That Trump lied about, inflated, grossly exaggerated the value of his holding and hence his claimed net worth surprised no one with any knowledge of who he was.* That New York Attorney General Tish James took three plus years to figure this out is sad. But then, James needed more than to know the obvious, to gather evidence of it to prove it and then she could use her offices as chief civil legal officer of New York to flex her limited corporate oversight muscles. And now she has, even coming up with her own cute catch phrase.
This isn’t the Art of the Deal. It’s the Art of the Steal.**
The more than 200 pages of the complaint set forth a litany of absurd lies and distortions about the size and value of Trump’s holdings. Some are so ridiculously high, such as his 10,000 square foot gold-plated triplex in Trump Tower, the gaudiest address in Manhattan, which he claimed was 30,000 square feet and valued at almost $30,000 per square a foot, thrice the price of the most expense square foot ever in the city. But that’s the sort of valuation Trump needed to comfort him for never being invited to dinner by wealthy people.
The upshot, according to James, was that Trump’s grossly inflated valuations enabled him to benefit from preferential interest rates on bank loans and premiums on insurance policies.
His company, the Trump Organization, provided the fraudulent financial statements to lenders and insurers, her suit said, “to obtain beneficial financial terms,” including lower interest rates and premiums. All told, Ms. James said, the Trumps were able to obtain a quarter of a billion dollars that she now wants the company to forfeit.
There’s little doubt, and even less pushback, that Trump lied about the value of his assets. Somehow, “lied” doesn’t begin to capture the magnitude of his cartoon claims. At the same time, that’s part of where his defense begins, that his valuations were so facially absurd, so laughably false, that no one with a business IQ above a rock would have believed them. To a large extent, this has been Trump’s saving grace throughout his career, that he’s so utterly lacking in credibility that no reasonable would rely on anything he says.
And this is Trump’s “defense,” framed a little differently.
Trump’s legal team has suggested that any rosy analyses of Trump’s financial condition in statements submitted to banks is consistent with the practice in the world of real estate and bank financing.
The value of commercial real estate, among most other things, is whatever someone will pay for it. When it benefits the owner for the valuation to be higher, it’s entirely normal to make it so. Banks know this. Insurers know this. Buyers know this. Everybody knows this. But there is a huge difference between fudging the estimated valuation by 10% and doing so by 1000%. The former is normal. The latter is Trump.
Indeed, his attorneys have argued that bankers were not actually deceived by the alleged asset inflation because they produced more conservative internal assessments before approving the loans to Trump.
This is almost certainly true, that no bank was fooled by Trump’s cartoon valuations designed to make him appear to be RICH!!! to anyone without a clue how it worked. On the one hand, banks do their own due diligence, appraising the properties before cutting the check no matter how grandiose the claims of the loan applicant. On the other hand, it’s not as it a claim that a property bought for $5 million yesterday is valued at $500 million today isn’t a big red flag that the applicant is full of shit.
Trump himself leveled a version of the “no harm, no foul” defense on his Truth Social media site Wednesday, saying that the banks and insurance companies involved “were fully paid, made a lot of money, and never had a complaint about me.”
The valuation of the property only matters as collateral for the loan. If there is a default, then the bank has recourse against the property, so the sufficiency of the value of the property to cover the unpaid balance of the loan matters of the bank could take a hit. Banks hate that. Folks who lend hundreds of millions of dollars tend not to rely on the valuations of the applicants, particularly when applicant managed to bankrupt a casino and has gainful employment as a game show host.
But if there was no default, then the value of the property isn’t relevant for purposes of collateral. Moreover, if the loan to value ratio is good, the risk taken by the bank is reduced such that the lower risk is reflected in a lower interest rate. The fact that banks made money, therefore, doesn’t address the issue, which is that the banks would have made more money, about $150 million per year according to James, had Trump not gotten preferential interest rates.
But as flagrant and ridiculous as Trump’s very deliberate lies may have been, did they constitute a scheme or artifice to defraud? Civil fraud has five elements.
- the making of a statement
- the falsity of the statement
- an intent to deceive, called “scienter”
- reasonable reliance on the statement by the injured party
- injury sustained as the result of the reliance
Clearly, James has the goods on the first two elements. The third only gets sticky when applied to major business entities like banks, as opposed to magazines and Page Six, who were not really the intended target of Trump’s lies because he knew well enough that they weren’t biting on his ridiculously high valuations.
But what about the fourth and fifth elements?
However, James’ office appears to be taking the stand that whether the banks were or were not actually tricked isn’t relevant to the legal case — that the alleged intent to deceive on the part of Trump, his children and top aides in order to get a financial benefit is sufficient to constitute a violation of the law.
James has also said that whether the other parties in Trump’s deals sustained a loss also isn’t relevant, so she can pursue these violations even if the banks profited from the deals.
Whether James can sustain this position is a question that remains to be answered. While there are a number of low-level offenses associated with issuing a false financing statement, those are outside James’ authority. While there’s little doubt that Trump engaged in wild lies to puff his wealth, whether that conduct alone will sustain James’ suit remains unclear.
*My old pal Don’t Worry Murray used to joke that he was six feet tall, a four foot guy standing atop his pile of money. As everybody knew, that was how Trump claimed he was RICH!!!, to bolster his fragile ego.
**Much as the nice folks at Slate think this was the ginchiest wordplay ever, I do not share that view and think it’s obvious enough that Trump might have come up with it.
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