... keeping fraud out of the marketplace.

It seemed very clear that he broke the law.

What struck me as a bit shocking was the size of the penalty at $355 million. But I have no idea what would be considered normal.

One cannot make material representations to obtain more favorable interest rates and terms and cure the fraud by paying the favorable terms. It is a moronic position to take.

The right thing to do would be to settle, say, for $250 million. Cash.

As I posted, it seems there was no fraud to cure. You know that and I know you just like to egg people on, but come on. The terms were set by the banks own evaluation, per their testimony I believe. A counterparty hasn’t brought a fraud tort against him claiming he got favorable terms at their detriment. Honestly the record seems to indicate that his representations had no impact.

It’s like a trader talking his book. Everyone knows to do their own evaluation. A house seller listing their house at a high price isn’t defrauding the seller, the seller makes their own determination of value and the parties meet or they don’t.

Call people out if you want, but do it for things they actually post.

He violated New York law. It wasn't a close call.

..."No harm, no foul" doesn't seem like a very robust concept when it comes to financial fraud. Spitting on the sidewalk, maybe.

As a real estate appraiser, I find the Trump Organization's repeated fraudulent citation of a certain appraiser as the source of cap rates and values that the same appraiser said he had never provided to anyone to be appalling, and an action that deserved punishment.

As far as the myriad other fraudulent activities, the state of New York has apparently been passing legislation for over 60 years that put the state in the position of a party that is harmed by financial fraud.

Here is J. Engoron's decision in the case: Trump fraud decision.

Here is s snippet about the appraiser:

________________________________________

Doug Larson

Doug Larson is a valuation advisor and certified New York real estate appraiser who currently works at Newmark. Prior to working at Newmark, he worked at Cushman & Wakefield for almost 25 years. TT 1558-1559.

In 2015, while at Cushman & Wakefield, Larson appraised 40 Wall Street for Ladder Capital as part of its due diligence. TT 1560-1570; PX 118.

Larson testified clearly and credibly that although his name is cited as the source to justify a 2.940 capitalization (or “cap”) rate⁸ on Niketown, a property in which Donald Trump owned two long-term leases on 57th Street, Larson never had a specific conversation with Jeffrey McConney in which he advised him that such a cap rate would be appropriate; nor was he aware that he was listed as a source for such a cap rate. TT 1572-1575; See, e.g., PX 758. Larson further said that he would not have advised McConney to select that cap rate, as “it’s not how we would value [it] in our practice.” TT 1583. Larson stated that McConney was incorrect in stating that he consulted with Larson when valuing Trump Tower. TT 1581.

Upon learning that his name had been repeatedly used to justify cap rates that he had not recommended, Larson said it was “inappropriate and inaccurate … I should have been told and, you know, an appraisal should have been ordered.” TT 1587.

Larson further took issue with his name being used to justify a cap rate on the property controlled by a Vornado partnership interest. In 2012, Larson appraised the property at 1290 Avenue of the Americas at $2 billion with a cap rate of 4.5 percent. PX 1824; TT 1588-1589. Notwithstanding, in the following SFC’s supporting data, McConney cites Larson as the source for using a 3.12 percent cap rate, even though he never worked with McConney to pick a cap rate to value that property, and that he would not have, as valuing minority interests is a specialized area beyond his expertise. TT 1589-1595.

In a 2015 appraisal of 40 Wall Street, Larson included the value of a Dean & Deluca lease that yielded annual rent of $1.4 million, and he applied a 4.25 percent cap rate, for a total valuation of $540 million. Notwithstanding, the 2015 SFC backup data double-counted the Dean & Deluca lease. McConney also chose a much lower cap rate than that on the appraisal and listed the total value of 40 Wall Street at over $735 million, citing Larson as the source. Larson repeatedly confirmed that he was not a source for that number, that the number was nearly $200 million more than his own appraisal, and that he did not work with McConney or anyone else at the Trump Organization to determine the cap rate used to generate the $735 million value.⁹ PX 118,729; TT 1601-1606.


⁸A capitalization rate is calculated by dividing a property’s net operating income by the current market value. This ratio, expressed as a percentage, is an estimation of an investor’s return on real estate. The higher the cap rate, the lower the value. Cap rates have an extraordinarily large effect on the value of a property.

⁹In a theatrical attempt to halt the testimony of Doug Larson, defendants tried to impeach him with a 2014 email showing that McConney had asked for his advice on whether the fact that a ground lease had a far-off expiration would affect the cap rate in any way. Defendants then suggested that Larson had committed perjury and should be removed from the stand to consult with counsel. As an initial matter, the Court does not find Larson’s testimony to be contradictory. The fact that McConney sent one email in 2014 that generically discussed the effect of lease expirations on cap rates does not in any way give defendants cart blanche to cite Larson as an omnibus form of counsel that immunizes all the future manufactured valuations that comprised the SFCs. Further, defendants do not cite to this email in the supporting data for the SFCs, they cite to a series of telephone calls that, by Doug Larson’s account, never even took place. Moreover, the assertions of defendants’ counsel, Christopher Kise, that Larson’s testimony amounted to such blatant perjury he should be immediately removed from the stand to consult with counsel about his Fifth Amendment rights is belied by the record and seemed like nothing more than a performance for a non-existent jury. PX 109; TT 1696-1712; 1754-1767.

Where trump used a sq ft footprint that was 3-4x larger than actual. He tried to argue that because his penthouse was three stories tall (hey look at my really tall ceilings!) that he should be valued at least 3x the footprint because conceivably those stories could be developed into built space at the same multiple.

I don’t have time to look up the facts but these numbers are directionally right and just go to show how trumps dumb ego got him in trouble.

I will say that now whenever we prepare a balance sheet or PFS I am paranoid about being as conservative as possible. I’m sure I’m not alone in fearing the wrath of an angry state. I don’t disagree that trump is a lying and exaggerating ass hole but I do not like the precedent here.

...State legislative history, I'm not sure this is precedential. I haven't scrutinized it super intensively, but NYS has prosecuted financial fraud on behalf of the "people of New York" before. Of course, prosecutorial discretion always enters into any decision to charge.

Here's a snippet from Engoron's most recent decision. quoting his earlier decision on motions to dismiss:

“In varying contexts, courts have held that a state has a quasi sovereign interest in protecting the integrity of the marketplace.” People v Grasso, 11 NY3d 64, 69 at n 4 (2008); People v Coventry First LLC, 52 AD3d 345, 346 (1st Dept 2008) (“the claim pursuant to Executive Law § 63(12) constituted proper exercises of the State’s regulation of businesses within its borders in the interest of securing an honest marketplace”); People v Amazon.com, Inc., 550 F Supp 3d 122, 130-131 (SDNY 2021) (“[T]he State’s statutory interest under § 63(12) encompasses the prevention of either ‘fraudulent or illegal’ business activities. Misconduct that is illegal for reasons other than fraud still implicates the government’s interests in guaranteeing a marketplace that adheres to standards of fairness …”).

__________________

As for appraised values, I have told clients that the market value definition says that it is "the most probable" price that would have been paid as of a given value date. So if we think of the normal distribution curve, my point-value estimate is at the very top. Could it be 5% more, or 5% less? Yes. Could it be 36% more (e.g., $735 million versus $540 million)? Uh...nope.

everyone knew they made numbers up. But also everyone knew they made numbers up and didn't care about the Trump numbers.

...This is from Engoron's decision on preliminary motions:

"Executive Law § 63(12) provides, as here pertinent, as follows:

Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages and, in an appropriate case, cancelling any certificate filed under and by virtue of the provisions of section four hundred forty of the former penal law or section one hundred thirty of the general business law, and the court may award the relief applied for or so much thereof as it may deem proper. The word “fraud” or “fraudulent” as used herein shall include any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions. The term “persistent fraud” or “illegality” as used herein shall include continuance or carrying on of any fraudulent or illegal act or conduct. The term “repeated” as used herein shall include repetition of any separate and distinct fraudulent or illegal act, or conduct which affects more than one person.

"As this Court and others have made abundantly clear, “[i]t is not disputed that the Attorney General is empowered to sue for violations of [Executive Law § 63(12)].” People v Greenberg, 21 NY3d 439, 446 (2013) (finding Executive Law § 63(12) to be broadly worded anti-fraud device); People v Ford Motor Co., 74 NY2d 495, 502 (1989) (“Executive Law § 63(12) is the procedural route by which the Attorney-General may apply to Supreme Court for an order enjoining repeated illegal or fraudulent acts”)."

... negotiations, so the lender accepting the incorrect values cannot be imputed to the State which is the injured party per the statute.

the fraudulent documents ground for the AG's actions. Whether the lender suffered a loss is not required. Given the fact NYC is the financial capital of the US / World I can certainly understand the legislature taking a hard line view and passing a bill like this.

Of course there is the secondary harm to competitors. If Trump Org is bidding on a project based upon their inflated financials that gives them a competitive advantage with the lower interest rate allowing Trump to bid higher and still get a return on his money.

but I agree that these NY cases are bizarre and out of touch. There is a reason that we require standing in the courts. I don't even know how the court proved that Trump received a lower rate than he would have but for the alleged fraud.

Banks always take the most conservative view of assets when lending or at least conduct their own diligence and valuations. This whole case has seemed insane to me.

But Andy is going to call me a Trumper when I voted for Biden and probably will again despite my distaste for Afghanistan, his aloof foreign policy, etc.

in question is used frequently.

I don’t find the law objectionable. The state has a right and obligation to try and ensure a fair level playing field for businesses. It is not just the lenders who were defrauded by Trump obtaining financing at an improved rate by submitting fraudulent financial statements. It is also all the businesses who follow the law and accounting rules. Especially his direct competitors.

It would be very difficult, if not impossible, for all those entities to recognize their harm or quantify it. That is one reason why the state needs to step in on their behalf. A trustworthy open marketplace is essential for the operation of our economy.

The bottom line is that Trump and the Trump Organization blatantly cheated. They broke the law. They tried and succeeded in obtaining an unfair advantage by doing so. The calculated monetary advantage they obtained is $463,000,000.

I have no problem with Trump and his business being harshly punished. Those who play by the rules are owed this at a minimum.

Falsification of business records be intended to conceal evidence of another crime. The indictment didn’t specify the crime, but the DA has suggested that the payment was an unreported campaign expenditure. The feds looked at and passed on prosecuting that, likely because they felt they couldnt prove that the cover up of the affair was for campaign purposes as opposed to, for example, marital purposes.

Without the felony charge it sounds like the misdemeanor case is pretty tight, but not the type of thing that gets prosecuted.

She took his money (apparently) to provide the service of keeping her damn mouth shut.

Then, she did interviews. Which is pretty much the exact opposite of keeping her damn mouth shut.

Just can't get good service anymore.