On February 16th, 2024, New York Supreme Court Justice Arthur Engoron handed down his decision for the 11-week-long civil fraud trial, which pitted former President Donald Trump and his business affiliates against New York Attorney General Letitia James. The trial was set to determine if Trump and the Trump Organization had engaged in inflating property values and misrepresenting business documents in order to receive loans at favorable rates. The final ruling placed a $354.9 million penalty upon Trump, and with prejudgment interest added, the total sum is estimated to be closer to $454 million.
Many initial reactions, sparked by Trump’s rants on Truth Social, claimed this ruling was purely an act of political persecution and a form of election interference in the upcoming election. Other reactions suggested this was a great ruling, and that the big bully deserves to pay his fair share for lying and deceiving.
This article won’t feature those knee-jerk political reactions, but will instead explain the legal backbone and process of this case and the possible ramifications of this ruling going forward.
The Office of the Attorney General of the State of New York (OAG) sued Trump and his business affiliates in 2022, after a 3-year long investigation into Trump Organization’s business statements, specifically statements of financial condition (SFC), between 2011-2021. In that complaint, James suggested that Trump and companies in his holding “engaged in numerous acts of fraud and misrepresentation in the preparation of Mr. Trump’s [SFCs] covering at least the years 2011 through 2021.” James went on to claim that these misrepresented SFCs “grossly inflated Mr. Trump’s personal net worth,” leading to favorable loans “otherwise unattainable.” This conduct violated New York Executive Law § 63(12), which states that:
“Whenever any person shall engage in repeated fraudulent [acts], conducting or transaction of business, the attorney general may apply …for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts”
This law was first enacted in 1956, with the intent to give the New York Attorney General power to crack down on fraud in business. Over time, this law was amended to expand the definition of “fraud” and “fraudulent activity.” With such open-ended definitions and the preponderance of the evidence standard used as the burden of proof, “section 63(12) has traditionally been [the Attorney General’s] most potent [power].”
James’ complaint consisted of seven causes of action. New York Executive Law § 63(12) was the first cause of action in the case, which only required proof that defendants used false statements in business. Judge Engorot granted the plaintiff summary judgment (a decision made based on evidence, without going to trial) for this first cause of action. Because no intent was necessary to prove this cause of action, it was fairly easy to prove, as James provided many examples of Trump misrepresenting financial assets in transactions with banks.
The next six causes of action had to prove that the defendants had intended to violate provisions of the New York Penal Law — specifically Penal Law § 175.10 (intent to falsify business records), Penal Law § 175.45 (intent to issue a false financial statement), Penal Law § 176.05 (intent to engage in insurance fraud), each tied to an “intent to conspire” as well.
The 11-week trial focused on these last six causes of action and how the monetary penalty would be applied. James seeked disgorgement of “ill-gotten gains” as a monetary penalty. In other words, all the money Trump saved by defrauding banks and inflating property values must be paid back.
The next question was whether a jury would be necessary. The 7th Amendment only guarantees a jury at common law, which doesn’t apply to this case since relief seeked by the plaintiff was equitable. The case was to be “tried to the court,” therefore making the court the “sole factfinder and sole judge of credibility” in the case.
The trial reviewed lots of evidence gathered from James’ investigation and featured many testimonies from directors of the Trump Organization to expert witnesses, and of course Mr. Trump himself. One of the more controversial aspects of the trial was the valuation of Trump’s social club, Mar-a-Lago. One expert witness, Sheri Dillon, suggested that when she reviewed the property in 2014 it was worth approximately $27-28 million, much lower than the $612 million valuation Trump had given it. Yet, Trump claimed on the stand that Mar-a-Lago was actually undervalued, and that it would sell for $1-1.5 billion. One aspect of Trump’s valuation that discredited him in the eyes of Judge Engorot was that he assumed he could sell Mar-a-Lago as a private residence. However, James noted that Trump signed away the right to sell Mar-a-Lago as a private residence in a 2002 deed, which granted him a conservation easement tax benefit. This implies that Trump may have overvalued his property by assuming that Mar-a-Lago could be sold as a private residence (which would add lots of value), when in reality it couldn’t.
After much debate about the valuation of Trump’s properties, expert witness Michiel McCarty took the stand to offer some calculations on the savings Trump made by receiving favorable loans from Deutsche Bank. McCarty essentially found the difference between the low rates Trump received and the rates Trump would have gotten had the banks seen his actual property values. The defendants denied the methodology used by McCarty, while the Court believed it to be airtight. The methodology used by McCarty was applied to all aspects of the case to estimate the total monetary penalty for the defendants.
The defendants had 3 main points of defense: (1) Reliance, (2) Accountants responsibility and (3) Materiality.
- Defendants argued that the banks did not actually rely upon the allegedly misrepresented SFCs to determine the rates of loans given to Trump. The counterargument, however, is that reliance is not required to prove fraud; only intent is.
- The second crux defendants stood on was that Trump and upper management at Trump Organization relied upon the accountants to fix any errors and ensure all financial documents were correct, meaning that liability should fall upon the accountants who reviewed the SFCs. The counterargument here is the overwhelming evidence (Trump’s own testimony) suggests that Trump and his affiliates actually reviewed the SFCs and made final decisions on those documents each year.
- The best argument that the defense has is materiality. Essentially, how significant is the evidence of fraud or misrepresentation? In law, “if fraud is insignificant, then, like all things in life, it just does not matter.” There isn’t a concrete definition for materiality, meaning that each judge has to make a judgment call on whether the fraud is significant enough to pursue. Judge Engorot claims in his decision that a roughly $800 million difference in valuations of properties is significant enough to pursue. However, the defense argued that the number $800 million is in itself an assumption based on a few people’s valuations. One could find other valuations that make the fraud much less significant, and therefore not necessary to try in court.
The Court found Trump guilty of the 2nd, 3rd, 4th, 5th and 7th causes of action. Judge Engorot decided disgorgement would be a proper monetary penalty, with prejudgement interest included (meaning interest on the money Trump saved illegally, once he began being investigated in 2019). The Court also found that the defendants “are likely to continue their fraudulent ways unless the Court grants significant injunctive relief,” leading to the appointment of an Independent Monitor and Independent Director of Compliance to oversee the Trump Organization for a minimum of 3 years. The Court also decided that Trump cannot serve any directive role in New York for 3 years nor can the defendants receive loans from banks registered in New York. Trump’s bond was set at $464 million and to be paid by March 25.
Trump appealed this decision promptly and asked for an immediate stay (pushing the enforcement of Judge Engorot’s decision until the appeal process is completed). A stay in New York is given by appellate courts and typically requires some amount of money to be put up. On Monday, the day James could have started collecting the $454 million, a 5-judge panel ruled to lower the bond amount to $175 million and extend the payment deadline 10 days. Trump’s lawyers had argued that it would be a “practical impossibility” to find an underwriter to sign off on a $464 million bond. If Trump can pay $175 million in the next ten days, the collection of the $454 million (which still remains) will be paused until the appeal process is over.
The appeal process may be yearslong, but there are plenty of current implications, the most obvious being the cash constraint for Trump in the midst of a presidential campaign. Although $175 million is a lot of money, it could have been much worse if Trump had to put up $454 million (growing with interest each day he doesn’t pay it off). However, this isn’t the most significant impact of this case. The largest impact created by this decision is arguably the reinvigoration of the MAGA supporters. Donations for the Trump campaign have soared as a result of this ruling and the case has given Trump yet another example of “political persecution,” a phrase frequently featured on Trump’s Truth Social, to fall back on when campaigning.
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