By Michael Washburn
When New York Attorney General Letitia James’s civil fraud proceedings against former president and 2024 candidate Donald J. Trump resume on Monday, Nov. 13, Trump’s lawyers, having lost their bid for an early verdict, will mount a spirited defense of their client and the legality of his business dealings.
President Trump himself believes, and asserted during an angry outburst in the courtroom on Nov. 6, that the attorney general has no case and has targeted him unfairly in an effort to quash his political prospects. He also claimed that bringing unfounded charges of fraudulent financial statements has set a terrible example and will drive entrepreneurs away from New York City.
“I think this case is a disgrace. It’s a disgrace for people wanting to move into New York. You have people being murdered on the street, and you have an attorney general sitting watching my every move. Legal scholars are saying it’s the most unfair witch hunt they’ve ever seen. It’s election interference, because you want to keep me in this courthouse all day,” President Trump said under cross-examination from government lawyers.
But whether or not Ms. James’s legal case has merit, and regardless of what its motives may be, it is ultimately not likely to sway real estate entrepreneurs and other movers and shakers who are thinking of relocating to or expanding their business in New York, legal experts and political commentators have told The Epoch Times.
Instead, the trial will focus the public’s attention ever more keenly on the selective nature of law enforcement under the current administration and the targeting of a political opponent whose creditors have not themselves alleged any breach of contract or fraudulent representations, the observers say.
Assessing the Valuations
Of course, nothing close to a consensus exists at this point in time as to the accuracy of the valuations contained in President Trump’s statements of financial condition or the legitimacy of his use of such documents in efforts to obtain loans from banks.
The assets listed in the statements are many and varied, including the Trump International Hotel and Tower in Chicago, the Mar-a-Lago estate in Florida, the Doral Golf Club near Miami International Airport, the Trump National Golf Club in Westchester, and the Trump Estate in Aberdeen, Scotland.
Trump argues that his internationally recognized “brand” imparts a value to his assets not reflected in dry calculations of value per square foot; that the Aberdeen estate derives additional value, again not reflected in the statements, from its location in an oil-rich region; that the statements were rough estimates and included disclaimers urging banks to perform their own diligence; that in any event he was far too wealthy during the decade under scrutiny to be a credit risk for any bank that chose to work with him; that he has repaid his loans; and that, when you come down to it, the banks needed him more than he needed them.
Others are not at all convinced.
“The court and other disinterested commentators seem to have come to the conclusion that the valuations were inflated, and I have no particular reason to think that those commentators are incorrect,” David Hasen, a law professor at the University of Florida and editor-in-chief of the Florida Tax Review, told The Epoch Times.
Nor does Mr. Hasen believe that convincing evidence has emerged as to political motives on the part of Ms. James.
“I can’t speculate on her motives, but the amount of over-valuation by the Trump organization does seem to be quite large,” he continued.
While that question is litigated, people may wonder about the issue that President Trump raised in his Nov. 6 testimony, namely, the long-term impact of the lawsuit on entrepreneurs who never imagined that statements and documents from as long as 10 or 12 years ago might come back to haunt them.
Indeed it is possible that some entrepreneurs will react negatively to the overreach of an attorney general who seems uninterested in how the financial institutions themselves assess the former president’s dealings with them or his general standing with them, conceded Brian Domitrovic, a visiting scholar at the University of Colorado Boulder.
“I certainly think that when no creditor has complained—or dealt with missed payments—and the state is pursuing charges, all businesses who transact with counterparties amicably should feel vulnerable to the same kind of challenge,” Mr. Domitrovic told The Epoch Times.
Yet many real estate entrepreneurs are sophisticated enough to value banks’ assessments and calculations more than those of an attorney general.
“No creditor—and there were many over a very long term—had problems with this client,” Mr. Domitrovic acknowledged.
Some observers find it highly unlikely that the type of enforcement action leveled against President Trump, as campaigning for the GOP 2024 nomination gets into high gear, will target other entrepreneurs in real estate and other sectors and industries. The New York attorney general may feel pressure to make an example of a public figure widely viewed as the quintessential real estate tycoon, and his political enemies are legion.
“My view is that, if he wasn’t a celebrity, the government would not have known about the violations of law. Celebrities, big business people, and prominent politicians draw more scrutiny. That is why a lot of rich people try to stay under the radar,” Jeffrey Hooke, a lecturer at Johns Hopkins Carey Business School and former investment banker, told The Epoch Times.
Mr. Hooke said he finds it far less likely that a majority of people doing deals in the sector will draw such scrutiny.
This does not mean that they are all innocent of any wrongdoing. Inflating the value of assets, or, to use a common expression, cooking the books, is so widespread in real estate that Ms. James may be vulnerable to charges of selective enforcement, says Keith Naughton, the director of Silent Majority Strategies, a consulting firm based in Germantown, Maryland.
“I think that in the real estate industry, if you’re not lying, you’re going to be out of work. So I don’t think anyone should be surprised that someone should inflate values or fudge the numbers. The question comes down to the extent of it, and whether Trump has passed some kind of threshold,” Mr. Naughton told The Epoch Times.
In this context, President Trump’s statements of financial condition, which he insists were estimates, may not appear so irregular as government attorneys during the trial have tried to make them look.
“The challenge, and where Trump probably has the best argument, is where it comes to selective prosecution. If the attorney general is going to say, ‘You can’t lie,’ or ‘After a certain threshold, you can’t lie about your valuations,’ is she going to apply that to everyone in New York?” Mr. Naughton said.
But there is a larger issue at play here, one that has been notably absent from media coverage of the trial and the courtroom circus, he believes.
“Maybe Trump hasn’t articulated this, but it’s in the back of the minds of a lot of supporters of the former president. Fifteen years ago, this country went through the biggest financial fraud that has ever happened, and it triggered the financial crisis. Nobody went to jail. And now this has come up,” Mr. Naughton said.
“If you’re going to take a hard line, then you need to do it for everyone.”
Instead, Ms. James and others in municipal, state, and federal law enforcement have taken a selective approach, he noted, and gone after a political enemy.
The bankruptcy of Lehman Brothers on Sept. 15, 2008, is widely seen as the catalyst for the financial meltdown in the United States and around the world. Investigations into the causes of the investment bank’s collapse found massive evidence of fraud, particularly with respect to representations concerning its solvency and the firm’s acquisition of lenders that engaged in reckless and poorly documented loans (“subprime” mortgages) to clients with bad credit ratings.
Yet even after the massive devastation inflicted on the global economy, and with full knowledge of questionable accounting and recordkeeping practices of Lehman executives, no one has gone to jail. In fact, former Lehman chairman and CEO Richard Fuld and certain of his colleagues at the investment bank have gone on to extravagantly well-paid positions at other financial institutions.
Investigations of another doomed firm, Bear Stearns, in 2008 turned up email messages among executives in which they explicitly voiced concerns over the impending implosion of the subprime mortgage market. Bear Stearns investors ended up losing $1.8 billion. The Securities and Exchange Commission, and federal criminal prosecutors, agreed that executives of the firm knew what was brewing in the markets and lied to their customers.
In spite of the considerable evidence of scienter, or conscious wrongdoing, two of the firm’s hedge fund directors, Ralph Cioffi and Matthew Tannin, were cleared of securities fraud in a Brooklyn federal courthouse in November 2009.
Against such a backdrop, some may wonder what motivates the display of vigilance on the part of Ms. James and others, Naughton believes.
“Sympathy for Trump is partly about past grievances. What happened in the financial crisis is outrageous, and now you’ve got somebody you don’t like in politics. Suddenly you’ve woken up, and now you’re going to enforce the law,” he said.
Hence, whether or not the attorney general and her allies conceived the lawsuit and trial as a means to ensnare a populist insurgent and derail his incipient 2024 campaign, Mr. Naughton thinks the move is likely to backfire and to spur people to rally around a figure with fresh claims of persecution.
“People see a double standard, and they have their own grievances over things that have gone wrong in this country, whether it’s that meltdown, voting fraud, or problems with elections in the past. President Trump is the vehicle that allows them to express their anger that has built up over the years,” Mr. Naughton said.
But this angle of the trial and the campaign with which it overlaps is virtually absent from the wide media coverage.
“The mainstream media and press are not accounting for that at all. They are just so focused on being anti-Trump that they’re not willing to do a hard examination of why these grievances have built up in the past, and part of it was because their allies were at fault,” Mr. Naughton said.