Trump's Legal Woes: New York Fraud Case Laws Broken

Former US President Donald Trump and his companies were ordered to pay $355 million in penalties by a New York judge, who found that they had engaged in a years-long scheme to dupe banks and others with financial statements that inflated his wealth. Trump and his co-defendants were found to have violated New York Executive Law 63(12), which gives the Office of the Attorney General (OAG) special and broad powers to go after persistent and repeated fraud and illegality.

The scheme involved Trump, with the help of his children Donald Trump Jr., Ivanka Trump, and Eric Trump, and senior executives at the Trump Organization, falsely inflating his net worth by billions of dollars to induce banks to lend money to the Trump Organization on more favorable terms. From 2011-2021, Mr. Trump and the Trump Organization knowingly and intentionally created more than 200 false and misleading valuations of assets on his annual Statements of Financial Condition to defraud financial institutions.

The total penalty, including interest, is estimated to be over $500 million, and Trump has been barred from serving as an officer or director in any New York corporation or similar business entity registered and/or licensed in New York state for three years.

Trump's net worth was inflated by billions of dollars

In 2022, New York Attorney General Letitia James sued former US President Donald Trump, his three eldest children, and the Trump Organization, alleging that they had engaged in years of financial fraud by inflating Trump's net worth by billions of dollars.

The lawsuit claimed that between 2011 and 2021, Trump and his associates created more than 200 false and misleading valuations of assets on his annual Statements of Financial Condition to defraud financial institutions. This conduct was in violation of New York Executive Law 63(12), which gives the Office of the Attorney General (OAG) broad powers to pursue persistent and repeated fraud.

The lawsuit specifically alleged that Trump, with the help of his children and senior executives at the Trump Organization, falsely inflated his net worth by billions of dollars to secure more favourable loan terms, satisfy loan covenants, obtain insurance coverage at lower premiums, and gain tax benefits, among other things.

As a result of these violations, the OAG sought to permanently bar Trump and his eldest children from serving in leadership roles in any New York corporation and to bar the Trump Organization from engaging in New York real estate acquisitions for five years. The OAG also sought the disgorgement of all financial benefits obtained through the fraudulent practices, estimated to total $250 million.

In September 2023, Judge Arthur Engoron issued a summary judgment, concluding that Trump and his company had committed fraud for years. The judge ordered the termination of the defendants' state business licenses and the dissolution of pertinent limited liability companies, pending appeal.

In February 2024, Engoron issued his final ruling, finding that Trump and his companies were "likely to continue their fraudulent ways" without penalties and other controls. He ordered Trump and his companies to pay $355 million in penalties, plus interest, and imposed several bans and restrictions on their business activities.

The verdict was a significant setback for Trump, undermining his image as a successful businessman and potentially diminishing his financial resources. Trump has vowed to appeal the decision.

The Trump Organization's financial statements were misleading

Secondly, the statements included false information about Trump's holdings of cash and cash equivalents, such as including restricted funds in his "cash" totals. Thirdly, the statements used different methodologies to value properties from year to year without providing notice or reason for the changes.

Fourthly, the statements included intangible items, such as brand premiums, when calculating asset values, despite stating that such items were not included. Finally, the statements were not prepared in accordance with generally accepted accounting principles (GAAP) in the United States, and ignored basic rules and standards for financial reporting.

The Trump Organization's statements were in violation of GAAP

• Representing that Mr. Trump had cash on hand that he did not possess.
• Ignoring critical restrictions that would significantly lower property values when setting valuations.
• Changing the methodology used to value properties from year to year, without reason or notice.
• Using vastly different methods to value different properties, even in the same year.
• Including intangible items, such as brand premiums, when calculating an asset's value, despite representing in the statements that such items were not included.

The statements were used to obtain and maintain favorable loans over an 11-year period. All told, the financial benefit realized from this scheme was approximately $250 million, including interest savings and transaction profits, because of the favorable loan terms they were able to obtain using his false and misleading statements.

Trump's penthouse apartment was overvalued

The overvaluation of Trump's penthouse apartment was central to the New York fraud case against him. The apartment, located on the 56th, 57th, and 58th floors of the Trump Tower in Manhattan, was claimed by Trump to be 30,000 square feet and worth $327 million. However, the actual size of the apartment is approximately 11,000 square feet, and its valuation is estimated to be less than a third of Trump's claimed value. This overvaluation was used to secure more favourable loans and insurance deals, with Trump receiving more favourable terms than he would have otherwise.

Trump's apartment was originally decorated by Angelo Donghia, who created a design in black-and-white and brass-and-mahogany. The large living room had chocolate walls, bronze mirrors, and a gold leaf ceiling, with a crystal chandelier and a chimney framed by recessed lighting. The apartment was remodelled in gold by Henry Conversano, a former nightclub singer and industrial designer, who was previously hired by casino impresarios.

The overvaluation of the apartment was first brought to light by the New York Attorney General (AG), Letitia James, who alleged that several properties owned by the Trump Organization were valued incorrectly to make them appear worth much more. The investigation found that the penthouse apartment was overvalued by "give or take" $200 million, according to the Trump Organization CFO, Allen Weisselberg.

The overvaluation of the penthouse apartment was just one of many instances of property inflation by the Trump Organization. Other examples include the valuation of Mar-a-Lago, which was valued at more than $612 million based on the idea that the property could be developed for residential use, when it had been agreed that it would only be used as a club. The Trump Organization also overvalued the Trump International Golf Club in Scotland, which was valued at $161 million based on the potential to build luxury homes, despite approval being granted for fewer than 1,500 units.

Mar-a-Lago was overvalued

Mar-a-Lago, Donald Trump's estate in Palm Beach, Florida, was indeed overvalued. In September 2023, Judge Arthur Engoron ruled that Trump had overvalued several of his properties, including Mar-a-Lago, as part of a fraud case against the former president, his sons, and the Trump Organization.

While the Palm Beach County assessor appraised Mar-a-Lago's market value to be between $18 million and $27.6 million, Trump valued it at between $426.5 million and $612.1 million in filings—an overvaluation of at least 2,300%.

Trump's valuation was based on the false premise that Mar-a-Lago was unrestricted property and could be developed and sold for residential use. However, this was not the case, as Trump himself had signed deeds donating his residential development rights and restricting changes to the property.

The overvaluation of Mar-a-Lago was just one part of a broader pattern of fraud. In February 2024, Judge Engoron concluded that Trump and his company manipulated spreadsheets provided to accountants to inflate the valuations of their assets and net worth. This resulted in more favorable terms on loans and insurance deals that they wouldn't have otherwise received.

As a result of the fraud case, Judge Engoron ordered Trump and his co-defendants to pay a total of $364 million in "ill-gotten gains" and millions more in interest. The total amount owed, including interest, has continued to grow and stands at over $500 million as of January 2025.

Trump has denied all allegations and is pursuing appeals in the case.

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