New York Lawsuit Against Trump Mixes Usual Business Law, Uncommon Allegations

New York Lawsuit Against Trump Mixes Usual Business Law, Uncommon Allegations

The New York attorney general’s lawsuit against former President Donald Trump uses state common business law to make allegations about property valuations, which lawyers say are rarely the focus of civil fraud cases.

The lawsuit, filed on Wednesday by Letitia James, accused Mr. Trump, three of his grown children, his company and two of his longtime officials of participating in a ten-year scheme to falsify financial statements for economic gain. Ms. James, a Democrat, alleged that the defendants made illegitimate and misleading valuations of 23 properties and assets, ranging from a golf club in Scotland to several properties in New York.

The allegedly fraudulent representations allowed the Trumps to receive economic benefits, including favorable loan terms and insurance rates, for which they would not have otherwise qualified, the suit says.

Mr Trump, who is facing another legal inquiry, and his company have denied wrongdoing. The former president of the Republic and his two adult sons showed that the situation is fueled by politics. A lawyer for Ivanka Trump declined to comment. The Trump Organization has said that no banks were harmed and had no issues with the loans in question.

Ms.’s complaint is James as the basis for long-standing New York law that gives the attorney general broad powers to “combat fraud or persistent illegality in the conduct, conduct or business of business.” Lawmakers are seeking significant penalties that could limit 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 pursued cases alleging fraudulent property valuations before, but they are relatively rare, lawyers said. In one criminal case in 2016, the office charged New York City landlord Steven Croman with submitting false mortgage documents to banks, including by listing market-rate rents for rent-stabilized units. Mr. Croman pleaded guilty to a felony charge in 2017.

One challenge with appraisal-fraud cases is that they can turn into expert battles, because appraisers can plausibly come to different conclusions, lawyers said. Some allegations in Ms.’s complaint could James fall into this category, although other allegations in the suit make allegations of fraud more significant, they said.

“There’s a lot of leeway in these valuations,” said Sarah Krissoff, now a former federal prosecutor at Day Pitney LLP. “What the attorney general did well here was to provide such vague examples and show this pattern over time.”

Among the properties it cited, the lawsuit said bank-ordered appraisals in 2010 valued 40 Wall St., an office building in Manhattan, at $200 million and $220 million in 2012. The property was valued at $524 million. in Trump’s 2011 financial statement and the following year at $527 million, the suit is alleged.

Ms. James also mentioned the Trumps’ Mar-a-Lago property. The suit alleges that the Trumps valued it as high as $739 million, despite development restrictions. The property is probably worth about $75 million, the lawsuit said.

Donald Trump said he invoked his Fifth Amendment rights and refused to answer questions from New York’s attorney general at a scheduled deposition in August. WSJ’s Corinne Ramey explains what to know about the investigation into the former president’s financial dealings and his business. Photo illustration: Laura Kammermann

Eric Trump on Twitter called that assertion “asinine” and wrote, with crying emojis, “If you’re interested in selling Mar a Lago for $75mm I’m first.”

Ms. James is asking a New York court to order the return of what she said was $250 million in ill-gotten gains. More broadly, she is asking a judge for remedies that could curtail the Trumps’ business dealings in the state, including permanently barring Mr. Trump and his three children from serving as officials of companies in the state and five-year bans on the. former president and his company from entering New York commercial-real estate transactions or applying for loans with institutions registered in the state.

Demand for a ban has been growing more frequently in recent years, said Brian Mahanna, a former senior official in the New York attorney general’s office who is now a partner at the WilmerHale law firm.

“State attorneys are increasingly trying to block wrongdoers from their industry, not just trying to make their companies profit from hiding the wrongdoing of their executives,” he said.

The most significant remedy sought by Ms. James is the revocation of certification that allows Trump businesses to operate in the state, said Daniel Horwitz, a former Manhattan prosecutor who is now a partner at McLaughlin & Stern LLP.

“What’s unusual is that she’s basically trying to take ownership of the company away from the Trumps by revoking the business certificate,” Mr. Horwitz said. “She wants to give the boot to the Trumps in New York.”

In a previous case involving Trump, the New York Attorney General’s office in 2018 sued the Trump Foundation over allegations that Mr. Trump used his family’s foundation to promote his 2016 campaign, seeking legal settlements to pay and promote his affairs.

As a result of settlements resulting from the lawsuit, the family’s charity had to be dissolved under the supervision of a judge and the three Trump children were required to undergo mandatory training about charities.

In another recent high-profile case, Ms. James in court. A judge in March denied Ms. James’ attempt to dissolve the National Rifle Association as part of ongoing litigation alleging that officials violated state nonprofit laws. The NRA has denied wrongdoing.

The judge said in the attorney general’s lawsuit that “the kind of public harm that is the legal basis for imposing the ‘corporate death penalty’ is not alleged.” “

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

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