In New York fraud trial, Trump defense goes on offense

Former President Donald Trump substantially lost his civil fraud trial in New York before it even began. Prior to the start of testimony, Judge Arthur Engoron ruled that evidence showed Mr. Trump and other defendants were guilty of the core charge in the case: fraudulently overvaluing real estate assets.

But with punishment yet to be determined and likely appeals looming, the former president has nevertheless been mounting a ferocious multipronged defense, combining salesmanship patter with vitriolic social media attacks and testimony from sympathetic experts as he argues he is being unfairly prosecuted for a victimless crime.

The defense has continued to call witnesses this week, with Mr. Trump himself set to return to the stand on Dec. 11, according to his lawyers. It is likely to be a pugnacious appearance; the first time he testified in the case, on Nov. 6, he called prosecutors “haters” who had grossly underestimated the value of many of his buildings.

Outside the courtroom, Mr. Trump has used scathing language about the New York proceedings, attacking New York state Attorney General Letitia James, Judge Engoron, and Judge Engoron’s chief clerk in ferocious personal terms. Judge Engoron slapped a gag order on the former president to stop these insults at the trial’s beginning, but an appeal court judge suspended the order while the two sides debate whether it violates Mr. Trump’s First Amendment rights.

Why does the former president seem so exercised about the New York fraud case? As a civil matter, it does not threaten him with prison, as do the election fraud and Mar-a-Lago document cases filed by special counsel Jack Smith, and Fulton County District Attorney Fani Willis’s case charging Mr. Trump and others with conspiring to meddle in the Georgia presidential vote.

Perhaps it is because the New York case attacks Mr. Trump’s self-image. Prosecutors have depicted him not as a savvy, wealth-creating real estate magnate, but as a cheater who lies about his net worth.

Or perhaps it is because of the penalties the fraud case could entail. It could end up forcing The Trump Organization to divest itself of many of Mr. Trump’s signature New York buildings, in essence disbanding much of his empire.

Days before the trial started, Judge Engoron issued a ruling appointing an independent receiver to “dissolve” Mr. Trump’s business entities in the state. Such a punishment is not unprecedented under New York law, say some legal experts. But it is usually applied to smaller businesses that are defrauding retail customers.

“Here in contrast, the initial order seemed to cover ‘all’ Trump-affiliated and Trump family-affiliated entities, effectively ordering them to be liquidated,” says Eric Talley, a professor at Columbia Law School, in an email. “I expect [in the end] the breadth and scope would get narrowed somewhat.”

Where the case stands

The central charge of the New York civil trial is that Mr. Trump, his sons, and others in The Trump Organization fraudulently inflated the value of some of their real estate holdings to receive better terms from banks and insurance companies.

Judge Engoron has already ruled that the defendants are guilty of this action. Prior to the trial’s beginning he issued a finding that Attorney General James had submitted “conclusive evidence” that the former president and his cohorts had overvalued their assets by between $812 million and $2.2 billion from 2014 to 2021.

The trial will determine the penalties resulting from this finding. Prosecutors have asked the court to fine Trump companies at least $250 million, and to bar Mr. Trump and his family from owning companies or borrowing money in New York ever again. 

The prosecution opened the case, presenting evidence that individual Trump properties were worth much less than claimed on Trump company annual financial statements. Mr. Trump’s Trump Tower apartment was valued as if it were 30,000 square feet, as opposed to its actual size of slightly more than 10,000 square feet. Mr. Trump’s Mar-a-Lago property was valued as if it could be turned into a private residence, whereas legal agreements with Palm Beach restrict its use to a club.

Former Trump lawyer Michael Cohen took the stand and testified that his former boss would ask him to increase the value of his total assets “based upon a number he arbitrarily selected.”

In his own appearance, Mr. Trump admitted that he would sometimes look at his financial statements as they were being developed and offer suggestions. But he also distanced himself from their production, saying Trump Organization employees were responsible for final figures.

Mr. Trump’s defense 

The foundation of Mr. Trump’s defense has been that real estate valuation is an art, not a science. Different people use different methods to arrive at projected value, and the worth of the Trump “brand” can and should be factored in, Trump lawyers have said. During his upcoming appearance, Mr. Trump is likely to argue that his financial statements, if anything, underestimated his net worth.

Donald Trump Jr. previewed this approach during his own defense appearance two weeks ago, during which he gave a slideshow of Trump properties and extolled them as “great, iconic projects,” while praising his father’s “incredible vision.”

In his initial testimony at the trial, the former president also expounded at length on what he called the “worthless” clause included in his financial statements. This refers to a provision that says banks and other financial institutions should not rely on Trump Organization statements for complete accuracy, and should do their own due diligence.

Banks did not really pay much attention to the statements, Mr. Trump said in his testimony. Nor were they harmed by any inaccuracies, he said, as the banks and insurance firms all made money from dealing with the Trump Organization.

On Tuesday, Mr. Trump’s defense called to the stand Deutsche Bank managing director David Williams, who testified that he was unaware of his firm ever putting a Trump loan into default. Deutsche Bank made its own estimation of how much debt load the Trump Organization could carry, Mr. Williams said.

In his pretrial ruling, however, Judge Engoron rejected the “worthless” clause defense, writing that the New York law under which the Trumps have been charged does not require harm for defendants to be found guilty. It only requires evidence of fraudulent activity.

“The mere fact that the lenders were happy doesn’t mean the statute wasn’t violated,” Judge Engoron said in court on Tuesday.

What happens next?

The fate of Judge Engoron’s gag order could be decided at any time. On Monday, Trump lawyers filed a request that the order be terminated, saying it violated Mr. Trump’s constitutional right to speak, and that he is not responsible for “third parties” who have flooded social media and the judge’s office with death threats and vile language directed at Judge Engoron and his clerk. 

In the trial, Mr. Trump’s defense seems set to wrap up shortly after he is scheduled to testify. A verdict would likely be handed down in mid-to-late December.

The former president has faced an uphill climb in the proceedings, given that the judge already found him guilty of the central charge. Yet his defense may accomplish what it set out to do, according to Stephen A. Saltzburg, a law professor and co-director of the Litigation and Dispute Resolution Program at George Washington University Law School.

Mr. Trump’s lawyers have made clear that Trump entities are not conceding anything and are insisting that the finding of fraud in this case was premature. Their presentations seem to have been almost a public relations campaign aimed at paving the way for a lengthy appeals process.

“Whether the defense strategy will have much impact on the judge is doubtful, but it appears that the defense is playing a long game and counting on an appeal to provide some relief,” says Professor Saltzburg in an email.