Did Donald Trump Indulge in Fraud? New York State on a Mission To Find Out
The AG's office and Manhattan's DA have launched separate but parallel inquiries into Trump's business practices.
The Quint DAILY
For impactful stories you just can’t miss
Former United States (US) President Donald Trump sued the New York State Attorney General (AG) Letitia James on Monday, 20 December.
The lawsuit, filed in an Albany federal court, intends to stop the AG's long-running investigation into his real estate company called the Trump Organisation.
It also seeks to prevent James from assisting separate criminal investigations against him, such as the one being carried out by Manhattan District Attorney (DA) Cyrus R Vance Jr.
What exactly about the former president is being investigated by the offices of New York's AG and Manhattan's DA? How has Trump reacted to them?
'Trump Is a Cheat': Cohen's Testimony
It all started with the dramatic congressional testimony of Michael Dean Cohen, the former attorney of the former president.
Cohen joined the Trump Organization as an attorney in 2006, and was there till 2018, after which he was convicted and sentenced to three years in prison for tax evasion and other federal crimes.
During his testimony to Congress on 27 February 2019, Cohen ratted out Trump about his dishonest business practices, such as misstating the value of his properties depending on his objective in that particular situation.
"It was my experience that Mr Trump inflated his total assets when it served his purposes, such as trying to be listed among the wealthiest people in Forbes, and deflated his assets to reduce his real estate taxes," he famously said.
During the hearing, in front of the House Committee on Oversight and Reform, Cohen also submitted a few of the many financial documents (labelled "statements of financial conditions") that Trump gave to bankers and insurers in 2011, 2012, and 2013, in order to inflate his personal wealth, Washington Post reported.
What is the logic behind Trump's inflation and deflation of property?
It all depends on what loopholes can be exploited to financially benefit from manipulated property valuation.
Manipulating Property Values
Four properties, including the Trump International Hotel and Tower in Chicago and the Trump National Golf Club, are under investigation for overvaluing.
The idea of overvaluing a piece of land is that a company can demand a larger tax break in exchange for agreeing to not use a large portion of the property.
Additionally, overvaluing can also create a stronger case for a bigger than required bank loan.
For example, Trump's Seven Springs estate in New York, where he wanted to build golf courses, was valued by him at $291 million in 2012 (according to Cohen's testimony), a figure submitted to Deutsche Bank for a loan, which never materialised.
When his golf course plans were cancelled due to resistance from the local community, Trump got a $21 million tax break after deciding to not use much of the property, thereby "conserving the land."
In 2018, however, when Trump, as president, filed his annual financial disclosure forms (required by federal law), he estimated the Seven Springs estate to be around $50 million.
Had he put forth the same estimation in 2012, the value of his tax break would be much lower.
On the other hand, one can deflate the value of assets to pay less taxes.
The higher the value of a property, the higher is the tax that the property owner must pay to the tax department of the respective government.
For example, the Trump Organization in the year 2015 claimed that a golf club in the town of Ossining was worth $1.4 million – far less than the $15.1 million assessed by the town council itself.
Fearing that Trump would win the tax appeal in court, the town agreed to reduce the property's value (what they had assessed) and settled for a compromise, thereby reducing the tax Trump's company would have to pay.
However, in his 2015 financial disclosure form, Trump had valued the property at more than $50 billion, reported The Guardian in a 2016 article titled How Trump’s $50m Golf Club Became $1.4m When it Came Time to Pay Tax.
It was reported last year by The New York Times that Trump and his company may have committed bank and insurance fraud in the past few years.
The Manhattan DA's office, led by Vance, is looking into that.
The prosecutors from the office cite "public reports of possibly extensive and protracted criminal conduct at the Trump Organization," one of which was a Washington Post investigative report titled 'How Donald Trump Inflated His Net Worth to Lenders and Investors'.
The office even references Cohen's congressional testimony, in which the latter said that the former president had indeed committed insurance fraud.
Trump tried to hit back by using the Supreme Court.
In Trump v Vance, the former president sued Vance to prevent the release of his tax documents for which he had been subpoenaed by the latter's office.
The Supreme Court ruled against him.
Trump is now fighting the Vance's subpoenas on the grounds of illegal harassment.
It is important to keep in the mind the famous New York Times expose that revealed that Trump had paid "$750 in federal income taxes the year he won the presidency" and "in his first year in the White House."
The NYT investigation had also revealed that "he had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made."
New York Attorney General Letitia James has been conducting a separate but parallel (with respect to Vance) investigation into Donald Trump's business dealings.
Until recently, her investigation was a civil one. Two months ago, however, she announced that her office is "now actively investigating the Trump Organization in a criminal capacity, along with the Manhattan DA."
Both offices, the DA's office in Manhattan and the AG's office in New York, are pursuing similar charges against the former president, but Vance's investigation is supposedly broader as it is looking into more property dealings than James'.
It is unclear as of now what role James will be playing in Vance's investigation.
Trump, however, has sought to stop any participation by James in his lawsuit against her.
He is trying to prevent her from being involved in any "civil or criminal" investigations against him, not just the one she is initiating from her own office.
In his lawsuit, Trump has claimed that James has a political bias against him, accusing her of having a "personal disdain" for him.
Legal experts, however, have said that there is no constitutional protection per se against the 'bias' of a prosecutor.
One such expert said that Trump's strongest case at the moment is that the AG abused the powers vested in her by her office.
"The abuse of process is the one that I think comes closest," according to Jonathan Smith, who is the executive director of the Washington Lawyers Committee.
He added that Trump and his lawyers would stand a chance "if they can actually show that her (James') purpose is retaliatory or politically motivated, that violates the ethics rules."
James' on the other hand, has remained completely undeterred.
While stressing that the investigation will continue without any delay, her office stated that "neither Trump nor the Trump Organisation get to dictate if and where they will answer for their actions."
(With inputs from The New York Times, Washington Post, and The Guardian.)
25 10% off
100 10% off
200 10% off
Subscribe To Our Daily Newsletter And Get News Delivered Straight To Your Inbox.