New York investigators are closing in on the Trump Organization. Who will crack first?

The New York Attor­ney Gen­er­al’s inves­ti­ga­tion into the Trump Orga­ni­za­tion appears to be heat­ing up yet again. The lat­est peti­tion filed by the state, which was sub­mit­ted on Jan­u­ary 18th, 2022, is to com­pel the sworn tes­ti­mo­ny of Don­ald J. Trump, Don­ald J. Trump Jr., and Ivan­ka Trump, and to com­pel the pro­duc­tion of doc­u­ments in the pos­ses­sion, cus­tody or con­trol of Don­ald J. Trump.

The fil­ing was a bit unusu­al in that it cit­ed numer­ous and spe­cif­ic exam­ples of dis­crep­an­cies to sup­port its motion.

The Attor­ney Gen­er­al’s office has demon­strat­ed it has evi­dence of unusu­al busi­ness prac­tices regard­ing its val­u­a­tions for cer­tain prop­er­ties that it would like the offi­cers of the Trump Orga­ni­za­tion to explain. Eric Trump has already appeared before the grand jury and invoked his Fifth Amend­ment rights, refus­ing to tes­ti­fy. Eric Trump specif­i­cal­ly did not want to say any­thing about the meth­ods and details of how val­u­a­tions were made for Sev­en Springs, a Trump Orga­ni­za­tion prop­er­ty in Westch­ester Coun­ty, New York, cen­tered around a Geor­gian estate.

The Sev­en Springs prop­er­ty is a two hun­dred and twelve acre par­cel of prop­er­ty that had been pur­chased by the Trump Orga­ni­za­tion in 1995 for $7.5 million.

It was appraised in 2000 for $25 mil­lion and again in 2006 for $30 mil­lion, both times “as-is.” But in 2007, the stat­ed val­ue of Sev­en Springs by the Trump Orga­ni­za­tion rose to $200 mil­lion, and both the 2012 and 2013 State­ments of Finan­cial Con­di­tion report­ed a val­ue for Sev­en Springs of $291 mil­lion, assert­ing by then that “[t]his prop­er­ty is zoned for 9 lux­u­ri­ous homes.”

David McAr­dle, an apprais­er at Cush­man & Wake­field, assessed the twen­ty-four devel­opable lots at Sev­en Springs at between $29.5 mil­lion and $50 mil­lion and con­veyed the results to the Trump Orga­ni­za­tion in either August or Sep­tem­ber of 2014. Despite this, the 2014 State­ment of Finan­cial Con­di­tion val­ued sev­en non-exis­tent man­sions to be con­struct­ed on the prop­er­ty at $161 mil­lion and repeat­ed stat­ing the total val­ue of the prop­er­ty at $291 mil­lion, not account­ing for either the appraisal or the time and cost to build or sell these non-exis­tent mansions.

All of these val­u­a­tions over time were entered by Mazars, an inter­na­tion­al audit, tax and advi­so­ry firm, based on the rep­re­sen­ta­tions of the Trump Orga­ni­za­tion, and Mazars pro­vid­ed doc­u­ments that estab­lished that the val­u­a­tion of $291 mil­lion had been specif­i­cal­ly stat­ed by Eric Trump dur­ing a tele­phone call on Sep­tem­ber 24th, 2012.

The assigned Mazars accoun­tant stat­ed in their work papers that Mr. Trump’s State­ments of Finan­cial Con­di­tion rep­re­sent that val­u­a­tions of Sev­en Springs were “based on an assess­ment made by Mr. Trump in con­junc­tion with his associates…”

To sum­ma­rize, Eric Trump, for at least three years, was per­son­al­ly respon­si­ble, or was fol­low­ing the instruc­tions of some oth­er fam­i­ly mem­ber, when stat­ing val­u­a­tions for Sev­en Springs that had no sup­port­ing evidence.

This total val­u­a­tion of $291 mil­lion was then used to val­ue prop­er­ty at Sev­en Springs to be set aside as a con­ser­va­tion ease­ment, which result­ed in a $21.1 mil­lion tax break for the Trump Organization.

This same val­u­a­tion of $291 mil­lion for Sev­en Springs was lat­er pro­vid­ed to the Gen­er­al Ser­vices Admin­is­tra­tion (GSA), part of the exec­u­tive branch of the Unit­ed States Gov­ern­ment, as well as to Deutsche Bank, as a basis for sev­er­al loans, and cer­ti­fied as reli­able by the Trump Organization.

When com­plet­ing loan appli­ca­tions, state prop­er­ty tax forms, fed­er­al tax forms, appli­ca­tions for insur­ance cov­er­age, and appli­ca­tions for “oth­er eco­nom­ic incen­tives” such as con­ser­va­tion ease­ments, an appli­cant is sup­posed to use con­sis­tent, truth­ful values.

There is also a gen­er­al pro­hi­bi­tion against mak­ing things up for one’s finan­cial posi­tion to look bet­ter than it is.

It’s one thing to attempt puffery for social sta­tus but doing so to acquire a loan from a com­mer­cial lender is fraud. Finan­cial state­ments based on such val­u­a­tions as these appear to be fraud­u­lent on their face because the finan­cial state­ments sub­mit­ted to the GSA explic­it­ly state that they were pre­pared under Gen­er­al­ly Accept­ed Account­ing Prin­ci­ples (GAAP) but were not.

All appli­ca­tion process­es con­tain a jurat state­ment at com­ple­tion, sim­i­lar to what is on Form 1040 (per­son­al income tax return). The Form 1040 states that “Under penal­ties of per­jury, I declare I have exam­ined this return, includ­ing accom­pa­ny­ing sched­ules and state­ments, and to the best of my knowl­edge and belief, it is true, cor­rect and com­plete. Dec­la­ra­tion of pre­par­er (oth­er than tax­pay­er) is based on all infor­ma­tion of which pre­par­er has any knowledge.”

You sign this when you file a return, and some­thing sim­i­lar when you fill out a loan, insur­ance appli­ca­tion, or a prop­er­ty lease application.

Don­ald J. Trump would have signed his own return, and the infor­ma­tion returns for the Trump Organization.

When you apply for a loan, nego­ti­ate your prop­er­ty tax val­u­a­tions, or apply for eco­nom­ic incen­tives (con­ser­va­tion ease­ments), you don’t get to pick the val­ue of the prop­er­ty. The prop­er­ty has an objec­tive val­ue that may be an esti­mate or a range, but not a val­ue with great variation.

In any event, it should be doc­u­ment­ed how the val­ue was arrived at if it isn’t with a pro­fes­sion­al appraisal or an actu­al sale or purchase.

Giv­en all this, it doesn’t seem like it will be too dif­fi­cult to pin a 26 USC 7206 vio­la­tion on Eric Trump for caus­ing false tax returns to be filed.

The per­ti­nent parts of the Inter­nal Rev­enue Code § 7206 provide:

Any per­son who–

I.R.C. § 7206(1) Dec­la­ra­tion Under Penal­ties Of Per­jury —

Will­ful­ly makes and sub­scribes any return, state­ment, or oth­er doc­u­ment, which con­tains or is ver­i­fied by a writ­ten dec­la­ra­tion that it is made under the penal­ties of per­jury, and which he does not believe to be true and cor­rect as to every mate­r­i­al mat­ter; or

I.R.C. § 7206(2) Aid Or Assis­tance —

Will­ful­ly aids or assists in, or pro­cures, coun­sels, or advis­es the prepa­ra­tion or pre­sen­ta­tion under, or in con­nec­tion with any mat­ter aris­ing under, the inter­nal rev­enue laws, of a return, affi­davit, claim, or oth­er doc­u­ment, which is fraud­u­lent or is false as to any mate­r­i­al mat­ter, whether or not such fal­si­ty or fraud is with the knowl­edge or con­sent of the per­son autho­rized or required to present such return, affi­davit, claim, or doc­u­ment; or….

…and…

I.R.C. § 7206(5)(B) With­hold­ing, Fal­si­fy­ing, And Destroy­ing Records —

Receives, with­holds, destroys, muti­lates, or fal­si­fies any book, doc­u­ment, or record, or makes any false state­ment, relat­ing to the estate or finan­cial con­di­tion of the tax­pay­er or oth­er per­son liable in respect of the tax;

shall be guilty of a felony and, upon con­vic­tion there­of, shall be fined not more than $100,000 ($500,000 in the case of a cor­po­ra­tion), or impris­oned not more than 3 years, or both, togeth­er with the costs of prosecution.

False tax returns also can be pros­e­cut­ed using wire and mail fraud statutes, one for each inci­dent, where a false doc­u­ment or return was mailed or transmitted.

Pros­e­cu­tors for the State of New York and the Unit­ed States also have con­spir­a­cy statutes avail­able to them. Fed­er­al law spec­i­fies that a Klein Con­spir­a­cy exists, accord­ing to the US Depart­ment of Jus­tice, “if two or more per­sons con­spire … to defraud the Unit­ed States, or any agency there­of in any man­ner or for any pur­pose.” 18 U.S.C. § 371 (2013).

This lan­guage is the sec­ond clause (or “defraud prong”) of the fed­er­al con­spir­a­cy statute that cre­ates crim­i­nal lia­bil­i­ty for any­one who con­spires “either to com­mit any offense against the Unit­ed States, or to defraud the Unit­ed States…”

Beyond Eric Trump, there are three oth­er fam­i­ly mem­bers who have respon­si­bil­i­ty for the val­ues entered on the finan­cial state­ments, loan appli­ca­tions and tax returns — Don­ald J. Trump, Don­ald J. Trump Jr., and Ivan­ka Trump.

The Attor­ney Gen­er­al is com­pelling the three Trumps to tes­ti­fy under oath as to who deter­mined the val­u­a­tions, how the dif­fer­ent val­u­a­tions were arrived at, and why any of the val­u­a­tions was used for a prop­er­ty for a par­tic­u­lar purpose.

The tes­ti­mo­ny is need­ed because none of the three fam­i­ly mem­bers wrote any­thing down regard­ing the val­u­a­tions — an atyp­i­cal prac­tice of any busi­ness that is not a crime fam­i­ly. The ven­dors ser­vic­ing the por­tion of the Sev­en Springs prop­er­ty in Bed­ford, New York were instruct­ed not to write any­thing down regard­ing the devel­op­ment project. From the subpoena:

Evi­dence indi­cates that Mr. Trump adopt­ed a prac­tice of pre­vent­ing the cre­ation of writ­ten records with regard to his devel­op­ment efforts at Sev­en Springs. One wit­ness, who described his role as the “direct rep­re­sen­ta­tive of Don­ald J. Trump” for the Low­er Hud­son Val­ley tes­ti­fied that Mr. Trump direct­ed his activ­i­ties, that he spoke to Mr. Trump per­son­al­ly about Sev­en Springs “[a]bout once a week,” and that he “sel­dom” com­mu­ni­cat­ed in writ­ing with Mr.Trump because Mr. Trump stat­ed to him “that he did not want things put in writ­ing in com­mu­ni­ca­tions between us.”

Fur­ther­more, a tax attor­ney for Don­ald J. Trump, Sheri Dil­lon, “made efforts to avoid the cre­ation of dis­cov­er­able material.”

On June 18, 2015, Ms. Dil­lon instruct­ed a Mor­gan Lewis asso­ciate to “call [Cush­man apprais­er] Tim [Barnes] and advise him to lim­it sub­stan­tive emails with Scott Blake­ly (engi­neer) and instead use the phone to the extent pos­si­ble (want to avoid cre­at­ing dis­cov­ery unnec­es­sar­i­ly).” […] On Sep­tem­ber 28, 2015, Ms. Dil­lon sent an email to anoth­er Mor­gan Lewis asso­ciate, “Please use a fresh email when com­mu­ni­cat­ing with apprais­ers so that we avoid to the extent pos­si­ble, email chains.”…In tes­ti­mo­ny before OAG, the Mor­gan Lewis asso­ciate tes­ti­fied that both emails were attempts to pre­vent cre­at­ing doc­u­ments that might be uncov­ered by adver­saries poten­tial­ly chal­leng­ing the ease­ment dona­tion — i.e., the Unit­ed States Inter­nal Rev­enue Ser­vice or Depart­ment of Justice.

Don­ald J. Trump’s legal coun­sel, Ali­na Hab­ba, respond­ed to the state’s fil­ings by claim­ing victimhood.

Of course, the vic­tims “have all been close­ly involved” in Trump Orga­ni­za­tion trans­ac­tions that, accord­ing to the Attor­ney Gen­er­al for the State of New York, “used fraud­u­lent and mis­lead­ing asset val­u­a­tions on mul­ti­ple prop­er­ties to obtain eco­nom­ic ben­e­fits, includ­ing loans, insur­ance cov­er­age, and tax deduc­tions for years.”

The New York Supreme Court will return a find­ing that the three remain­ing Trump’s, Don­ald J. Trump, Don­ald Jr. and Ivan­ka must sit for a depo­si­tion to answer the State of New York’s ques­tions. Don­ald J. Trump will have to answer truth­ful­ly or invoke his Fifth Amend­ment privilege.

Long­time observers of Don­ald J. Trump, such as Tim O’Brien of Bloomberg News and Trump’s for­mer lawyer, Michael Cohen, have stat­ed repeat­ed­ly that the Trump Orga­ni­za­tion is a small fam­i­ly-run busi­ness, and that Don­ald J. Trump makes all the deci­sions and approves every pay­ment made by the Trump Organization.

It is also wide­ly known that noth­ing is put in writ­ing that can tie Don­ald J. Trump to any one deci­sion. How­ev­er, there has been dis­cov­ered a spread­sheet that the Trump Orga­ni­za­tion alleged­ly main­tained over mul­ti­ple years of their unre­port­ed income. If con­sid­ered valid, this could lead to a charge of conspiracy.

But Don­ald J. Trump may not be the only one fac­ing spe­cif­ic charges.

Ivan­ka Trump began serv­ing as an Exec­u­tive Vice Pres­i­dent in the Trump Orga­ni­za­tion in 2005. She left the Trump Orga­ni­za­tion in or around 2017.

While at the Trump Orga­ni­za­tion she:

direct[ed] all areas of the company’s real estate and hotel man­age­ment plat­forms. This includ­ed active par­tic­i­pa­tion in all aspects of projects, “includ­ing deal eval­u­a­tion, pre-devel­op­ment plan­ning, financ­ing, design, con­struc­tion, sales and mar­ket­ing” as well as “involve[ment] in all deci­sions— large and small.

Ivan­ka Trump was the lead nego­tia­tor for the lease­hold with the Gen­er­al Ser­vices Admin­is­tra­tion (GSA) for the Old Post Office. As part of that process, she sub­mit­ted the Trump Organization’s pro­pos­al to the GSA in July 2011. That pro­pos­al incor­po­rat­ed the State­ment of Finan­cial Con­di­tion of Don­ald J. Trump.

“Trump’s real estate invest­ments are fund­ed from Don­ald J. Trump’s sig­nif­i­cant net worth, which is com­posed of a wide range of cap­i­tal­ized affil­i­ates. Please find Trump’s State­ment of Finan­cial Con­di­tion in an enve­lope sub­mit­ted with each copy of this pro­pos­al.” The Trump Orga­ni­za­tion rep­re­sent­ed to the GSA that the State­ment of Finan­cial Con­di­tion was com­piled under GAAP with any depar­tures not­ed in the accountant’s com­pi­la­tion report.

While at the Trump Orga­ni­za­tion, Ivan­ka Trump, along with Allen Weis­sel­berg, the Trump Organization’s Chief Finan­cial Offi­cer, were the pri­ma­ry points of con­tact for rep­re­sen­ta­tives of Deutsche Bank.

As part of an ongo­ing search for financ­ing on the Doral prop­er­ty, she was copied on a let­ter from Don­ald J. Trump to the CEO of Deutsche Bank Secu­ri­ties along with which he trans­mit­ted his State­ment of Finan­cial Con­di­tion and an addi­tion­al let­ter meant to “estab­lish [his] brand value.”

Ivan­ka Trump was also deeply involved in the pur­chase of what even­tu­al­ly became the Trump Nation­al Doral Mia­mi resort and golf course in Mia­mi, Florida…

Ms. Trump also dis­cussed oth­er, less favor­able terms with respect to Doral with anoth­er finan­cial insti­tu­tion for financ­ing options not per­son­al­ly guar­an­teed by Mr. Trump.

In the course of nego­ti­at­ing with Deutsche Bank financ­ing for the Doral prop­er­ty, Ms. Trump was respon­si­ble for secur­ing loan terms, which includ­ed a per­son­al guar­an­ty by Mr. Trump for which his rep­re­sen­ta­tions regard­ing his finan­cial con­di­tion would be (and were) made. Deutsche Bank then issued a loan on Doral to Trump Endeav­or LLC, an enti­ty in the Trump Orga­ni­za­tion, and per­son­al­ly guar­an­teed by Mr. Trump. This loan (ini­tial­ly com­prised of one secured tranche and one unse­cured tranche) was for a total of $125 mil­lion and closed in June 2012.

…After win­ning the bid to lease the Old Post Office, Ivan­ka Trump helped nego­ti­ate financ­ing for the property.

The per­son­al guar­an­ty for this loan required sub­mis­sion of Mr. Trump’s State­ment of Finan­cial Con­di­tion annu­al­ly, along with a com­pli­ance cer­tifi­cate attest­ing that the state­ment pre­sent­ed fair­ly in all mate­r­i­al respects Mr. Trump’s finan­cial condition.

…and in what became the Trump Inter­na­tion­al Hotel and Tow­er Chicago.

As part of that trans­ac­tion, she received term sheets from two dif­fer­ent divi­sions of Deutsche Bank. Some term sheets includ­ed recourse through a per­son­al guar­an­ty while oth­ers did not. The final Chica­go loans includ­ed a per­son­al guar­an­ty where­in it was rep­re­sent­ed that Mr. Trump’s June 30, 2012 State­ment of Finan­cial Con­di­tion was “true and cor­rect in all mate­r­i­al respects” and that the state­ment “presents fair­ly Guarantor’s finan­cial con­di­tion as of June 30, 2012.”

And then there’s this….

Ivan­ka Trump’s Park Avenue Pent­house was incor­po­rat­ed into the val­u­a­tion of the Trump Park Avenue asset on Don­ald J. Trump’s State­ment of Finan­cial Con­di­tion […] Ivan­ka Trump had an option to pur­chase a pent­house unit in Trump Park Avenue at $8,500,000…During the pen­den­cy of that option her unit was val­ued at between $12 mil­lion and $17 mil­lion high­er than the option price.

Most peo­ple know hav­ing an $8.5 mil­lion option to buy some­thing is not the same as own­ing it. But then adding it to the Trump Organization’s State­ment of Finan­cial Con­di­tion at $3.5 to $8.5 mil­lion more than assessed?

And Ivanka’s actions pale in scope to that of the rest of the actions of the Trump Organization.

Such an exten­sive paper trail over an unusu­al­ly long peri­od of time, includ­ing secret doc­u­men­ta­tion by The Trump Orga­ni­za­tion itself, rein­forced by the per­son­al tes­ti­mo­ny of oth­ers involved in these process­es, paints a sub­stan­tial pic­ture of a long-run­ning tax eva­sion process through fraud.

This is a boun­ti­ful trail for inves­ti­ga­tors to fol­low and pro­vide the most choice morsels dis­cov­ered to a grand jury.

The New York State Supreme Court ought to reach a con­sen­sus rul­ing to enforce the sub­poe­nas very soon. None the three mem­bers of the Trump fam­i­ly have any sort of spe­cial sta­tus that will pre­vent the sub­poe­na from being enforced by the New York State Supreme Court. Only time will tell if any of the three will tell the truth, take the Fifth Amend­ment them­selves, or com­mit perjury.