When fraudulently inflating goes wrong
The Times on Trump’s perilous situation:
The judge in the civil fraud case, Arthur F. Engoron, levied the $454 million penalty and other punishments after concluding that Mr. Trump had fraudulently inflated his net worth to obtain favorable loans and other benefits. The case, brought by the New York attorney general, Letitia James, has posed a grave financial threat to Mr. Trump.
It would be interesting to know how the $454 million penalty compares to the money he pocketed via inflating his net worth to obtain favorable loans.
The company providing the bond would essentially promise to cover Mr. Trump’s judgment if he lost an appeal and failed to pay. In exchange, he would pledge cash and other liquid assets as collateral, and he would pay the company a fee as high as $20 million.
But Mr. Trump does not have enough liquidity to obtain the bond. The company would require Mr. Trump to pledge more than $550 million in cash and securities as collateral — a sum he simply does not have.
Loser!
Although the former president boasts of his billions, his net worth is derived largely from the value of his real estate, which bond companies rarely accept as collateral. Mr. Trump has more than $350 million in cash, a recent New York Times analysis found, far short of what he needs.
Well maybe he should have thought of that before he decided to do all this inflating his wealth to obtain fraudulent loans activity. What goes around comes around, as the saying goes. He cheated, he got caught, and now nobody wants to help him deal with the penalties. Whose fault is that? Not ours. Not Obama’s. Not Rachel Maddow’s. I kind of think it’s his own fault.
In theory, they’re pretty much equal.
That $454 million is, roughly speaking, Judge Engoron’s finding as to the amount of the ill-gotten profits. From the ruling:
The ruling goes on to cite the testimony of the NY AG’s expert, who estimated that the Defendants saved approximately $168,040,168 from obtaining more favorable interest rates by inflating the asset values.
The rest of the award is based on disgorgement of the profits the Defendants made on selling properties that they wouldn’t have been able to purchase in first place without the fraudulently obtained loans, plus some prejudgement interest.
Then why bother with a bond? If the bond company will only accept liquid assets as collateral, why not just turn over the liquid assets to the court?
If nothing else, it saves you the bond fee.
Ah, thanks Screechy.
So it’s not punitive but restorative? Is there any punishment other than the restoration? It seems odd if they just come out even.
“Disgorgement”. How utterly appropriate.
OB@3,
It depends how you look at it, I suppose. Disgorgement is a funny remedy in some ways.
Usually civil damages are compensatory — the court is attempting to make the plaintiff whole for a loss it suffered. That’s not what this is, of course. As the Trump defense team insisted repeatedly, the plaintiff in this case (the state of New York) didn’t suffer any monetary loss here. The state can say it was “harmed” in the sense that it has a general interest in promoting fair and honest business practices in its jurisdiction, but that’s a rather amorphous type of harm. The banks who loaned the money all got paid back. Arguably they were “harmed” in the sense that they could have charged a higher interest rate had they known the true facts, but in any event they didn’t sue. We can hypothesize that, but for Trump’s fraud, some other buyer would have purchased these buildings and sold them for a profit, but there’s no way to say who that would have been or what profit they would have made.
A lot of media accounts are referring to the judgment as a “penalty,” and while I wouldn’t say that’s inaccurate, it’s also not the kind of “punitive damages” that people are used to, as in what E. Jean Carroll got.
Did the Trump defendants simply get put back to where they would have been without the fraud? Arguably. But arguably not. The injunctive relief — the restrictions on defendants’ ability to run their business, or any business in NY — certainly put them in a worse position. The monetary component maybe does, because it’s not necessarily true that Trump couldn’t have purchased the properties honestly and still made some or all of the same profits. Or at a minimum, they could have put their funds and collateral to use on other projects where they might have made at least some profit. That’s not unusual in disgorgement cases — essentially, the defendant often loses a lot of the “benefit of the doubt” about what would have happened in the alternative world where defendant behaved properly.
The prejudgment interest is not insignificant, either. And of course there’s the attorneys’ fees and reputational loss (though at this point, Trump’s business reputation may be as low as it can go, and/or a fraud judgment against Trump may help by rallying MAGA donors as much at it hurts). Finally, there’s the timing issue: getting whacked with a judgment of this size all at once, which the Trump defendants apparently lack the liquidity to pay or bond, is worse than simply getting less profits over a period of years.
So, I wouldn’t say that the Trump defendants can just brush this off as a “heads we win, tails we draw, oh well, it came out tails, no big deal, we’d do it all over again if we could” situation. But I wouldn’t blame anyone for feeling this isn’t a big punishment.
Welp that’s pretty much how I feel about it. Thank you for educating us!
[…] a comment by Screechy Monkey on When fraudulently inflating goes […]
Steven, therr are bond companies do accept real estate, Trump’s problem is no surety will accept his valuations and the market for his kind of properties is abysmal right now. It isn’t a million dollar bond where a house in the suburbs can be easily appraised and the surety fairly certain they can sell in a timely manner and recoup their loss. I am more curious if his problem really is that he can’t come up with the cash he needs. It would not shock me after he bonded the E. Jean Carroll judgment that he doesn’t have enough liquidity to purchase the bond, regardless of what he can back it up with.
A defendant would pledge securities because courts will only take cash. If Trump had $500 million in securities he’d have to sell them, which would be a tax nightmare, not to mention destroying any long term investment strategy. At least with a bind if he wins at the end of the day he keeps his collateral which remains intact and untaxed.