How Trump's fraudulent business practices finally came back to bite him
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How Trump's fraudulent business practices finally came back to bite him
The New York ruling that's big trouble for the Trump Organization, unpacked.
ALSO IN THIS EDITION: Aaron on the GOP’s impeachment hearing disaster. Scroll to the bottom to check it out.
By Lisa Needham
While we all wait for Trump’s criminal trials to start, let us enjoy the absolute hammering Trump and his sons just received in a civil lawsuit at the hands of the Honorable Arthur F. Engoron, a New York state court judge.
Engoron ruled that Trump’s continual habit of substantially inflating the value of his properties on his financial statements constituted fraud, and ordered that all of the certificates Trump had filed in New York be canceled. That means he can’t do business in New York — a significant blow for someone who still sees himself as a real estate and finance bigwheel.
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Just as it’s hard to keep track of the felony charges Trump faces — he’s up to 91 now — the former president is also staring down so many civil lawsuits that you can be forgiven if your first question was, “Wait, which case is this now?” This would be the lawsuit brought by New York Attorney General Letitia James against Trump, Donald Trump Jr., Eric Trump, former Trump Organization CFO Allen Weisselberg (who already went to jail over his role in the criminal tax fraud case against the Trump Organization), current Trump Organization controller Jeffrey McConney (who testified before the grand jury earlier this year in Trump’s criminal hush money case), the Trump Organization itself, and various other Trump entities — quite the lineup. (Ivanka wasn’t part of the Trump Organization during a relevant point in the litigation, so she’s not a defendant here.)
James sued Trump last year because of his habit of creating inflated financial statements, which banks use to help determine a party’s net worth when issuing a loan. The suit accused Trump of submitting fraudulent financial statements to lenders, inflating his net worth considerably in the process. The parties are set to go to trial next week, but Tuesday’s ruling by Engoron significantly changes what will happen there. That’s because the ruling knocked out a major issue Trump and his lawyers planned to argue.
“This court cannot endorse a proposition that finds a misstatement of at least $812 million to be ‘immaterial.’”
At this stage in the litigation, both James and the Trump defendants moved for summary judgment, a procedural motion where a party has to show, as Engoron explained, “entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case.” To prevail on a summary judgment motion, a party must show that a trial on an issue is unnecessary because there are no meaningful fact disputes and the party’s position is also legally correct.
Parties make motions for summary judgment after they have already gone through the discovery phase, where they gather documents and have parties sit for depositions, and believe, based on the info they gathered, they'll prevail on the legal issues, and there are no real disputes over material facts. Typically, they’ve also filed many pre-trial motions trying to get specific evidence included or excluded.
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Importantly, factual disputes can’t be resolved at the summary judgment stage. That’s because the American legal system leaves evaluating the credibility of witnesses and the weight of evidence to a fact-finder — either a jury or a judge acting as a decision-maker in place of a jury in a non-jury trial.
The Trump defendants moved for summary judgment on all seven claims they face and were denied on all counts. But James moved for partial summary judgment on only one standalone fraud claim. James merely needed to show that the financial statements Trump and friends issued were false and misleading and that they used them repeatedly to transact business. The documents — in this case, financial statements — say what they say, and those statements were used repeatedly in business transactions. There’s no need to examine motive or intent or state of mind or credibility or anything else that we rely on juries for.
It wouldn’t be a Trump case if Trump didn’t insist that the statements don’t mean what they say or if he didn’t argue that everything he did was just so big and valuable it should be valued at whatever he wants. In this case, Trump’s lawyers argue that because the financial statements have disclaimer language from Trump’s accountants, Mazars, stating they have not audited the financial statements, then Trump can’t be liable.
Nope. The financial statements also specifically say that Trump “is responsible for the preparation and fair presentation of the financial statement.”
Trump’s attorneys also claim that the financial statements can’t be misleading because there’s no such thing as an objective value, and that it was fine to juice the numbers because of “internally developed intangibles, such as the brand premium used in the valuation of President Trump’s golf clubs, in personal financial statements.” But Engoron was having none of this, noting that line of reasoning is basically saying that value is subjective and “that because internal brand valuations are in the eye of the beholder (here, Donald Trump), they cannot be overvalued.” Rather, he pointed out, market value, an objectively measurable thing, is what’s considered the most reliable method of valuation and that while beauty may be in the eye of Trump as the beholder, the actual value is “in the eye of the marketplace.”
The most absurd argument offered by Trump was that the difference between the inflated financial statements versus actual appraisals was immaterial — a mere rounding error. James provided evidence that between 2014 and 2021, the financial statements overvalued assets somewhere between $812 million and $2 billion. Also nope. Engoron again: “Even in the world of high finance, this Court cannot endorse a proposition that finds a misstatement of at least $812 million to be ‘immaterial.’”
Just as the judge didn't take kindly to an assertion that inflating financial statements by hundreds of millions of dollars was just savvy business, he was equally unfond of Trump jacking up the size of his Trump Tower Triplex to get a more extensive valuation. The Triplex is 10,996 square feet, but Trump submitted financial statements to lenders saying it was 30,000 square feet. The Trump defendants again tried to treat this like a rounding error, saying that “the calculation of square footage is a subjective process that could lead to differing results.” Sure, said the court, if you've got a round or weird shape. “Good-faith measurements could vary by as much as 10-20 percent, not 200 percent.”
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Outrageously, Trump had said that Mar-a-Lago was worth $612 million, which would make it one of the most expensive properties in America, ever. The Palm Beach County assessed the market value at $18 million to $27.6 million from 2014 to 2021. Thus, the court held, Trump inflated the value of Mar-a-Lago by at least 2,300 percent. After Engoron ruling came down, Eric Trump went on a social media blitz to complain that Mar-a-Lago is actually worth a billion dollars and for the judge to not agree to that was “a travesty of justice.”
The judge also stripped the Trump Organization of certificates to transact business in the state of New York, which could have substantial repercussions given how much business Trump does there, including operating Trump Tower as an apartment/condo space. Trump businesses registered in New York, including 40 Wall Street In New York City and the Westchester County golf club, could be put under the control of an independent receiver and then dissolved.
Trump goes to trial Monday and it doesn’t look good for him
As bad as this is for Trump — being branded a fraud and facing actions that undercut his sense of self as a genius real state investor — it will get worse. The Trump defendants still face trial, as six other claims remain. Engoron will preside over it starting next Monday.
At stake is the disgorgement of profits. James has asked for a penalty of $250 million, but the trial will determine the amount. Disgorgement requires a party that profited from fraud to give up those profits. Trump’s attorneys tried their damndest to argue that disgorgement wasn’t a remedy in this type of lawsuit, only to have the judge list off multiple New York cases saying that disgorgement is available as a remedy in claims like these. Since it’s a non-jury trial, Engoron will review issues of facts, decide on the credibility of witnesses and exhibits, and decide how much money Trump will have to give away.
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This summary judgment decision isn’t just hard on Trump; it’s utterly brutal against his lawyers as well, all five of whom have now been sanctioned to the tune of $7,500 each. A significant part of the judge’s decision was dedicated to severely criticizing the lawyers’ actions in the case. He told them he’d already ruled on several of the arguments they deployed again at this stage, such as their claims that disgorgement didn’t apply here. His frustration at having to do so again here was evident, noting they were acting “in flagrant disregard” of the court’s prior order by repeating “untenable” arguments they’d already made. He told them that, from reading their current motion papers, he could never have discerned that he had already twice ruled against these arguments as frivolous, or without merit, and had twice been affirmed at the appellate level.
Engoron had previously told Trump’s attorneys that “sophisticated counsel should know better” than to keep making the same arguments. By this stage, he’d said that the conduct in reiterating the arguments was “egregious” and “indefensible.”
Now, while his lawyers are no doubt preparing for trial, Trump is making the rounds, saying everything in the ruling in “ridiculous and untrue,” He went on Truth Social to complain that “My Civil rights have been violated, and some Appellate Court, whether federal or state, must reverse this horrible, un-American decision.” He also wrote that his company had “done a magnificent job for New York State” and “done business perfectly.” “Perfectly,” like the phone call to Ukraine that led to his first impeachment? Or “perfectly” like his phone call to Georgia asking them to “find” enough ballots to overturn his loss there to Biden?
While the trial itself will likely be an entertaining ride, given at least some of the defendants will have to take the stand, this ruling is also a delight, dismantling as it does the image of Trump as a savvy businessman who singlehandedly built a real estate empire in New York. He should probably just slink back to Florida when the trial is all done. Then, he can prepare for the multiple trials still to come.
AOC caught Republicans in the act
By Aaron Rupar
I spent my whole day Thursday watching the first House GOP impeachment hearing, which was a clown show for reasons we’ve covered extensively in the newsletter. You can check out my comprehensive thread starting here over on the hellsite. But I do want to highlight here a moment that I think really speaks to the baselessness of the pro-impeachment case.
At one point during the hearing, Byron Donalds displayed a Hunter Biden text message that he presented as evidence that Joe Biden was in fact involved in his business dealings — something the president has steadfastly denied. (Never mind that the text message is from 2018, a time when Joe wasn’t in office or a candidate for one.)
“Oh, this is a fun one,” Donalds began, before reading part of the text and suggesting it left him “concerned” that Joe “had knowledge” of Hunter’s business dealings.
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But as AOC pointed out a bit later during her questioning time, Donalds’s presentation of the text was a lie by omission. Read in context, the exchange shows that Hunter and Jim Biden were actually talking about getting Joe’s help to pay Hunter’s alimony. They don’t appear to be talking about business at all.
Matt Gertz of Media Matters tweeted side-by-side screengrabs of the text message as presented by Donalds and a document with the full exchange in context. The comparison shows clearly how Donalds was misrepresenting things.
As AOC said during the hearing, “that screenshot of what appeared to be a text message was a fabricated image.”
“I don’t know where it came from. I don’t know if it was the staff of the committee. But it was not the actual direct screenshot from that phone,” she added. “Importantly, what was brought out from that fabricated image excluded critical context that changed the underlying meaning.”
AOC later went on MSNBC and added: “It really cannot be understated how deceptive that was — to take critical messages out of context, to tear apart the context that they're in, and then to photoshop a text message bubble ... and this is supposed to be the Republican case for impeachment?"
Other moments from the hearing were more viral, but Donalds getting called out for deception really speaks to the desperate, shameless efforts Republicans are making to smear Biden — and in the process minimize the Trump’s brazen corruption.
But to wrap up the week on a lighter note, I thought Jared Moskowitz absolutely stole the stole the show during the hearing with a takedown of the Republican impeachment push that was both insightful and hilarious. I found myself laughing out loud several times as he skewered Republicans for more than five minutes, the entirety of which you can watch below.
As shameful as the GOP’s impeachment sham is, Democrats did a wonderful job making sure it backfired on them. Even Republicans acknowledged after it was over that the hearing was “an unmitigated disaster” and “rock bottom.”
That’s it for this week
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Have a great weekend.
How Trump's fraudulent business practices finally came back to bite him
I've been following (with glee) Trump's legal train-wrecks on the Meidas Touch Network so I knew much of this article's (well done) text. But it was worth reading it just to get to see Jared Moskowitz's 5 minutes. "If you are going to throw mud, you have to have mud" was a ripper line! To call the Republicans on this committee clowns is to defame talented, honourable circus entertainers.
Thank you for you and everyone who woks together with you on this. Democracy is watching and reporting as much as it is legislation and agencies and politics.