, per the EDC’s cost / benefit calculations produced in discovery, the actual cost / benefit in 2014 was only to . 161 65. This ratio was well below: (i) the projected ratio that the EDC discussed when it decided to approve Southern Trust’s award; (ii) the to “” level discussed by the EDC in 1999; 162 and (iii) the to “” level discussed by the EDC in 2013. 163 66. Thus, from 1999 to 2018, neither Financial Trust nor Southern Trust came close to generating sufficient benefits to USVI to offset the tax incentives granted to Mr. Epstein and these companies let alone reach the thresholds the EDC considered “.” Based on the record, the EDC was aware of Mr. Epstein’s companies’ multi-year history of poor cost / benefit performance yet agreed to extend Financial Trust’s certificate in 2009 and granted Southern Trust a new certificate in 2013 regardless. 157 VI-JPM-000018885–917 at 889. 158 VI-JPM-000032792, tab Benefits. 159 VI-JPM-000032774, tab Benefits. 160 VI-JPM-000032775, tab Benefits. 161 VI-JPM-000037451, tab Benefits. 162 VI-JPM-000018885–917 at 889. 163 VI-JPM-000018918–926 at 920. Case 1:22-cv-10904-JSR Document 263-37 Filed 08/07/23 Page 5 of 11 - - - - ■- ■- ■- ■- ■- - --- --- - I I Confidential—Subject to Protective Order Page 24 C. USVI Failed to Ask Questions or Develop an Appropriate Basis to Support Extending the $300 Million in Benefits 67. USVI’s EDC did not properly evaluate Mr. Epstein’s applications for benefits and failed to ask him even the most basic questions based on information that was uniquely available to it about his companies. 68. In awarding hundreds of millions of dollars in benefits to Mr. Epstein, USVI failed to perform even perfunctory examination of information that was uniquely available to it and ignored its own calculations that Mr. Epstein’s companies were not conferring the promised economic benefits on USVI. In 2009 and 2013, the awards to Mr. Epstein were ultimately approved by Governor de Jongh. He approved these benefits while his wife, First Lady Cecile de Jongh, was the office manager for Mr. Epstein’s companies and received a salary, bonuses, and other benefits, including tuition for their children