According to a recent court filing by the New York attorney general, Donald Trump’s business empire may be in serious peril. Of course, we have seen this movie before – Trump faces seemingly insurmountable legal challenges, only to emerge unscathed. From Robert Mueller’s investigation of Russian election interference to the impeachment trial for Trump’s role in the Jan. 6 attack on the U.S. Capitol, and countless episodes in between, Trump seems to always avoid legal accountability.
But the investigation underway by New York Attorney General Letitia James has the potential to hit Trump where it may matter most to him – his wallet. The AG’s investigation is civil in nature, meaning that no prison time is possible, but enormous amounts of money are at stake.
If successful, a civil action for fraud under New York law could expose Trump to millions of dollars in damages and restitution and even dissolution of his business.
In fact, it was a civil investigation by James’s predecessor that led to the 2018 dissolution of the Trump Foundation, billed as the charitable arm of the Trump Organization, based on a “shocking pattern of illegality.”
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And if fraudulent conduct is laid bare in a civil action, criminal investigators may make use of it in the parallel criminal probe that is underway in the Manhattan District Attorney’s Office. This week, James filed a petition with a New York state supreme court to compel compliance with subpoenas she has issued for the testimony of the former president, Donald Trump Jr. and Ivanka Trump. All three had authority over various financial statements regarding the valuation of assets for the Trump Organization.
James argues that she needs evidence from these three witnesses to determine whether “numerous misstatements and omissions” made in the valuation of assets was done with the intent to defraud.
Rather than comply with the subpoenas, Trump has asked the court to quash them. He has also filed a lawsuit asking a federal court in Albany to halt the investigation in its entirety, arguing that it has been brought solely for political purposes.
But an argument that an investigation is meritless invites a rebuttal, which is exactly what James filed on Tuesday. In her petition, James detailed a number of her findings to date, such as the apparent over-valuing at least six assets for the purposes of loan applications, insurance coverage and tax deductions. James alleged that the Trump Organization reported on financial statements in 2014 that its golf property in Scotland was worth $435 million, double its documented valuation in 2013.
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James also cited the increase in value of Trump’s Seven Springs Estate in Westchester County from $7.5 million in 1995 to $291 million in 2014. An appraisal in 2006 valued the property at $30 million. The petition further alleged that Trump has reported the size of his Manhattan apartment as 30,000 square feet when, in fact, it is slightly more than 10,000 square feet. The petition includes additional examples of potential fraud.
New York law authorizes the state’s attorney general to investigate “persistent fraud or illegality” in conducting business, and to apply to a court for an order to enjoin that activity, permitting restitution, damages and cancellation of the certificate for doing business. The law further permits the attorney general to issue subpoenas to determine relevant facts as needed for her investigation.
Here, James argues that she needs the testimony of the three Trumps. In any fraud case, the easy part is proving what happened. We know that the Trump Organization represented numbers on certain documents that appear to be inconsistent with numbers on other documents. The difficult part is proving why the numbers are different. Was it a simple mistake? Was it an accounting issue? Fraudulent intent is often best discerned by talking to the people who authorized the numbers.
Trump has raised several reasons that the civil case should be stopped. One is that James is simply doing an end-run around the Trumps’ constitutional rights by using a civil action to elicit criminal admissions.
But even at a civil deposition, witnesses may still assert their Fifth Amendment privileges against self-incrimination if their statements could potentially be used against them in a criminal case. According to James’s filing, Eric Trump did just that, invoking the Fifth Amendment an astonishing 500 times during his October deposition.
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Another possible argument is that the entities that lent him money or provided insurance coverage are sophisticated financial companies that were required to do their own due diligence in making financial decisions. In other words, they should have known better than to trust him. This argument will fail. It is the intent of the offender, not the victim, that matters in a fraud case.
And finally, Trump has used his favorite defense, that he is the real victim here, and that this investigation is a political witch hunt. Here, James has not helped her cause by making public statements about her efforts to take legal action against Trump, but inappropriate remarks by the attorney general does not negate fraudulent conduct.
If James ultimately files a civil action for fraud, then it will be a court, and not James, that will decide whether the evidence is sufficient to award damages, restitution or dissolution.
We still may see Trump pull off a daring rescue of his troubled company. Or maybe this time, the movie will have a happy ending.
Barbara McQuade, a former U.S. attorney for the Eastern District of Michigan, is a professor at the University of Michigan Law School, an NBC and MSNBC legal analyst, and a member of USA TODAY’s Board of Contributors. Follow her on Twitter: @BarbMcQuade
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