- The judge ruled Trump’s repayment of loans didn’t protect him from accusations of fraud, but he is expected to urge the appeals court to reduce or overturn the judgment for lack of traditional victims
- Trump expected to ask the appeals court to postpone requiring him to pay the judgment until the appeals are resolved.
With Donald Trump expected to appeal the $453.5 million real-estate fraud judgment against him, legal experts anticipate he will highlight the lack of traditional victims in the case to reduce or eliminate the damages.
New York Attorney General Letitia James won the case by documenting intentional fraud in Trump’s inflated claims about his assets when applying for loans and arguing Trump should surrender “ill-gotten gains.” State Supreme Court Justice Arthur Engoron ruled the fraud was so long-running and remorseless that it “borders on pathological.”
But Deutsche Bank and other lenders haven’t sued the former president for crafting the exaggerated statements of his net worth that persuaded them to charge lower interest rates. Debating who Trump hurt among sophisticated financial institutions is likely a key point in the appeal.
“To what extent does a large financial institution have to do their own due diligence in something like that?” asked Gregory Germain, a law professor at Syracuse University and director of the Bankruptcy Clinic. “It’s a significant question, especially since he’s always had a reputation as a blusterer.”
To avoid paying the judgment while the appeal is argued, Trump will have to ask the appeals court to pause Engoron’s order. Typically, the appeals court would require a bond to assure Trump would pay if he loses. But the appeals court could ask for a bond that is a fraction of the judgment because of the lack of traditional victims in the fraud case.
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“It’s a windfall for the attorney general,” Germain said. “She doesn’t have any losses here. She’s recovering for (Trump’s) unjust enrichment.”
Here is what we know as the countdown to the appeal continues:
How did the judge decide how much Trump owes?
Engoron had ruled that Trump committed fraud for years in overstating the value of properties in his real-estate business. On Friday, Engoron ordered Trump to pay $453.5 million in penalties and interest for “ill-gotten gains” from the fraud:
- $168 million from lower interest rates, which were based on Trump’s personal guarantee to repay loans based on his false statements of net worth.
- $126.8 million in profit from converting the Old Post Office building in Washington, D.C. into a hotel, under a contract obtained through his use of false financial statements.
- $60 million in “windfall profit” from selling Ferry Point golf course in the Bronx, whose license agreement relied on his false financial statements, to Bally’s Corp.
Engoron ruled that Trump valued his Mar-a-Lago resort at 20 times the tax assessment, that some apartments at Trump Park Avenue gained millions of dollars on his corporate balance sheet beyond their appraised values, and that Trump falsely nearly tripled the square-footage of his own Trump Tower penthouse apartment to increase its value by calling the measurement “a subjective process.”
“The frauds found here leap off the page and shock the conscience,” Engoron wrote.
Trump cites ‘worthless clause’ to acknowledge uncertain property values
Trump has vowed to appeal and the deadline will be 30 days from when Engoron formally enters the judgment, which hadn’t happened by Wednesday. Trump contends the case has no victims because banks got repaid with interest. Trump’s lawyers argued James targeted him for a victimless offense.
“There’s no evidence, no proof, that any of the terms would have been different,” Trump lawyer Christopher Kise told Engoron in closing arguments. “There’s no real-world impact, there’s no fraud victims.”
Trump called a disclaimer given to lenders in his financial statement the “worthless clause” for acknowledging property values are uncertain.
“Also, 100% Disclaimer Clause, No Default, No Victims, No Complaints, No ‘Nothing,’ except for success from the banks and everyone else,” Trump wrote Monday in a post on Truth Social.
James argued and Engoron ruled that the statute doesn’t require victims, only a finding of wrongdoing.
“Timely and total repayment of loans does not extinguish the harm that false statements inflict on the marketplace,” Engoron wrote in his decision. “Indeed, the common excuse that ‘everybody does it’ is all the more reason to strive for honesty and transparency and to be vigilant in enforcing the rules.”
James said after closing arguments the case wasn’t about a “personal vendetta or about name-calling.”
“This case is about the facts and the law,” James said. “And Mr. Donald Trump violated the law.”
More:How much is Trump ordered to pay? Graphics show a possible $500 million in penalties
James told ABC News on Wednesday that she would ask the court to seize Trump’s assets if he doesn’t have the money to pay off the judgment.
“If average New Yorkers went into a bank and submitted false documents, the government would throw the book at them, and the same should be true for former presidents,” James said.
New York law makes mortgage fraud a felony punishable by up to 25 years in prison.
“The law doesn’t get somebody off the hook because they’re ‘picking on me,’” said Mark Zauderer, a senior partner at Dorf Nelson & Zauderer, a business law firm. “You either did it or you didn’t do it. In many ways this was a garden-variety fraud case.”
Navigating ‘haircuts’ and ‘whales’
An unusual aspect to the case is that James filed the lawsuit on behalf of the people of New York. But lenders such as Deutsche Bank didn’t file their own lawsuit.
Deutsche Bank officials in the Personal Wealth Management Division testified they routinely cut their customer’s statements of net worth in half, in what is called a “haircut.” When Trump declared $4.9 billion in assets, the bank required him to maintain $2.5 billion in net worth to comply with his loans or be considered in default, according to David Williams, who worked at Deutsche Bank for 17 years.
“We typically apply haircuts in our analysis upon the review of any particular client’s financial statements,” Williams said.
Rosemary Vrablic, who was the bank’s “chief relationship manager” for the Trump Organization, said in an email to a colleague the bank would need a personal guarantee from Trump that the loans would be repaid, which she called an “iron clad recourse.”
Deutsche Bank considered Trump a valuable client while recruiting him for business in 2011. Before meeting Trump, Vrablic told another banker in an email she was “whale hunting,” meaning seeking a “potentially a very significant client.”
Trump’s appeal likely to focus on lack of victims: legal experts
Building on Trump’s claim of no victims in the case, legal experts anticipate the appeal to focus on why the attorney general’s office pursued the case.
“It seems clear that Mr. Trump’s lawyers will argue that the attorney general and the court overstepped here because there were no clear victims in this case,” said Alexander Reinert, professor of litigation and advocacy at Cardozo Law School and director of the Center for Rights and Justice.
“I think the AG will respond that, first, the law does not require she demonstrate specific victims,” Reinert added. “But, even if showing a victim were necessary, here the banks were victims because had they known the true value of Mr. Trump’s assets they would have been able to charge a higher interest rate on their loans.”
Jim Wheaton, a clinical associate professor at William and Mary Law School, said Engoron seemed careful acting as a fact-finder and describing specific expert witnesses to justify his findings, so he doesn’t expect an appeal challenging the facts of the case. Wheaton expects Trump to dispute that the statute, arguing that James doesn’t have the authority to sue or that the state isn’t entitled to the money.
Germain, the Syracuse professor, said the government did a good job of showing Trump inflated the value of his properties, but noted that sophisticated financial institutions didn’t require a third-party appraisal like they do for a typical mortgage on a home.
“There are no cases like it,” Germain said.
Zauderer said he doesn’t expect arguments challenging the law to get any traction because the statute dates to 1956 and has been well-established. Trump might have some luck challenging the calculations Engoron made to determine the amount of damages, Zauderer said.
“It’s well settled that the attorney general doesn’t have to establish damage to anybody in particular but rather it’s to enforce honest business in the state,” Zauderer said. “The theory of ill-gotten gains is solid,” he added. “Whether or not you could challenge the numbers that were calculated, in theory the numbers that it was disputed whether he really gained, that’s something the court could look at.”
Why did James sue Trump in civil court rather than charge him with crime?
The fraud judgment resulted from civil litigation rather than criminal charges. The strategy resulted in an easier path for James to win and monetary penalties rather than jail time.
A New York criminal trial brought by the Manhattan district attorney is scheduled to start on March 25 against Trump on charges he falsified business records to pay hush money to women who claimed to have had sex with him before the 2016 presidential election.
Criminal cases are harder to win. In a criminal case, the prosecutor must prove the allegation beyond a reasonable doubt. In a civil lawsuit, government lawyers need only prove wrongdoing was more likely than not.
Reinert said he expected Trump to argue Engoron used the wrong burden of persuasion. Engoron decided the case based on a preponderance of the evidence, as James had urged, while Trump’s lawyers argued he should use a higher standard of clear and convincing evidence.
How big a bond will Trump have to post to pause judgment for appeal?
In filing his appeal, Trump is expected to ask the appeals court to pause the judgment while the case is argued, to avoid paying the $453.5 million immediately. The appeals court could require a bond to ensure the state will be paid if Trump loses the appeal.
In the defamation case E. Jean Carroll, who accused Trump of rape, recently won, Trump is expected to need a bond for the full $83 million judgment while the appeal is argued.
But without a traditional victim in the fraud case, the appeals court has broad discretion to set a bond at perhaps a fraction of the total judgment.
If Trump asks to post less than the full judgment, Zauderer said a five-judge panel will consider the request. The panel will collect written arguments, giving Trump and attorney general’s office each several days to file, and then typically reach a decision in about three weeks. The panel could set bond anywhere from zero to the full judgment.
“The court would have discretion,” Zauderer said. “That would then stop enforcement while the appeal was pending.”
Bankruptcy or other ‘ugly’ options?
Trump has filed for bankruptcy protection repeatedly during his career to resolve debts while reorganizing his business. Trump claimed to have $400 million in available cash last year and could put up his properties as collateral against the judgments.
But facing combined judgments of $536.8 million raised questions about whether Trump would file for bankruptcy again. Bankruptcy would halt his immediately having to pay the judgments.
If Trump can’t come up with the required bond pending appeal, he could be forced to file for bankruptcy or fight government efforts to collect the judgments in state court.
“It gets very ugly at that point,” Germain said.
It’s not clear whether loan agreements would prevent using the properties as collateral − or whether a former federal judge Engoron ordered to oversee business decisions at the Trump Organization would allow it.
“I’ve been surprised by news reports that opine that there is no risk of bankruptcy because his properties have value,” Wheaton said. “Bankruptcy also happens when you cannot pay your debts as they become due because you have no liquidity.”
But with a presidential election this year and a carefully cultivated image as a successful businessman to protect, Trump may be reluctant to declare bankruptcy even if it could be helpful.
“I think he would do everything in his power to avoid that kind of blow to his image,” Reinert said.
