Expert Says He Couldn't Find a 'Single' Accounting Provision Violated in Trump Fraud Trial
Expert Says He Couldn't Find a 'Single' Accounting Provision Violated in Trump Fraud Trial

By Michael Washburn and Catherine Yang

Former President Donald Trump returned to Manhattan’s famous courthouse on Dec. 7 to hear the last expert witness testify in his defense before he will take the stand himself next week.

Eli Bartov, professor of accounting at NYU’s Stern School of Business and an award-winning researcher, has published several papers on financial reporting misconduct—the issue at the heart of the case against President Trump.

Last year, New York Attorney General Letitia James sued President Trump for defrauding the state, and a week before his trial began this fall New York Supreme Court Justice Arthur Engoron ruled in her favor, deciding that President Trump was indeed liable for fraud and had inflated his net worth on the yearly Statements of Financial Condition (SFoC) produced by the Trump Organization.

Defense lawyers are presumably preparing their appeal of the final ruling and orders, which they have said they believe will be unfavorable, and in recent weeks have been making public allegations of court bias and misconduct. Earlier this week, attorney Chris Kise told the judge they were streamlining the case, removing President Trump’s son Eric Trump from the witness list.

On Dec. 7, President Trump told reporters he wanted to remind everyone that the judge had already ignored an appeals ruling once.

“We won this case at the appellate division, and this judge refuses to acknowledge the appellate decision,” he said, referring to the appellate ruling that set a statute of limitations on the case. “Nobody’s ever seen something like this.”

“If you look at the case, we did nothing wrong, there were no victims,” he added, once again calling the case a “witch hunt” and pointing to the previous testimony of a former bank executive who detailed how Deutsche Bank courted the Trump Organization.

“There’s probably not a judge in the country that would have even taken this case,” President Trump said.

After Mr. Bartov’s testimony, President Trump told reporters that the judge had not known a lot of what was said in the courtroom when he made his summary judgment on Sept. 26. The judge had said he would take it under advisement, without confirming that he would revisit his ruling.

Expert: No Evidence of Accounting Fraud

“Financial reporting misconduct is a very important part of any course that I teach,” said Mr. Bartov. Being able to detect financial fraud early can be rather profitable, he explained, such as the famous case of Enron.

His expertise includes rate analysis and valuation of companies, and he detailed his extensive involvement in the field of accounting, publishing in major journals, chairing committees, and attending and lecturing on the invitation of conferences, universities, and governments globally. He has also testified as an expert witness before, including for the New York Attorney General’s Office when it sued Exxon Mobil.

Though the judge allowed him to testify as an expert in financial accounting and credit analysis, it came after lengthy objection from the state attorneys, who argued the professor had expertise in valuing publicly traded companies, not Deutsche Bank’s decisions. Mr. Kise commented that the state attorneys have objected to this one witness more than any of the others, “which tells me they’re terrified of this witness.”

Mr. Bartov said that after reviewing the lawsuit against the Trump Organization, “the most important evidence is the credit reports of Deutsche Bank.”

Those reports, rather than the Trump statements of financial condition (SFoCs), “really tell you the whole story,” he explained. “You can spin it any way you want, but everything is there.”

Mr. Bartov, who teaches students how to do credit reports just like the Deutsche Bank credit report on Trump Organization, said the person who prepared this report may well have once been his student.

“I am not going to provide an independent valuation of these because it’s not necessary, not because I can’t do it,” he explained. “My main finding is there is no evidence whatsoever of any accounting fraud.”

“The SFoCs over the years were not materially mistaken,” Mr. Bartov said.

The statement prompted the judge to ask if he meant that the attorney general’s “complaint had no merit.”

“This is absolutely my opinion,” he said. “You read the complaint: the complaint has numerous allegations of valuations of GAAP [generally accepted accounting principles]. There is no specific reference to a provision of GAAP that was violated.”

“Some of them really bordered on absurd,” he added, saying that a few hours of accounting would have sorted out what the attorney general assumed was a violation.

Mr. Bartov said he had to run through “thousands of GAAP provisions” and “couldn’t find a single GAAP provision that was violated—I couldn’t find one.”

He did find “one error” in calculation, however, but it was not an unusual type of error. He added that he has written an academic paper on inadvertent error versus fraudulent error, finding that 3 to 4 percent of companies report errors in audited financial statements. The SFoCs were not audited, and were in fact marketing pieces meant to introduce the Trump Organization to potential financial partners.

“I tell banks not to rely on SFoCs because they’re not audited,” Mr. Bartov added. “I served as an auditor for eight years. There is not one company I audited that I did not find errors.”

After lunch, Mr. Bartov expounded on the importance of the Deutsche Bank credit report over the SFoC. While the Trump Organization statements were more detailed than many other company SFoCs Mr. Bartov has seen, he said that “no one in his right mind” would make a lending decision based off of these kinds of statements, and the bank certainly would not have prepared their own report based solely on the SFoC information.

“No reasonable person familiar with analysis will tell you you can do an analysis based on balance sheet alone,” he said. “It’s impossible to argue that Deutsche Bank or any other lender would make lending decisions based on SFoCs.”

During a break, President Trump told reporters that this case “should never have been brought.”

“This is weaponization of justice, and this is something nobody has ever seen to this extent,” he said, adding that he’s now sitting in a courthouse instead of campaigning in Iowa along his political rivals, calling it “election interference.” He clarified that he was not required to be in court for the trial, but that he wanted “to make sure that you get the true story.”

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