By: Jae De Leon
In a recent legal setback for Donald Trump, a state judge in New York ordered him to pay nearly $355 million in penalties for engaging in years of fraud by misrepresenting the value of his real estate portfolio.[1] The ruling comes after a three-year investigation by New York Attorney General who alleged that Trump and his associates committed fraud by inflating asset values to secure better business, insurance, and banking deals.[2] The judge’s decision is based on allegations of fraud committed by Trump and his associates over the years.[3] Common law fraud involves “false representation… in relation to a material fact; scienter; reliance; and injury.”[4] The elements of common law fraud are “(1) A material statement; (2) falsity; (3) knowledge of the falsity…; (4) justifiable reliance; and (5) damages.”[5] The core of the case revolves around the manipulation of asset values to secure favorable deals.[6] In this case, Donald Trump and his company borrowed from banks and other lenders to obtain and develop his valuable properties.[7] To receive this money, Trump had to provide personal guarantees “which were based on statements of financial condition compiled by accountants that Donald Trump engaged.”[8] However, Trump and his company “submitted blatantly false financial data to the accountants, resulting in fraudulent financial statements” in an effort to secure larger loans at reduced rates.[9] The prosecution confronted Trump and his team with the statements, which they denied.[10] Trump and his lawyers attempted to shift the blame towards their outside accountants, stating that they “should’ve flagged any discrepancies and that the documents came with disclaimers that shielded him from liability.”[11] Their defense relied on the fact that Trump did not have knowledge of the falsity nor was anyone harmed if there were discrepancies.[12] However, based on the financial statements and witness statements, Judge Engoron still found Trump and his organization guilty.[13] Besides the millions of dollars in penalties, Judge Engoron also barred Trump from running any New York corporation, including his own Trump Organization, for three years.[14] Trump’s sons, Eric Trump and Donald Trump Jr., are also banned for two years.[15] Trump, expected to appeal, criticized the decision as a “complete and total SHAM,” maintaining his stance that the justice system is politically biased against him.[16]
While Trump’s company was not permanently taken away from him, the ruling, if upheld on appeal, could have significant repercussions for his holdings and his presidential campaign.[17] The ruling also criticized Trump and his co-defendants for a lack of contrition and a posture of denial.[18] Trump has the option of selling portions of his real estate portfolio to settle the owed amount, but the value of his holdings remains uncertain, and the process of selling them may be time-consuming.[19] Trump cannot utilize campaign funds to settle the judgment since the case is unrelated to his campaign, presidency, or political candidacy.[20] Although the ruling will not necessarily result in the closure of the Trump Organization, it does cast uncertainty on its leadership, which could potentially hinder its activities.[21] Trump has the option to designate someone to lead the company but is obligated to adhere to the court’s directives.[22] Additionally, the business will remain under the ongoing supervision of an independent monitor, retired U.S. District Judge Barbara Jones.[23] The decision expands Jones’s responsibilities and enforces stringent compliance measures on the Trump Organization, presenting challenges for the business in the coming years.[24]
This decision not only affects Trump and his company but also affects the business world. Inflating asset values as Trump and his corporation did not only harms those entering into transactions with Trump but also undermines the integrity of financial markets.[25] These practices are likely to draw the attention of regulatory authorities.[26] Further, banning Trump from running any New York corporation, including his own business entity, is a significant legal consequence.[27] This restriction limits his involvement in corporate governance and decision-making, affecting both the Trump Organization and its stakeholders.[28] This might affect consumer spending, investment decisions, and the general business climate as individuals and businesses assess potential risks and uncertainties.[29] The decision to ban Trump’s sons, Eric Trump and Donald Trump Jr., suggests a broad judicial stance against the practices of the entire Trump family.[30] Further, Trump’s decision to appeal indicates a continued legal battle.[31] The potential need to sell parts of his real estate portfolio to cover the penalties introduces complexities, and the market may react to uncertainties surrounding his assets.[32]
[1] See generally, New York v. Donald J. Trump, No. 1688 (N.Y. App. Div. Feb. 16, 2024).
[2] See Ximena Bustillo, Trump Ordered to Pay Over $355M for Fraudulent Business Practices in New York, NPR, https://www.npr.org/2024/02/16/1226294071/trump-fined-fraud-trial-ny (last updated Feb. 16, 2024, 5:02 PM).
[3] See New York v. Donald J. Trump, No. 1688, at 2 (N.Y. App. Div. Feb. 16, 2024).
[4] Id.
[5] Id.
[6] Id.
[7] See id. at 1.
[8] Id.
[9] Id.
[10] Id.
[11] Michael R. Sisak, Here’s a Look Inside Donald Trump’s $355 Million Civil Fraud Verdict, Assoc. Press, https://apnews.com/article/trump-fraud-letitia-james-new-york-engoron-38bc3a7f2ccb22555c026e9bf70fd5bb (last updated Feb. 17, 2024, 10:16 PM).
[12] Id.
[13] See generally, New York v. Donald J. Trump, No. 1688 (N.Y. App. Div. Feb. 16, 2024).
[14] See Alan Feuer & Maggie Haberman, Trump Hit Where It Hurts Most, N.Y. Times (Feb. 16, 2024), https://www.nytimes.com/2024/02/16/us/politics/trump-trial-fraud-ruling.html.
[15] See Aimee Picchi, Trump $354 million fraud verdict includes New York business ban for 3 years. Here’s what to know., CBS News, https://www.cbsnews.com/news/trump-trial-fraud-verdict-trump-organization-impact/ (last updated Feb. 16, 2024, 8:40 PM).
[16] Bustillo, supra note 2.
[17] See Feuer & Haberman, supra note 3.
[18] Id.
[19] See Ella Lee, Trump’s New York Real Estate Empire in Limbo After Fraud Verdict, The Hill (Feb. 21, 2024), https://thehill.com/regulation/court-battles/4479516-trump-new-york-real-estate-empire-fraud-verdict/.
[20] See Jack Queen & Luc Cohen, Trump Hit with $354.9 Million Penalty, 3-Year Ban in NY Civil Fraud Case, Reuters, https://www.reuters.com/legal/judge-set-rule-trumps-370-million-civil-fraud-case-2024-02-16/ (last updated Feb. 17, 2024, 4:22 PM).
[21] See Lee, supra note 10.
[22] Id.
[23] Id.
[24] Id.
[25] See generally Ben Levisohn, How Trump’s Indictment Spells Trouble for Stocks and the Economy, Barron’s, https://www.barrons.com/articles/donald-trump-indictment-stock-market-economy-bda29964 (last updated Mar. 31, 2023. 12:09 PM)
[26] Id.
[27] See Feuer & Haberman, supra note 3.
[28] Id.
[29] Id.
[30] See Picchi, supra note 4.
[31] See Bustillo, supra note 2.
[32] Id.
