Is lying on your loan application to get better terms a victimless offense? Donald Trump and his supporters claim it is, but in damning detail, Justice Authur Engoron sketched out who was wronged in his 92-page verdict.
And it turns out, it’s not just lenders; it’s all of us.
On Friday afternoon, Engoron, after finding that the former president and his company submitted dozens of false financial reports to lenders and insurers, ordered them to disgorge $355 million in ill-gotten gains to the state of New York, plus a boatload of pre-judgment interest.
Trump and his sons are barred from serving as officers or directors of any New York corporation, including their own, for at least a couple of years. And the Trump Organization will get a full-time babysitter, in case whichever sock puppet the Trump boys get to stand in for them decides to engage in even more fraud.
“My father built the skyline of New York City, and this is the thanks he gets?” Eric Trump wailed on Fox News.
Eric’s dad was angrier and even less coherent, spending much of the weekend calling the judge a “communist” on Truth Social, in between posts hawking his new Payless Metallix sneaker line.
“This Election Interference and tyrannical Abuse of Power by a Crooked Judge and Crooked Attorney General cannot be tolerated,” Trump fulminated.
“There were no victims, and not one person testified there was any fraud,” Trump went on, adding that “The actual bankers who were involved in the loan transactions testified I was a highly sought-after ‘whale’ of a client with ‘one of the strongest personal balance sheets’ they had ever seen, and I was overqualified for the loans. Those banks earned more than $100 Million Dollars in profits doing business with me and my companies.”
Debunking Donald Trump’s lies is like trying to catch raindrops with your bare hands. But the most insidious lie here is that “there were no victims” — a talking point that quickly became canon in right-wing media and among Trump supporters.
In fact, as Engoron explained in his verdict, there were two categories of victims: The parties involved in the transactions with him, and all the rest of us.
The corporate victims
The court found that Donald Trump, his sons, and the Trump Organization’s top executives conspired to pass off false statements of financial condition (SFCs) to lenders every single year. Most egregiously, they claimed that Trump’s condo in Trump Tower in Manhattan was 30,000 square feet, instead of 10,996 square feet — a fudge which increased his reported net worth by some $200 million. But fraud was a way of life for the Trump family.
For instance, Eric Trump testified that he had little understanding of the finances of the business he runs and is more of a “construction guy.” He also testified that he had no idea “until this case came into fruition” that the SFCs even existed. In reality, he was responsible for a Trump property known as “Seven Springs,” and repeatedly vouched — for the purpose of the SFCs — that it was worth $161 million, despite multiple appraisals valuing it somewhere between $5 million and $21 million.
In a normal world, we would have to rely on expert testimony to figure out what Trump got for telling so many lies about his net worth. But here, as the state’s expert witness Michiel McCarty pointed out, Deutsche Bank ran what was functionally a real-time control group by making loan offers from two separate departments.
For years, Trump went in what was essentially the front door, dealing with Deutsche’s Commercial Real Estate Division which would finance a loan based on the underlying value of the property itself (more or less). But in 2011, Jared Kushner introduced Trump to his family banker, Rosemary Vrablic, who worked in Deutsche’s Private Wealth Management Division.
Vrablic was in the business of “whales,” as Trump put it, and her deals were less about a single asset being used as collateral and more about the individual borrower. Vrablic and her bosses were willing to lend Trump money on extremely favorable terms, but he had to personally guarantee the notes.
The Commercial Division was offering non-recourse loans — that is, loans where the bank could take the mortgaged property in case of a default, but not Trump’s other assets. Meanwhile, the Private Wealth Division was offering much better rates on full recourse loans where Trump had to personally guarantee that the bank would get paid.
How much better? From Engoron’s verdict:
In calculating the interest rate differentials for the perceived credit risks with and without a personal guarantee on the Doral loan, McCarty took the competing loan proposal terms that Deutsche Bank’s commercial real estate group had offered (which was LIBOR + 8% with a floor of LIBOR + 2%, or 10%) and compared them to the terms extended by Deutsche Bank’s Private Wealth Management Division that were contingent upon a personal guarantee from Donald Trump (which was between 1.8% and 4.1%, depending on whether it was pre- or post-renovation). [Emphasis added.]
All he had to do to get those sweet low rates was show that he was rich enough to be worth the risk. And that is where the SFCs come in, because Trump would never have qualified for those preferential rates if he’d been honest about his wealth and the real value of his cash reserves.
The Doral note, which was issued in 2011 from the Private Wealth Division, required him to maintain a net worth of $2.5 billion, not including his brand. It also required him to submit annual SFCs attesting that he was still wealthy enough to be worth the risk — an ongoing fraud that required the Trump Organization to spend an inordinate amount of time massaging the books to keep the bankers happy.
Applying McCarty’s calculations, Justice Engoron came up with a savings of $10 million per year on the Doral note alone because Trump got the lower rate:
In 2020 the Doral loan was $125,000,000. Applying the non-recourse rate of 10% (or .01) results in an interest payment of $12,500,000. Applying the recourse rate of 1.9348% (or .019348) results in an interest payment of $2,418,500. Subtracting the latter from the former yields a saving of $10,081,500.
And that’s just one loan!
Using McCarty’s formula and circumscribing the time period to comply with the statute of limitations, the court calculated a “reasonable approximation of the ill-gotten interest rate savings” for four loans:
$72,908,308 from 2014-2022 on the Doral loan;
$53,423,209 from 2015-2022 on the Old Post Office loan;
$17,443,359 from 2014-2022 on the Chicago loan; and
$24,265,291 from 2015-2022 on the 40 Wall Street loan.
And whether Deutsche Bank and the other lenders are complaining about it or not, that is money that Trump got from them by committing fraud. So if the question is, “Who was harmed here?” the answer is very clearly the lenders, who missed out on tens of millions of dollars they would have collected had Trump paid an interest rate commensurate with the actual level of risk the banks took when they loaned money to him.
More tangibly, if Trump hadn’t lied, someone else would have gotten these deals. And that person didn’t get the profit that he or she would have reaped if Trump hadn’t lied about his financial situation to make himself look more attractive.
For instance, in 2010, Trump won the concession from NYC Parks to run a golf course at Ferry Point, based in part on his claim that his net worth exceeded $3 billion and that he had $200 million in cash reserves. He then submitted fraudulent SFCs annually, along with a letter from his accountant stating that there had been no material adverse change in his financial position. In June 2023, he sold the concession to Bally’s, netting $60 million.
Justice Engoron ordered Trump to disgorge that $60 million, along with an additional $127 million that he netted from the sale of the Old Post Office Hotel in DC, on the theory that these deals would have gone to someone else if Trump hadn’t lied so flagrantly about his wealth. So, in a very real sense, the victims are the second most attractive bidders for those deals, who would have gotten the Ferry Point and Old Post Office contracts if they hadn’t gone to Trump.
We are all the victim here
Less tangibly, but no less importantly, is the damage that this persistent fraud does to the marketplace itself. Put simply, lying about your creditworthiness makes it more difficult for lenders to price risk, and so they have to charge a higher premium to everybody.
“Timely and total repayment of loans does not extinguish the harm that false statements inflict on the marketplace. Indeed, the common excuse that ‘everybody does it’ is all the more reason to strive for honesty and transparency and to be vigilant in enforcing the rules,” the judge wrote. “Here, despite the false financial statements, it is undisputed that defendants have made all required payments on time; the next group of lenders to receive bogus statements might not be so lucky.”
For years, Trump argued that the state of New York, “the financial capital of the country and one of the financial capitals of the world,” had no interest in preserving the integrity of the market itself in the absence of a lender complaining of injury. But as Justice Engoron points out, that’s simply a defense of the right to steal a little bit from everyone “stupid” enough to tell the truth on their loan applications.
And Trump’s refusal to even acknowledge his lies, much less show remorse, demonstrate exactly why the state needed to step in:
This Court is not constituted to judge morality; it is constituted to find facts and apply the law. In this particular case, in applying the law to the facts, the Court intends to protect the integrity of the financial marketplace and, thus, the public as a whole. Defendants’ refusal to admit error — indeed, to continue it, according to the Independent Monitor — constrains this Court to conclude that they will engage in it going forward unless judicially restrained. Indeed, Donald Trump testified that, even today, he does not believe the Trump Organization needed to make any changes based on the facts that came out during this trial.
This year, beginning with the $83 million verdict in the E. Jean Carroll defamation trial and followed by the massive civil fraud penalty in New York, may be the first time in his life that Trump actually paid a real price for lying. And it’s only February!
With four criminal trials pending, this might well be the year Trump finally reaches the find out part. But for now, we get to watch him try to come up with half a billion dollars in cash in the next 30 days.
You love to see it!
