Lawsuit Accuses the Former President of Profiting from a ‘Staggering’ Fraud
Donald J. Trump, his family business and three of his children lied to lenders and insurers for more than a decade, according to the New York attorney general, Letitia James, who accused him of fraudulently overvaluing his assets by billions of dollars in a sprawling scheme. She is seeking to bar the Trumps from ever running a business in the state again.
Ms. James concluded in a sweeping lawsuit filed on Wednesday that Mr. Trump and his family business violated several state criminal laws and “plausibly” broke federal criminal laws as well. Her office, which in this case lacks authority to file criminal charges, referred the findings to federal prosecutors in Manhattan; it was not immediately clear whether the U.S. attorney would investigate.
The 220-page lawsuit, filed in New York State Supreme Court, lays out in new and startling detail how, according to Ms. James, Mr. Trump’s annual financial statements were a compendium of lies. The statements, yearly records that include the company’s estimated value of his holdings and debts, wildly inflated the worth of nearly every one of his marquee properties — from Mar-a-Lago in Florida to Trump Tower and 40 Wall Street in Manhattan, according to the lawsuit.
The company also routinely spurned the assessments of outside experts: After a bank ordered an appraisal that found 40 Wall Street was worth $200 million, the Trumps promptly valued it at well over twice that number. Overall, the lawsuit said that 11 of Mr. Trump’s annual financial statements included more than 200 false and misleading asset valuations.
“The number of grossly inflated asset values is staggering, affecting most if not all of the real estate holdings in any given year,” according to the lawsuit. Ms. James, a Democrat who is running for re-election, filed the lawsuit, which comes just weeks after the former president refused to answer hundreds of questions under oath in an interview with Ms. James’s office.
Mr. Trump has long used his net worth to construct a public persona as a self-made billionaire, an image that underpinned his initial run for the White House. But, according to Ms. James, he had a financial motivation for inflating his property values.
His company, the Trump Organization, provided the fraudulent financial statements to lenders and insurers, her suit said, “to obtain beneficial financial terms,” including lower interest rates and lower premiums. All told, Ms. James said, he was able to obtain a quarter of a billion dollars in ill-gotten gains, money that she now wants the company to forfeit.
In a statement, the Trump Organization noted that the company’s lenders “profited handsomely — to the tune of hundreds of millions of dollars in interest and fees” from their dealings with the company. The statement also attributed Ms. James’s action to “politics, pure and simple,” arguing that she “put her own political ambitions ahead of the safety of New Yorkers,” calling it “an abhorrent abuse of power, waste of valuable resources and tens of millions of taxpayer dollars.”
Mr. Trump’s lawyer, Alina Habba, called the lawsuit “an abuse of authority” and said “we look forward to defending our client against each and every one of the attorney general’s meritless claims.”
Alan S. Futerfas, a lawyer for Ivanka Trump and Donald Trump Jr., did not immediately comment. But on Twitter, Donald Trump Jr. wrote that Ms. James was “Weaponizing her office to go after her political opponents!”
Ms. James, who has become one of Mr. Trump’s primary antagonists, is looking to extract a steep price from the former president and his company. Her lawsuit asks a judge to appoint an independent monitor to oversee the company’s financial practices, while ousting the Trumps from the leadership of their own family business; Ms. James also wants to prevent the family from acquiring real estate in New York for five years in order to preclude the company from reinventing itself in Florida while expanding its New York operations.
Understand New York State’s Civil Case Against Trump
An empire under scrutiny. Letitia James, New York State’s attorney general, has been conducting a yearslong civil investigation into former President Donald J. Trump’s business practices, culminating in a lawsuit that accuses Mr. Trump of “staggering” fraud. Here’s what to know:
The origins of the inquiry. The investigation started after Michael D. Cohen, Mr. Trump’s former personal lawyer and fixer, testified to Congress that Mr. Trump and his employees had manipulated his net worth to suit his interests.
The findings. Ms. James detailed in a filing what she said was a pattern by the Trump Organization to inflate the value of the company’s properties in documents filed with lenders, insurers and the Internal Revenue Service.
Mr. Trump’s lawsuit. In December, Mr. Trump sued Ms. James, seeking to halt the inquiry on the grounds that the attorney general’s involvement in the inquiry was politically motivated. On May 27, a federal judge dismissed the suit.
Invoking the Fifth Amendment. In August, Mr. Trump faced questions by the attorney general under oath. He declined to answer anything and invoked his right against self-incrimination, leaving Ms. James with a crucial decision: whether to sue the former president or seek a settlement.
Fraud lawsuit. After Ms. James’s office rebuffed a settlement offer from Mr. Trump’s lawyers, the attorney general filed a lawsuit against Mr. Trump and his family business, accusing them of a sweeping pattern of fraudulent business practices.
If she is successful, Mr. Trump — as well as his children who are named as defendants, Eric, Ivanka and Donald Trump Jr. — will also be permanently barred from serving as officers or directors in any New York company, essentially chasing them out of the state. While Ms. James stopped short of trying to dissolve the Trump Organization altogether, she wants to shut down at least some of his New York operations.
Yet her case against him could be difficult to prove. Property valuations are often subjective, and the financial statements include a disclaimer that they have not been audited. And at a trial, his lawyers will most likely emphasize that Deutsche Bank and his other lenders were hardly victims; all of his loans are either current or were paid off, some early.
Mr. Trump also famously does not use email, so any instructions he might have given his employees about the company’s financial statements might not be in writing. The lack of a damning email — or a witness inside his company willing to testify against him — might complicate her effort to show that he intentionally used his financial statements to defraud lenders and insurers.
While Mr. Trump has often leveraged law enforcement scrutiny to portray himself as a political martyr and raise money from his supporters, Ms. James’s lawsuit strikes at the foundation of his public image and his sense of self. Its detailed dissection of Mr. Trump’s financial statements suggests that the success he has attributed to financial savvy and business acumen are instead the product of fraud and chicanery.
There was the Westchester County golf club that was valued as if it had charged hefty initiation fees that were never actually collected, the “cash” that Mr. Trump counted as his own even though it belonged to one of his partners in a commercial real estate venture, and the pretense that his Mar-a-Lago club and home and his golf course in Scotland could make money from lucrative residential development, even though Mr. Trump and his family business had entered agreements limiting their ability to do so.
In yet another example cited in the case, the Trump Organization starkly overvalued a group of rent-stabilized apartments in its building on Park Avenue that Donald Trump Jr. once described as being “the bane” of his existence. Instead of acknowledging that the value of some apartments was capped in the building, Trump Park, the company listed the overall residential units as worth $292 million, multiplying by six the figure that appraisers had assigned to the building’s residential units and storage spaces.
The lawsuit compounds Mr. Trump’s legal woes. He is facing a number of criminal investigations focused on his conduct in his final weeks in office: Last month, the F.B.I. searched Mar-a-Lago as part of an investigation into his removal of sensitive material from the White House; federal prosecutors are investigating his efforts to reverse his 2020 election loss; and a Georgia district attorney is conducting a criminal investigation into his potential election interference in the state.
Mr. Trump has cast each inquiry as part of a never-ending “witch hunt” and denied all wrongdoing. It is unclear whether he will be criminally charged as a result of any of them.
The authorities in New York have been investigating Mr. Trump and his family business since 2018, when the Manhattan district attorney’s office opened an investigation into the then-president. The following year, Ms. James’s civil inquiry began, and both offices began to zero in on the way that Mr. Trump’s company valued its assets.
As part of its investigation, the Manhattan district attorney pressured the Trump Organization’s chief financial officer, Allen H. Weisselberg, to turn on his longtime employer and began to focus on lucrative off-the-books perks he received from the company. When Mr. Weisselberg declined to cooperate with prosecutors, the office charged him and the Trump Organization with a yearslong scheme to avoid paying taxes on those benefits.
The company is scheduled to go to trial in October; Mr. Weisselberg, who is also a defendant in Ms. James’s suit, pleaded guilty to 15 felonies and agreed to testify at the trial, putting the company at a significant disadvantage. His lawyer, Mary E. Mulligan, declined to comment.
The Manhattan criminal investigation, which lawyers from Ms. James’s office are participating in, has not resulted in charges against Mr. Trump, and he has not been accused of any wrongdoing. Early this year,the Manhattan district attorney, Alvin L. Bragg, instructed prosecutors to halt their effort to seek an indictment of Mr. Trump after he and his aides developed concerns about the strength of a criminal case, which would have a higher bar of proof than a civil case like Ms. James’s.
Their investigation has continued but does not appear likely to result in charges against Mr. Trump in the foreseeable future.
Ms. James does not have the authority to indict Mr. Trump. But a footnote in the lawsuit said she provided her findings to the office of the United States Attorney for the Southern District of New York, noting that the conduct detailed in the complaint appears to violate federal law, specifically bank fraud and false statements to a bank.
The lawsuit represents the culmination of a contentious yearslong civil investigation that Mr. Trump and his lawyers sought to thwart and delay at nearly every turn.
In April, a New York State judge held Mr. Trump in contempt of court for failing to fully comply with a subpoena from Ms. James seeking some of his personal records. The judge, Arthur F. Engoron, eventually lifted the contempt order, but only after Mr. Trump paid a $110,000 penalty.
Justice Engoron also ordered Mr. Trump and two of his adult children — Ivanka and Donald Trump Jr. — to face questioning under oath from Ms. James’s investigators. (Eric Trump was previously questioned for the investigation and invoked his Fifth Amendment right against self-incrimination hundreds of times.) And in May, a New York State appeals court panel unanimously upheld that ruling, forcing Mr. Trump and his children to sit for depositions. The string of losses for Mr. Trump appeared to embolden Ms. James and clear a path for her lawsuit, which had seemed imminent for months.
Early this year, Ms. James outlined the contours of her case in court papers, and disclosed in one filing that Mr. Trump’s longtime accounting firm cut ties with the former president and essentially retracted a decade’s worth of his financial statements. The firm, Mazars USA, compiled the financial statements based on information from Mr. Trump and his company, which “engaged in conduct intended to mislead Mazars in connection with its work compiling the statements, including by concealing important information,” the lawsuit contends.
Mr. Trump’s lead accountant testified under oath in a deposition that he was “shocked by the size of the discrepancy” between the value for the rent stabilized units at Trump Park listed in a 2010 outside appraisal and the value the Trump Organization assigned to the units. He also testified that he would not have issued the statements with the asset values the company provided for the building if he had been told about the 2010 appraisal, another one in 2020, or the fact that several units were rent stabilized.
In some years, Mr. Trump’s financial statements contained clear contradictions, according to the lawsuit. His golf clubs, for example, derived some of their value from Mr. Trump’s “brand premium” — despite the annual statement “expressly advising” that the worth of his brand was not included in the figures.
In fighting the case, Mr. Trump’s lawyers will likely point out the disclaimer in his financial statements saying that Mazars had not audited the valuations. They also would likely argue that the Trump Organization submitted the statements to sophisticated financial institutions that conducted their own due diligence and profited in their dealings with Mr. Trump.
“While the job of the attorney general is to protect the interests of the public, today’s filing, for the first time in the history of the attorney general’s office, seeks to protect the interests of large, sophisticated Wall Street banks,” the company’s statement on Wednesday said.
Anticipating this defense, the lawsuit contends that Mr. Trump’s valuations “cannot be brushed aside or excused as merely the result of exaggeration or good faith estimation about which reasonable real estate professionals may differ.” Instead, the lawsuit argued, the Trumps used “objectively false assumptions and blatantly improper methodologies with the intent and purpose of falsely and fraudulently inflating Mr. Trump’s net worth.”