New York’s lawsuit against Trump combines ordinary business law, unusual allegations

New York’s lawsuit against Trump combines ordinary business law, unusual allegations

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

The lawsuit, filed Wednesday by Letitia James, accuses Mr. Trump, three of his grown children, his company and two of its longtime executives of engaging in a decade-long scheme to falsify financial statements for financial gain. Ms. James, a Democrat, alleges that the defendants made illegal and misleading appraisals of 23 properties and assets, from a golf club in Scotland to several properties in New York.

The alleged fraudulent representations allowed the Trumps to secure financial benefits, including favorable loan terms and insurance rates, that they would not have otherwise qualified for, the lawsuit alleges.

Mr Trump, who faces other legal investigations, and his company have denied wrongdoing. The former Republican president and his two grown sons have presented the case as politically motivated. Ivanka Trump’s lawyer declined to comment. The Trump Organization said the banks were not harmed and did not dispute the loans.

Ms. James’ complaint is based on a longstanding New York law that gives the attorney general broad powers to combat “persistent fraud or illegality in the conduct, conduct or transaction of business.” The lawsuit seeks significant penalties that could curtail the company’s operations in New York.

Donald Trump, right, sits 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 previously alleging fraudulent property appraisals, but they are relatively uncommon, attorneys said. In a 2016 criminal case, the bureau accused New York landlord Steven Croman of submitting false mortgage documents to banks, including listing market-rate rents for rent-stabilized units. Mr. Croman pleaded guilty to the felony charge in 2017.

One challenge of valuation-fraud cases is that they can turn into expert battles, as appraisers can reasonably come to different conclusions, lawyers said. Some allegations in Ms. James’ complaint may fall under that category, though other allegations in the lawsuit make stronger allegations of fraud, they said.

“There’s a lot of wiggle room in some of these valuations,” said Sarah Krissoff, a former federal prosecutor now at Day Pitney LLP. “What the attorney general has done well here is provide such stark examples and show that pattern over time.”

Among the properties it listed, the suit said bank-ordered appraisals valued 40 Wall St., an office building in Manhattan, at $200 million in 2010 and $220 million in 2012. Trump’s 2011 financial statement valued the property at $524 million and a year later at $527 million, according to the suit.

Ms. James also mentioned the Trump family’s Mar-a-Lago estate. The suit claims the Trumps valued it at up to $739 million, despite development restrictions. The property is likely worth about $75 million, the lawsuit said.

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

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

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

Demands for bans have become more frequent 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 law firm WilmerHale.

“Attorneys general are increasingly seeking to shut wrongdoers out of their industry, not just to get their companies to recoup the profits from their executives’ wrongdoing,” he said.

The most important solution Ms. James has sought is revoking the certificates that allow Trump businesses to operate in the state, said Daniel Horwitz, a former Manhattan district attorney who is now a partner at McLaughlin & Stern LLP.

“What’s extraordinary is that he’s essentially seeking to take ownership of the company away from the Trumps by decertifying the business,” Mr. Horwitz said. “Trying to give the Trumps the boot in New York.”

In an earlier case involving Trump, the New York attorney general’s office in 2018 sued the Trump Foundation alleging that Mr. Trump used his family foundation to promote his 2016 campaign, pay legal arrangements and promote its businesses.

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

In another recent high-profile case, one of Ms James’s most ambitious court requests failed. A judge in March denied Ms. James’ attempt to dissolve the National Rifle Association as part of an ongoing lawsuit alleging officials violated state nonprofit laws. The NRA has denied wrongdoing.

The judge said the attorney general’s lawsuit “does not allege the kind of public harm that is the legal trigger for imposing the ‘corporate death penalty.’ “

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

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