Investigations Provide a Window Into How Trump Does Business

On February 27, 2019, Donald Trump’s former personal lawyer Michael Cohen testified before the House Committee on Oversight and Reform, where he was questioned by the New York congresswoman Alexandria Ocasio-Cortez. She spent much of her time pressing him on potential financial malfeasance by the Trump Organization. “To your knowledge, did the President ever provide inflated assets to an insurance company?” she asked.

“Yes,” Cohen replied.

Ocasio-Cortez mentioned a Trump-branded golf course, Trump Golf Links, that is located in her district in the Bronx, noting that it was built using a hundred and twenty-seven million dollars in taxpayer funds but that Trump’s company has received all the profits. She then quoted a news article that reported that Trump had said in financial-disclosure forms that his golf course in Jupiter, Florida, was worth more than fifty million dollars, but reported to local tax authorities that it was worth no more than five million dollars. Did the President ever tinker with the numbers to reduce his tax bills, Ocasio-Cortez asked Cohen. Cohen answered that he believed he did. At another point during his testimony, Cohen elaborated. “It was my experience that Mr. Trump inflated his total assets when it served his purposes, such as trying to be listed amongst the wealthiest people in Forbes,” he said. “And deflated his assets to reduce his real-estate taxes.”

Disclosures such as Cohen’s often catch the attention of regulators and prosecutors, and this case followed the pattern. A year and a half later, on August 24th, the New York attorney general, Letitia James, revealed that her office is investigating the Trump Organization over precisely the issues Cohen raised. The investigation, which began in March, 2019, aims to determine whether the Trump Organization inflated the value of Trump’s assets on financial statements in order to obtain more favorable loan terms or understated them to reduce tax treatment. The state attorney general issued subpoenas for financial statements, communications, and other documents which she says she needs in order to decide whether an actual case should be filed. “They have stalled, withheld documents, and instructed witnesses, including Eric Trump, to refuse to answer questions under oath,” James said in a recent statement. She has now filed a court motion arguing that Eric Trump and others should be compelled to provide what she is asking for.

Paul Shechtman, a partner at the Bracewell law firm who previously served as a federal prosecutor and as counsel to the Manhattan District Attorney, told me that the kind of conduct James’s office is investigating, if proved, would clearly be considered fraud, which is both a federal and state-level crime. “She’s looking at, for lack of a better word, whether he’s been fucking around with his assets and liabilities to suit his needs,” Shechtman said. In his time as a prosecutor, Shechtman supervised cases that involved misstatements of financial records. “There are all sorts of times in life where you borrow money and people want to know, are there assets behind it, is the collateral good?” he said. “And people want financial statements. And either deflating or inflating, in order to obtain money in any sizable amount, is a felony.”

The attorney general’s inquiry is focussed on a handful of Trump properties, including a two-hundred-and-twelve-acre parcel of land in Westchester County called Seven Springs Estate, which once belonged to Agnes and Eugene Meyer. (Eugene was at one point the publisher of the Washington Post.) Investigators issued subpoenas in December, 2019, to the Trump Organization and to Eric Trump, the company’s executive vice-president; to Charles Martabano, a land-use lawyer who worked with the company; and to the Trump Organization’s tax counsel Sheri Dillon, as well as her law firm, Morgan, Lewis & Bockius. After an initial period of coöperation, the two sides reached an impasse over documents and witnesses that the attorney general requested. Eric Trump had an interview scheduled with the office but refused to appear.

James’s account of her investigation provides a window into how the Trump Organization has traditionally done business, and the lengths to which it will go to minimize its tax bills. The company purchased the Seven Springs property in 1995, for $7.5 million. Trump tried multiple times, between 1996 and 2014, to develop the land into a golf course or into residences, but eventually dropped the idea after opposition by local residents and concerns about pollution of an adjacent lake that provides drinking water to the village of Mount Kisco. He tried to mitigate his losses by granting a conservation easement on some of the land—promising not to develop it and to conserve it instead—for which he was permitted to take an income-tax deduction for the lost development value of the property. Trump obtained an appraisal of the property in 2016, which placed its value at $56.5 million as of December 1, 2015, and the easement at $21.1 million, which allowed Trump to take a tax deduction of $21.1 million. The inquiry is seeking to understand how the valuations were determined, and whether the former was inflated and the latter minimized in order to increase the tax deduction. The Trump Organization did something similar with an 11.5-acre parcel of land at the Trump National Golf Club in Los Angeles. The parcel was granted a conservation easement in 2015; Trump obtained an appraisal that valued the property at a hundred and seven million dollars prior to the placement of the easement, and valued the easement at twenty-five million, which would have granted the company a twenty-five-million-dollar tax break.

The court filing raised questions about other properties as well, including 40 Wall Street, an office tower in lower Manhattan that the Trump Organization refinanced in 2015, and the Trump International Hotel and Tower in Chicago. In the Chicago case, James says, investigators learned that “large portions” of the debt the company owed on the property were forgiven, but they were unable to determine whether these amounts had been recognized by the company as taxable income—a possible violation of tax laws. According to Shechtman, these are all potentially serious crimes (although he noted that he wasn’t certain whether they fall within the jurisdiction of the attorney general). “Cohen said in his book and said in his testimony, ‘We had a different balance sheet for each day of the week, for each purpose.’ ” Shechtman said. “And that’s a worthy subject for investigation.” (In a statement, the Trump Organization’s lawyer said that it had done nothing wrong and had “tried to cooperate in good faith with the investigation at every turn.” He described the New York attorney general’s actions as “continued harassment of the company as we approach the election.” He also made note of the fact that the motion was filed on the first day of the Republican National Convention.)

Shechtman added that such cases are tricky to prove. Prosecutors must establish that the valuations of the properties—which are, to some extent, subjective—were false. If the company kept two sets of accounting books, for example, one for the tax authorities and another for investors, that would clearly show that its executives knew that at least one of the books wasn’t accurate. Prosecutors also have to establish intent, showing that the organization engaged in a willful effort to misrepresent the valuations for the purposes of financial gain. To prove intent, they would need, say, a witness who would testify that Trump or someone else had instructed him or her to fudge the numbers; Shechtman acknowledged that it would be difficult to find such a person. The other possibility would be to assemble a paper trail of communications—e-mail and correspondence with outside lenders showing that there were explicit instructions given to lower or raise the numbers. These are exactly the kinds of documents that James is fighting to get. Ultimately, the Trump Organization’s attempt to withhold the documents is likely to fail in court, legal experts told me. As with the fight over Trump’s tax returns, the company could probably drag out the process for a long time but would eventually lose.

Sheelah Kolhatkar