The case against the former president lacks victims, so Tish James and Arthur Engoron are inventing some.
The case against the former president lacks victims, so Tish James and Arthur Engoron are inventing some.
I f Donald Trump had defrauded banks out of $168 million in interest payments, don’t you suppose those banks would have sued Trump? Of course they would have.
But they never did.
That is not stopping elected progressive Democrats Letitia James and Arthur Engoron, the state attorney general and her cat’s paw in a judge’s robe, from concocting a mammoth fraud scheme masterminded by Trump in which we’re to believe the banks lost their shirts . . . but just forgot to complain about it.
For the most part, the civil trial at the storied lower Manhattan courthouse is political theater. How fitting, indeed, that James and Trump’s lawyers conduct daily, dueling press conferences in front of the very steps the murdered mafia don Emilio Barzini (played by Richard Conte) tumbled down in The Godfather (1972).
With Judge Engoron having ruled that Trump was guilty before the trial even started, the former president has no incentive to litigate as if he were in a normal legal proceeding. To the contrary, Trump’s strategy — rational in the formation but tempestuous in the implementation — is to deny the festivities the appearance of anything other than a game rigged by his rabid partisan foes. Hence the wild scenes during his testimony yesterday as the state began to wrap up its case. (James’s final witness, Trump’s daughter Ivanka, will appear on Wednesday, having lost her bid to quash the state’s subpoena — even though, unlike Trump’s adult sons Don Jr. and Eric, she was dropped as a defendant in the suit.)
What most exasperated Trump was the catch-22 nature of the proceeding.
Engoron’s pretrial ruling pronounced that Trump is civilly liable for fraud — i.e., for fraudulently inflating the value of his assets in statements of financial condition (SFC), which are used in various financial transactions (particularly bank loans and insurance contracts). In this, the judge endorsed James’s invocation of a monstrous New York statute, §63(12), which does not require the state to prove that the defendant had fraudulent intent, let alone defrauded anyone.
The ongoing trial that has followed Engoron’s ruling centers on what the damages for Trump’s infraction should be. There is more to it than that, as I elaborated here, but in the main the trial is about determining whether Engoron, at James’s urging, will disgorge Trump and his real-estate empire of $250 million or more in what she maintains are “ill-gotten gains.”
Obviously then, the Trump defense seeks to minimize the damages. Trump is trying to do that by denying that there was any fraud at all, arguing that his assets are worth more than what is claimed in the SFCs. But Engoron keeps cutting Trump and his lawyers off by insisting that he has already decided Trump (a) committed fraud, (b) overvalued his assets, and (c) cannot be insulated by the disclaimer in his SFCs (advising counterparties to do their own due diligence in evaluating asset values).
Why then, Trump wonders, have a trial at all? Engoron — who has little self-discipline, nary an unexpressed thought, and an obnoxious edginess when challenged — made a hash of things Monday by blurting out that he wasn’t there to listen to what Trump had to say. This was a botch — what His Honor meant was that the former president should succinctly answer the questions posed, as witnesses are expected to do, rather than going off on windy tangents and political riffs, as Trump does. But since the whole point of the non-jury trial is for Engoron to listen to what the witnesses have to say — particularly, the central witness — the clumsy comment adds more grist to Trump’s allegation that he is being railroaded by partisan “hacks” (his oft-repeated term — used not without some justification).
The Trump team has made much of the fact that there are no fraud victims in this fraud case. Indeed, that is undoubtedly the reason the federal prosecutors who originally investigated the Trump organization, and then the Manhattan DA’s office that labored mightily trying to make a criminal case, both abandoned the effort. In a fraud case, it is technically not required to prove that a victim lost money, but it’s tough for prosecutors to win a jury trial without doing so. This left it to James, who had three major advantages over her criminal-law-enforcement counterparts: §63(12), the less demanding civil-law standard of proof, and a non-jury trial in which Engoron makes the decisions.
The judge is so sensitive about the “no victims” hole in the state’s fraud case that, in his pretrial ruling, he fined Trump’s lawyers for repeatedly bringing up this “completely irrelevant” point. But James knows it’s a problem: Her reliance on prior New York precedents for the proposition that she needn’t show harm in order to disgorge profits could be attacked on appeal because she has brought an unprecedented case: The state has never before sued under §63(12) on a theory of overvalued assets (which is hardly unusual behavior) where no counterparty claims to have been defrauded — the first ever such case just happens to be this one, brought against the Democrats’ archnemesis by an elected Democratic AG who campaigned for office in heavily Democratic New York on a vow to get Trump on . . . something — anything.
So James has come up with a theory that Trump’s alleged fraud (which Engoron has decreed is proven fraud) caused stratospheric losses for financial institutions — they just, apparently, failed to notice.
To wit, James’s minions last week called Michiel McCarty, offered as a banking expert, to testify that banks lost a staggering $168 million because of Trump’s (don’t you dare say alleged) asset inflation. According to McCarty, helped along by Engoron, Trump induced banks to charge him lower interest rates than would otherwise have applied by overvaluing such properties as 40 Wall Street in Manhattan, his sprawling hotel and tower in Chicago, the Post Office complex in Washington, D.C., and the Doral Resort & Spa in Florida. Ergo, the banks were cheated out of $168 million in payments.
Patently, there are flaws in the James–Engoron theory.
First, if there were proof that Trump had ripped banks off in this manner and to this extent, this would have been a huge criminal case that no prosecutor’s office would pass up — certainly not the famously aggressive feds in the Southern District of New York (where I worked for two decades); and certainly not the Manhattan District Attorney’s Office, which twice litigated all the way to the Supreme Court to get Trump’s financial records, and which was not too embarrassed to bring a ludicrous indictment over the comparative chump change ($130,000) in hush-money Trump paid to a porn star.
Second, such proof is lacking because banks in high-end lending are sophisticated financial actors who do not take the debtor’s word for it when it comes to valuing assets — they have entire departments of experienced appraisers assessing values. Moreover, they were warned in this case by Trump’s SFC disclaimer to do their own due diligence. Clearly, they were not tricked . . . but, naturally, when Trump’s lawyers state the obvious, Engoron shuts them down by inveighing that he has already ruled that Trump committed fraud.
Third, there is no evidence that the banks would have charged a higher interest rate if Trump had lowered his valuations. McCarty is entitled to his opinion, but so were the banks, which actually had skin in the game. There is no state-law requirement holding that if an asset is valued at X amount, a bank must charge a set interest rate. These are arms-length transactions. The banks made the loans because (a) Trump was a good customer who had a history of paying up; (b) if a bank had proposed a too-high interest rate, Trump could simply have gone to a different bank that would have welcomed the business; and (c) the banks don’t make money if they don’t lend, and they were happy with the tidy profits they consistently made on Trump loans. Yet, again, when Trump’s lawyers posited these points, Engoron peremptorily declared that he had already decided Trump’s loans were “ill-gotten,” and that McCarty was just “deciding the number.”
Fourth, banks are in the loan business to make money. They are heavily regulated and have shareholders to answer to. If a bunch of them had been collectively bilked out of $168 million, don’t you imagine there would have been a lawsuit or ten?
It’s an amazing thing to watch: Donald Trump, front-runner in the Republican presidential nomination race, is on trial for supposedly inventing wealth that he didn’t have; and in order to nail him, elected Democrats Tish James and Arthur Engoron are inventing losses that no one ever suffered.