Regretfully - I know a little bit about financial fraud. My book, Pirate Cove (shameless plug! – Comes out November 7th is available on Amazon, Barnes & Noble and more) details how I stumbled across and peeled back the layers on a $350,000,000 million fraud in 2013-2018. I then took the Certified Fraud Examiners exam and earned my CFE.
So with that said and my bona fides hopefully established;
Leticia James case against Donald Trump and his organization is very strong. Over the weekend, I printed out the Background on Trump Organization Properties and Fraudulent Schemes found on her website (https://ag.ny.gov/press-release/2022/attorney-general-james-sues-donald-trump-years-financial-fraud).
Having gone through it item by item one thing is clear. This is not a sophisticated fraud. In fact, it is alarmingly simple, and it happens every day across America.
They just lied.
To put it bluntly, Donald Trump and his organization overstated the assets they own when it was convenient to them and understated them…. when it was convenient to them.
What a shock!
They regularly ignored accounting rules and finally, like nearly all borrowers they signed loan documents with banks in which they affirmed not only the accuracy and dependability of their financial statements, I’ll bet you they also signed some “under penalty of perjury.” Not having seen the loan documents, I cannot confirm the penalty of perjury part. But I have signed lots of business loan documents that included such a statement.
When they overstated their assets, they did so they could borrow more money from banks then if they borrowed at a lower – more accurate - value.
When they understated their asset value, they did so – quite often - so they could reduce their tax obligation to state and local governments.
AG James makes public a number of cases but lets look at this one – Niketown, in midtown Manhattan – where the financial statements from “each of the years from 2014 through 2018, the statement represented that the property’s valuations were based on an evaluation done in conjunction with an outside professional, despite the fact that no outside professional was consulted.”
In other words, they made up the values and said somebody else did it.
In Seven Springs, Westchester County, NY the 212 acres they bought in 1995 for $7.5 million were listed at $292 million in financial statements from 2011 to 2021. This despite the fact that a significant part of that value consisted of numerous mansions (nine to be exact) had not even been built yet. Even more brazen, at the very same time AG James asserts Eric Trump “was working to complete a conservation easement donation to receive a Federal tax deduction for giving up certain development rights.”
That means while they were valuing the property based upon mansions not yet built they were simultaneously seeking tax relief from local governments by giving up development rights. So they were valuing the land based upon developments (mansions) that did not exist while at the same time seeking a tax deduction for the promise to not develop the land.
That’s pretty ballsy if you ask me.
Under those assumptions, I can buy a piece of land today for say… $100,000. I can then say I am going to build at some point in the future a $2,000,000 mansion on that land. THEN, I am going to borrow money from a bank by listing the property on my personal financial statement for $2.1 million even though no $2,000,000 mansion had been built!? All the while telling the state and local government I would never build on the land so I could lower my tax bill!
If I did that, I’d be in handcuffs.
Now… You can’t do this alone. Not on this scale. There has to be either willing accomplices or industry stalwarts willing to either go along, turn a blind eye to the shenanigans or as is often the case have an employee or group of employees making bank while hoping their higher ups – or compliance folks never find out.
Based on what the report has to say, I guarantee you Deutsche Bank and Cushman & Wakefield have been lawyered up for a while on this.
On the 40 Wall Street property AG James specifically points to an “inflated appraisal prepared by Cushman & Wakefield.” The appraisal for the property is disclosed to be $540 million. But this wasn’t enough for the Trump Organization. The same year that they commissioned the appraisal (2015) they also grossed up the value of 40 Wall Street to $735.4 million. A 36.18% immediate gain in value.
Nice work if you can get it.
Deutsche Bank on the other hand shows up in two of the Trump loans as disclosed by AG James. In July of this year, Matthew Goldstein of the New York Times reported,
“Deutsche has a troubled history with regulators and prosecutors. Over the past decade a number of sanctions have been imposed on the bank and it has paid big fines over its failure to crack down on money laundering and over allegations of enabling tax violations, price fixing and foreign bribery. In 2017, the bank reached a $7.2 billion civil settlement with federal prosecutors over its sale of toxic mortgage products in the run-up to the 2008 financial crisis. The bank also paid a $150 million fine to a New York bank regulator in 2020, partly over its banking relationship with the disgraced financier Jeffrey Epstein.”
Now… for those of us who have worked in investment banking, corporate finance and private equity, Deutsche Bank has a certain mystical allure. They did a lot of deals. Big deals. You would have given your left arm to work there because they always seemed more aggressive, more willing to push the financial envelope and they paid really, really well. If you got hired by Deutsche Bank you had instant BSD status.
But every once in a while something nasty happened at Deutsche Bank and you told yourself that if you worked there you would never be so dumb and do that shit. But if they offered a job?? You are there.
In a couple of days I’ll post some more on the Trump case. Suffice it to say… there is a whole lot more in AG James background report. And from this former Certified Fraud Examiners perspective Trump has a huge problem. A civil problem. No one is going to jail over this. But from here on in, Trump will be a hard sell in any big bank loan committee. Unless they overcharge the shit out of him.
Because that is what big banks do.
As always, your comments, questions and criticisms are always welcome.
Best,
RDB