Jury selection is underway in a tax fraud case against Donald Trump's family real estate company in a trial that would be a rarity even if it didn’t involve a former U.S. president.
The tax fraud case brought by Manhattan District Attorney Alvin Bragg seeks penalties against the Trump Organization, but the firm’s longtime leader is not personally charged in the case. It's a relatively rare example of an entire company, rather than individuals, being hit with fraud charges, drawing attention in legal as well as real estate circles beyond the political interest Trump's situation generates.
It means that while the Trump Organization faces fines of about $1.6 million, Trump and other specific executives aren’t at risk of going to prison — other than the firm’s longtime chief financial officer, Allen Weisselberg, who pleaded guilty in August and agreed to testify under oath at the trial in New York State Supreme Court in Manhattan.
“It is pretty rare for an organization to go to trial, because an organization usually has an incentive to settle,” said lawyer Robert Fisher, a partner at Nixon Peabody who is the law firm’s group leader for government investigations and white-collar defense. “If you’re facing fines, why not write the check ahead of time and settle? At the end of the day, an organization can’t go to jail.”
In public statements, Trump repeatedly has maintained his own innocence and that of his firm. In this case, in a phrase he has used to describe other legal allegations against him, he described the proceedings as a political witch hunt. He also has pointed out that the case comes as he hasn't ruled out running again for president, and that it begins just two weeks before the midterm elections. The Trump Organization, which has pleaded not guilty, didn't respond to a request to comment.
Typically, executives are indicted and are brought to trial together, said Fisher, a former federal prosecutor. He is based in Boston but also represents companies and individuals in cases in New York. But the trial of the company of a former U.S. president isn't typical, he added.
Even before entering politics, Trump was involved in decades of lawsuits and highly publicized bankruptcies. During his term in the White House, he also became the first president to be twice impeached.
The former reality TV star’s newest legal woes are amplified given the political context of a recent former president facing multiple trials involving accusations of fraud in his native New York.
Trump and his firm last month were named in a civil fraud suit filed by New York Attorney General Letitia James alleging a pattern of fraudulently overvaluing properties and lying to lenders and insurers.
Criminal Charges
In the trial that began Monday, the Trump Organization is accused of evading taxes by paying employees off the books through perks such as cars, private-school tuition and homes since 2005. Without reporting that compensation as income, employees understated their taxable income and the company reduced its payroll tax liability, prosecutors allege.
Weisselberg pleaded guilty to concealing more than $1.7 million in income.
Trump Organization lawyers are likely to focus on Weisselberg’s motivation for testifying, such as trying to avoid a lengthy imprisonment, Fisher said. But it could be challenging to withstand testimony from a top executive with decades of experience at a firm, he said.
“When you have an insider at the organization like a CFO who has pled guilty and admitted to breaking the law and they’ve agreed to testify, that’s tough for an organization to overcome,” Fisher said.
Susan Necheles, a lawyer for the Trump Organization, said in a virtual hearing last week that challenging Weisselberg's admission that he hid information from the accountants would be part of the company's defense, Reuters reported, citing a transcript of the proceeding held privately that was later unsealed. "Weisselberg will testify he believed everything he was doing was wrong," Necheles said during the video conference, according to Reuters. "We think he's lying and we want to show that."
Though Trump and other executives are not facing prison time, penalties such as restrictions on doing future business in New York could have a detrimental effect on the company, Fisher said.
The Trump Organization’s real estate includes New York high-rises such as Trump Tower; Chicago’s second-tallest building, Trump International Hotel & Tower, and golf resorts throughout the world. That includes Trump’s primary residence, Mar-a-Lago in Florida.
Civil Fraud Case
The criminal trial began in New York just over a month after the state’s attorney general, James, filed the civil suit accusing the Trump Organization, family members and other employees of inflating values of properties to boost the perceived wealth of Trump and obtain better terms on loans and insurance.
Similar to the criminal trial, the civil trial does not carry the potential for prison sentences.
James seeks damages of $250 million, while also seeking to have all officers of the company barred from holding such positions in the state for five years. Trump, three of his children and Weisselberg are named in that complaint.
A conviction could limit the company’s ability to continue doing business in the state of New York, as well as hindering future efforts to finance and insure properties.
The 222-page complaint includes highly detailed allegations of deceptively boosting property valuations, citing statements of financial condition and other documents.
That is a key difference from the criminal trial, which is likely to rely heavily on Weisselberg’s testimony, said University of Michigan Law School professor Barbara McQuade.
“The allegations are very detailed,” McQuade told CoStar News. “These are not generalities. They speak in great detail about properties, documents and amounts. Documents don’t lie and documents don’t forget the way witnesses can. That on its face makes it a strong case.”
Trump Organization officials are accused in that suit of shunning accepted accounting practices, ignoring or misstating opinions of real estate professionals, lying about the square footage of buildings and using unrealistic sales comps to pump up property valuations.
In one extreme example, the Trump Organization placed a value of $739 million on Mar-a-Lago, a property that should have been valued closer to $75 million based on annual revenue of less than $25 million and sharp restrictions against developing more homes at the property, the complaint alleges.
“I think a jury is going to be very skeptical that there could be a legitimate difference in value in Mar-a-Lago, for example, of $600 million,” said McQuade, who is a former federal prosecutor. “It seems like it will be difficult for Trump’s team to explain these wild disparities.”
No date has been set for the civil case to go to trial.
Different Standards
Prosecutors in the criminal and civil cases will play by different rules.
That includes the ramifications of James’ deposition of Trump, during which he involved his Fifth Amendment right against self-incrimination more than 400 times. Previously, Weisselberg and Eric Trump each invoked their Fifth Amendment rights more than 500 times each in interviews with James’ office, according to court documents and media reports.
Declining to answer questions can be interpreted as a sign of guilt in a civil case, but not in a criminal trial, McQuade said.
“That means they believe in answering the question, they could have exposed themselves to criminal prosecution,” McQuade said. “In the civil case, jurors can assume that the answers to those questions could have been bad. That could be very damaging.”
The burden of proof also will be much higher in the criminal case.
A civil conviction requires a preponderance of evidence, or a greater than 50% likelihood of guilt, while criminal prosecutors must clear a much higher bar, McQuade said: proof beyond a reasonable doubt.
“That increases the odds that the government will prevail in a civil trial, and it also increases the odds of a settlement,” McQuade
said.
The two cases in New York are playing out as the former president also faces a U.S. Department of Justice probe over classified documents allegedly taken from the White House, a Georgia investigation into Trump’s alleged efforts to overturn the 2020 presidential election and a House committee investigation to determine the former president’s involvement in the Jan. 6 attack on the U.S. Capitol.
“It’s incoming fire from everywhere,” Fisher said. “It’s a cloud hanging over any organization’s head, even when there’s one component. In this case, you have the attorney general, district attorney, DOJ and other agencies piling on.
“And then having to go to trial. Trials are very expensive, even in state court. That is a huge distraction for any organization, never mind this organization.”
Even a single investigation by an agency such as the Securities and Exchange Commission can overwhelm a major corporation, Fisher said. The effect is amplified in the case of the Trump Organization, which despite its extensive and far-flung real estate portfolio is a relatively small company.
“This isn’t a Fortune 500 company with thousands of employees and an army of internal legal professionals,” Fisher said. “Large corporations can better deal with this type of distraction and intense government scrutiny and investigation. Even for companies of that size, it’s a huge distraction and it takes bandwidth away from that company’s main business.”