Trump Fraud Ruling Threatens to Handcuff Family Business Operations

Trump Fraud Ruling Threatens to Handcuff Family Business Operations © Provided by The Wall Street Journal

The $355 million New York fraud ruling against Donald Trump stands to put a serious dent in his bank account, but it is the nonmonetary punishments that could be particularly painful for his company.

Justice Arthur Engoron in his decision Friday banned the former president from serving as an executive of the Trump Organization or any other New York company for three years, and his sons Eric Trump and Donald Trump Jr. for two. Trump and his business are also barred for three years from applying for loans from financial institutions registered with or chartered in New York state.

Collectively, the restrictions will force Trump’s real-estate conglomerate to reimagine how it does business inside and out of New York, all under the heavy oversight of a court appointed monitor. The judge ordered the installation of an independent compliance director at the Trump Organization.

The ban on borrowing could have the greatest impact, lawyers said, because most large U.S. banks are registered or have charters with New York.

“When you are a realtor, you need money,” said Evan Gotlob, a partner at the law firm Saul Ewing. “That ruling really encumbers their ability to get money to build around the world.” Trump could still get loans elsewhere, but the process would be more burdensome and likely involve smaller institutions, he said.

Engoron, siding with claims brought by New York Attorney General Letitia James, ruled that the Trumps committed a variety of civil-fraud offenses in a yearslong scheme to secure better terms from lenders by inflating the former president’s wealth.

Trump called the case a political hit job designed to interfere with his bid to return to the White House, saying banks made healthy profits on the deals and were eager for the business. “There was no fraud,” Trump said Friday evening. “The banks all got their money, 100%. They love Trump.”

Eric Trump and Donald Trump Jr. have run the company as their father’s focus in recent years has been more on politics than business.

A Trump Organization spokeswoman said the ruling was bad for business in the state. “If allowed to stand, this ruling will only further expedite the continuing exodus of companies from New York,” she said.

Trump could seek a stay from an appeals court, which already put parts of a September ruling by Engoron on hold for now.

The $355 million New York fraud penalty comes with interest, meaning Trump’s financial obligation could balloon quickly. The New York attorney general’s office estimates that he already owes nearly $100 million in prejudgment interest on the financial benefits he obtained improperly.

Friday’s ruling capped a frenetic week of legal developments for Trump, the Republican presidential front-runner, as he conducts his campaign. This past Monday, Trump sought the U.S. Supreme Court’s intervention as he argues for immunity from federal charges related to election interference. On Thursday, a different New York judge set a March 25 start date for a criminal trial on allegations that he falsified business records to conceal hush money paid to a porn star. That same day, in Georgia, Fulton County District Attorney Fani Willis, who is pursuing a racketeering case against Trump, was grilled about her romantic relationship with a prosecutor at a hearing to determine whether she should be removed from the case.

Still, as bad as Friday’s ruling was for Trump, it could have been worse.

The judge didn’t embrace some even steeper penalties sought by James, including a lifetime ban on Trump’s serving as a top official for any company registered in New York. Engoron also walked back an earlier ruling that appeared to order the winding down of some of Trump’s businesses.

“This is a very tough order. This does not happen every day,” said Gregory Krakower, who was a senior adviser to Eric Schneiderman when he was New York attorney general. “However, the judge has withdrawn the corporate death penalty.”

On appeal, Trump has several arguments he can make to attack at least the size and scope of Engoron’s ruling. Close to half of the monetary penalties imposed by the judge were based on the judge’s estimate of how much money Trump saved by obtaining cheaper credit. Engoron also clawed back $187 million that Trump recently made from the sale of two properties. Some legal observers said the judge’s tabulation of Trump’s allegedly ill-gotten gains could be challenged as too speculative.

“This is one area where Trump’s chances on appeal are greatest,” said John C. Coffee Jr., a professor of corporate and securities law at Columbia Law School.

The former president also could argue that James exceeded her authority under the broad civil-fraud law she used to bring the case, particularly because the alleged conduct didn’t have any clear victims.

Trump’s legal team is expected to cite a failed fraud case the New York attorney general’s office brought against Domino’s Pizza. The state alleged that the chain supplied its franchisees with a back-office software system that systematically undercalculated wages. No testimony emerged backing up the state’s claim that Domino’s misled franchisees about the software system’s abilities. A Manhattan judge threw out the case in 2021, finding the claims to be too thin to warrant a state enforcement action and the matter better suited for private contract litigation.

Trump can delay payment of the judgment during his appeal by posting an appeal bond. He might have to depend upon surety insurance companies to guarantee his payment of the judgment should it be affirmed. That would likely require securing the bond with collateral such as cash, letters of credit from banks, investments or other assets, including real estate.

Trump’s net worth has been estimated at around $3 billion, but the size of his liquid assets is unclear. In a deposition last year, he testified to having more than $400 million in cash, less than he might ultimately owe to the state if his appeal falls short.

“It may be something he can’t pay without a real-estate fire sale,” Coffee said.

Despite the bruising legal battle ahead, it is possible the Trump Organization has paths to success no matter the outcome.

Massimo D’Angelo, a real-estate attorney at Blank Rome, predicted that even if the ruling was upheld on appeal, the company could still move forward.

“Certainly they would get out of the state where they can’t operate and are considered to be the black sheep,” D’Angelo said. “But they could go to other jurisdictions and be profitable.”

Write to James Fanelli at, Corinne Ramey

Source: The Wall Street Journal