What’s at Stake in Trump’s $250 Million Business Fraud Trial

Donald Trump will face off against New York Attorney General Letitia James starting Monday in a contentious civil trial that threatens his control over his real estate empire in the state.

(Bloomberg) — Donald Trump will face off against New York Attorney General Letitia James starting Monday in a contentious civil trial that threatens his control over his real estate empire in the state. 

The former president is accused of corrupting his relationship with banks and insurers for more than a decade by giving them financial statements that inflated the value of his assets by billions of dollars a year, from Trump Tower in Manhattan to his Mar-a-Lago estate in Florida. As penalties, James is seeking a quarter of a billion dollars and to bar Trump and his eldest sons from serving as an officer of any New York company. 

State Supreme Court Justice Arthur Engoron, who will oversee the trial and decide on the verdict, resolved the biggest claim in the case last week by holding Trump liable for fraud. The non-jury trial will now focus on the six remaining claims against Trump and his company, including issuing false financial statements and conspiring to falsify business records. That will determine the penalties.

Engoron is scheduled to hear evidence for almost three months. Trump, who is juggling five other civil and criminal trials as he campaigns to return to the White House, will attend the opening of the trial on Monday. He is also expected to testify in person at some point later in the proceeding. His two sons Donald Trump Jr. and Eric Trump, who are also defendants in the case, are due to testify, too.

The trial may also shed light on Trump’s fraught relationship with his bankers. Six current and former employees of Deutsche Bank AG, one of Trump’s biggest lenders before it cut ties after the January 2021 insurrection at the US Capitol, are on the state’s witness list. 

The suit doesn’t allege that the banks lost money by working with Trump, but the state does argue the institutions were put at risk because they made lending decisions based on falsified information.

The 77-year-old Republican presidential front-runner denies wrongdoing in all the cases against him and calls James’s suit part of a political assault by Democrats to hobble his campaign.

Here’s what you need to know:

The Allegations

James sued Trump in 2022, alleging he engaged in a “staggering” fraud by overstating the value of his properties by as much as $3.6 billion a year on his statements of financial condition and lying about his net worth. She began investigating the valuations in 2019 after Trump’s former lawyer and fixer Michael Cohen testified to Congress that his longtime boss manipulated asset valuations to overstate his wealth.

Trump has rejected the claims and said the Democratic attorney general “targeted” him. On his Truth Social platform he declared he had “a great case based on phenomenal numbers that show a net worth billions of dollars more than she viciously & falsely claimed, very little debt, big cash, a powerful disclaimer clause, paid off loans, no defaults, ‘happy’ banks, great assets.”

The Stakes

The trial doesn’t carry the threat of imprisonment as the four criminal cases against him do. But the twin threats of the huge penalty and the New York ban pose a potential blow to his businesses. 

With the pretrial fraud ruling, Engoron has already ordered the dissolution of any certificates issued to Trump’s limited liability companies under New York law, putting control of his biggest assets at risk. 

The full impact of the ruling, which won’t be part of the trial, isn’t yet clear. At a hearing Wednesday, Engoron gave Trump and James 30 days to recommend the names of potential independent receivers to oversee the dissolution of the companies. The Trump Organization is made up of some 500 entities.  

The Assets

The properties at the center of the case are among Trump’s most valuable and iconic. 

According to James, Trump falsely valued Mar-a-Lago at $347 million to $739 million over a decade based on its potential for residential development. Because it is restricted for use only as a private club, James alleges it should have been valued closer to $75 million. Trump reported the size of his triplex apartment on Fifth Avenue in Manhattan at about 30,000 square feet instead of the actual 11,000 square feet, boosting its value to $327 million from $80 million, according to James.

Engoron said of Trump’s triplex that “a discrepancy of this order of magnitude, by a real estate developer sizing up his own living space of decades, can only be considered fraud.”

Trump’s Defense

Trump argues James can’t sue under New York law because the allegedly fraudulent asset valuations didn’t harm the public and because the “purported victims” are all “corporate titans fully capable of advancing their own considerable legal rights.” He has said his annual statements of financial condition — the documents at the center of the case — all contained “strong disclaimers” that warned financial institutions against using the stated figures without double-checking them. 

Engoron and appellate judges have already rejected these defenses. For example, the court ruled last year that “allowing blanket disclaimers to insulate liars from liability would completely undercut” the function that statements of financial condition fulfill “in the real world.” 

Trump’s Testimony

The evidence against Trump includes excerpts from a seven-hour deposition during which he was questioned under oath by James’s office in April. At the session, Trump explained his philosophy on calculating asset values and wealth. 

He claimed his name alone was worth at least $3 billion as “the hottest brand in the world” and defended the valuations he placed on his biggest assets by calling them “the Mona Lisas of property.” 

He also testified that the ultimate decision-making authority at the company lay with his son Eric. But when questioned in the case in March, Eric Trump testified that he had no role in the valuation of properties.

The case is New York v. Trump, 452564/2022, New York State Supreme Court (Manhattan). 

–With assistance from Phil Kuntz.

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