New York indictment of Trump mixes routine corporate law, unusual allegations

New York indictment of Trump mixes routine corporate law, unusual allegations

The New York Attorney General’s lawsuit against former President Donald Trump uses a common state case law to make allegations about real estate valuations, which lawyers say are rarely the focus of civil fraud cases.

The lawsuit, filed Wednesday by Letitia James, accuses Mr. Trump, three of his adult children, his company and two of his longtime officials of participating in a 10-year plan to falsify financial statements for economic gain. Ms James, a Democrat, alleges that the defendants made illegal and misleading appraisals of 23 properties and assets, from a golf club in Scotland to several properties in New York.

The alleged fraudulent statements allowed the Trumps to obtain economic benefits, including favorable loan terms and insurance rates, which they would not otherwise have been eligible for, the lawsuit alleges.

Mr Trump, who faces other legal investigations, and his company have denied wrongdoing. The former Republican president and his two adult sons have portrayed the case as politically motivated. A lawyer for Ivanka Trump declined to comment. The Trump organization has said that banks have suffered no damage and have not objected to the loans in question.

Ms. James’ complaint is anchored in a long-standing New York law that gives the Attorney General broad powers to combat “persistent fraud or illegality in the conduct, conduct or conduct of business.” The lawsuit demands significant fines that could restrict the company’s operations in New York.

Donald Trump, right, sat with his children — from left, Eric Trump, Donald Trump Jr. and Ivanka Trump – in Washington, DC, in 2014.


Photo:

Evan Vucci/Associated Press

The attorney general’s office has handled cases that previously alleged fraudulent property valuations, but these are relatively uncommon, lawyers said. In a 2016 criminal case, the office accused New York landlord Steven Croman of submitting false mortgage documents to banks, including by listing market rents for rent-stabilized units. Mr Croman pleaded guilty to felony charges in 2017.

One challenge of valuation fraud cases is that they can turn into a battle of experts, as valuers can plausibly come to different conclusions, lawyers say. Some of the allegations in Ms. James’ complaint may fall into this category, although other allegations in the lawsuit contain more outspoken allegations of fraud, they said.

“There’s a lot of leeway in some of these valuations,” said Sarah Krissoff, a former federal prosecutor now at Day Pitney LLP. “What the Attorney General did well here is give such stark examples and show this pattern over time.”

Of the properties it named, the lawsuit said that appraisals ordered by the bank had valued 40 Wall St., a Manhattan office building, at $200 million in 2010 and $220 million in 2012. years later at $527 million, the suit claimed.

Ms. James also mentioned the property of the Trumps’ Mar-a-Lago family. The suit claims the Trumps have valued it to $739 million despite development restrictions. The property is likely worth about $75 million, the lawsuit said.

Donald Trump said he was invoking his Fifth Amendment rights and declined to answer questions from the New York Attorney General during a scheduled statement in August. WSJ’s Corinne Ramey explains what they need to know about the investigation into the former president’s financial transactions and his company. Photo illustration: Laura Kammermann

Eric Trump called that claim “asinine” on Twitter, writing with crying emojis: “If you’re interested in selling Mar a Lago for $75mm, I’ll be first in line.”

Ms. James is asking a New York court to order the return of what she believes were $250 million in ill-gotten gains. More broadly, she is asking a judge for remedies that could reduce the Trumps’ business dealings in the state, including a permanent ban on Mr. Trump and the three children from serving as officers of corporations in the state and a five-year ban on the former president and his company from entering into commercial real estate transactions in New York or applying for loans from state-registered institutions.

In recent years, demands for bans have become more frequent, said Brian Mahanna, a former senior official in the New York Attorney General’s office who is now a partner at law firm WilmerHale.

“State Attorneys General have increasingly sought to keep offenders out of their industry, not just get their companies to spit out the profits from their executives’ misconduct,” he said.

The main remedy Ms. James has requested is the cancellation of certificates that would allow Trump companies to operate in the state, said Daniel Horwitz, a former Manhattan prosecutor who is now a partner at McLaughlin & Stern LLP.

“What’s extraordinary is that she’s essentially trying to take company ownership away from the Trumps by revoking the company’s certification,” Mr Horwitz said. “She’s trying to boot the Trumps in New York.”

In a previous Trump-related case, the New York Attorney General’s office in 2018 sued the Trump Foundation on charges that Mr. Trump used his family foundation to continue his 2016 campaign, pay legal settlements, and to promote companies.

As a result of agreements arising from the lawsuit, the family’s charity had to be dissolved under a judge’s supervision and the three Trump children had to undergo mandatory charitable training.

In another recent high-profile case, one of Ms. James’ most ambitious requests in court fell short. A judge in March denied Ms. James to dissolve the National Rifle Association as part of an ongoing lawsuit in which officials allege they violated the state’s nonprofit laws. The NRA denies wrongdoing.

The judge said the attorney general’s lawsuit “does not identify the kind of public harm that is the legal cornerstone for imposing the ‘corporate death penalty.'”

Write to Corinne Ramey at Corinne.Ramey@wsj.com

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