A Financial Reckoning for Donald Trump

In September, 2022, when Letitia James, the New York attorney general, sued Donald Trump for engaging in “years of financial fraud” by knowingly inflating the value of his assets, the case, a civil one, seemed like a bit of a sideshow. It was interesting, in that Trump had long been notorious for exaggerating his net worth, but it appeared to be less consequential than the ongoing criminal investigations he faced, especially the Justice Department’s probe of his actions after the 2020 election. Moreover, the office of the U.S. Attorney for the Southern District of New York had already investigated the same issues that James was focussing on and decided that they didn’t merit bringing criminal charges.

Fast-forward slightly more than a year and a half, and James’s case represents the most imminent threat to the former President and his business empire. In February, Judge Arthur F. Engoron imposed a huge fine of $354.9 million on Trump, his two eldest sons, and their associates, plus an interest charge of $98.6 million. On Monday, Trump’s lawyers told an appellate court in New York that their client had been unable to secure a bond that would guarantee the eventual payment of the fine while he appeals Engoron’s ruling. They asked the court to waive the bond, or reduce it from four hundred and sixty-four million dollars to a hundred million dollars, claiming it was a “practical impossibility” for Trump to raise such a sum. If the appeals court rejects Trump’s requests, then, at least in theory, James’s office could start legal action as early as next week to freeze his bank accounts and seize some of his real-estate assets.

At a moment when Trump’s legal team has been enjoying a run of success in delaying the four criminal cases against their client, Monday’s development came as a reminder of the deep legal and financial peril that Trump is in. During the court proceedings in the New York civil case, it emerged that Deutsche Bank, Trump’s biggest lender, had estimated his net worth at $2.6 billion. On the face of it, that figure seems to imply that paying a fine even as large as nearly half a billion dollars shouldn’t be ruinous to him. But that isn’t necessarily the case.

To obtain a bond of this type, defendants are usually required to post liquid assets—cash or securities—as collateral with the company that issues the bond. Most of Trump’s fortune is in the form of illiquid real estate. In a deposition last year, Trump said that his companies had more than four hundred million dollars in cash or cash equivalents, which may well be an exaggeration. In addition, he has already had to file a separate $91.6 million bond with a federal court while he appeals a judgment against him in the defamation case filed by the writer E. Jean Carroll. According to an MSNBC report, Trump pledged a brokerage account with Charles Schwab to obtain this bond. It’s unclear how much wealth he has left in the form of liquid assets, but it’s probably nothing like the amount he would need to post as collateral for the other huge bond he needs.

In their court filing, Trump’s lawyers said that the Trump Organization had worked with four insurance brokers and approached thirty companies that provide bonds, but none of them had agreed to supply one for the James case. In a statement accompanying the filing, Gary Giulietti, a senior executive at one of the brokers that had worked with the Trump Organization, Lockton, said that only a handful of insurance companies were approved by the Treasury Department to underwrite bonds of the size that Trump requires, and “none of these sureties will accept hard assets such as real estate as collateral. Instead, they will only accept cash or cash equivalents (such as marketable securities).” In another statement filed with the court, Alan Garten, the general counsel for the Trump Organization, said that Chubb, a big insurance company, had originally agreed to consider accepting a mixture of liquid assets and real estate as collateral for a bond, but within the past week it had notified the defendants that “it could not accept real estate as collateral.”

That leaves Trump in a bind. In theory, he could take out a mortgage against some of his real-estate properties and use the proceeds as collateral for the bond, but they may well be encumbered by existing mortgages. (With a big private company like the Trump Organization, it’s impossible to know from the outside the true state of its finances.) Another option would be to quickly sell some of his properties. But engaging in such a “fire sale” would “inevitably result in massive, irrecoverable losses—textbook irreparable injury,” Trump’s lawyers wrote in Monday’s filing. Yet another possible option would be to try and secure a loan or investment from a third party—but who would give Trump half a billion dollars on short notice?

In a series of posts on his social-media site on Tuesday morning, Trump railed against Engoran and James, complaining that if he has to post a bond he “would be forced to mortgage or sell Great Assets, perhaps at Fire Sale prices, and if and when I win the Appeal, they would be gone.” Of course, everything Trump and his lawyers say should be treated skeptically. He’s clearly trying to weasel out of posting a huge bond, even if there’s a way for him to obtain one.

All in all, though, it’s a big mess for the former President. The appellate court, which consists of a panel of judges, appears likely to rule fairly quickly on his appeal. If he loses this round, his lawyers could launch another appeal—to the New York Court of Appeals, the highest court in the state. What would happen to the bond deadline if things were to proceed in this way is still unknown. If James’s office were to start legal action to collect payment of the fine imposed by Engoron, the process could be long and messy, involving efforts by the state to foreclose on individual buildings owned by various Trump entities. In looking at options to forestall such an outcome, Trump “has not ruled out the possibility of having the corporate entities declare bankruptcy,” the Times reported on Monday, citing “people with knowledge of the discussions.” A bankruptcy filing would provide Trump with temporary protection from his creditors, including the New York attorney general’s office, but it would hardly be costless. The fate of his business empire would then be in the hands of the bankruptcy court, and he would also have to consider the political implications of his companies filing for bankruptcy during a Presidential-election campaign.

At a moment when many people are despairing about the seeming inability of the legal system to hold Trump to account before November, this latest development is testament to the formidable powers to go after fraudulent businesses that the New York attorney general possesses under state law. For decades, Trump managed to maneuver around this threat, despite allegations that he routinely stiffed contractors and engaged in other unscrupulous behavior. About the only significant action that the A.G.’s office took against Trump came immediately after the 2016 election, when Eric Schneiderman, one of James’s Democratic predecessors, forced him to close down Trump University—a scam operation if ever there was one—and pay a settlement of twenty-five million dollars. Compared with the huge fine Trump is facing now, twenty-five million was chicken feed. This could be a financial reckoning. ♦

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