Trump’s Lawyers Struggle to Grasp the Impact of Fraud Ruling
Follow our live coverage of Trump’s fraud trial.
Trump Tower on Fifth Avenue. The 72-story office building in the heart of the financial district. The Trump International Hotel overlooking Central Park.
These are Donald J. Trump’s flagship New York properties, embodiments of the rise of a developer who parlayed real estate riches into reality television fame, and ultimately, the White House.
Now, Mr. Trump could lose his grip on all three buildings after a state judge on Tuesday ruled that he had persistently committed fraud by inflating the value of his assets. The judge sided with New York’s attorney general, Letitia James, who had brought a civil case against the former president.
As a punishment, the judge, Arthur F. Engoron, effectively revoked Mr. Trump’s licenses to operate those properties — and potentially an even broader swath of the family business that Mr. Trump built over the last half-century. The ruling left much of his New York operation hanging in the balance.
Mr. Trump is expected to appeal and has already sued Justice Engoron himself, who has been a thorn in the side of the Trump lawyers for more than a year. An appeals court could rule as soon as Thursday on that lawsuit, which accuses the judge of ignoring a previous decision that could bar some evidence in the case.
The coming ruling in turn could forestall a trial of the fraud case that was set to start next week to determine whether Mr. Trump should pay a fine and how much as well as additional punishments. Ms. James is seeking $250 million.
In a Wednesday hearing, Mr. Trump’s lawyers pleaded for clarity, asking Justice Engoron to explain exactly what the effect of his ruling would be.
The judge demurred. After huddling with his law clerk, Allison Greenfield, he said that he appreciated the Trump team’s concern but was “not prepared to just issue a ruling right now.”
He instead granted a request from one of Mr. Trump’s lawyers, Christopher M. Kise, who asked for extra time to nominate an independent authority who could implement the judge’s order. Mr. Kise suggested he was inclined to nominate a monitor who has already been overseeing Mr. Trump’s business, Barbara S. Jones.
If the judge’s decision stands, there are two paths forward for the business known as the Trump Organization.
The strictest possible reading of Justice Engoron’s order could spell the end of the Trump Organization as we know it, forcing a sell-off of several properties and imposing a death sentence on its New York operations.
More likely, legal experts said, is a period in which Mr. Trump would be unable to operate his properties, which would be handed to a court-appointed chief executive, potentially Ms. Jones. Such an arrangement would preserve Mr. Trump’s ownership while preventing him and his two adult sons, Donald Jr. and Eric Trump, who are also defendants, from running the machinery of their empire without permission from the court.
It would be as though the court revoked Mr. Trump’s driver’s license: He would still own a fleet of vehicles and could be driven around, but would be barred from getting behind the wheel himself.
Even this would represent a major blow to the former president, underscoring the power of a little-known state law that Ms. James used to bring her case, accusing him of inflating his net worth by billions of dollars to secure favorable loans from banks. Mr. Trump’s lawyers argued that the banks made money from Mr. Trump, who never defaulted on a payment.
Yet the law allows the attorney general to pursue “persistent fraud” without having to show that a defendant actually intended to defraud anyone, or that their actions resulted in financial loss — a lower bar than most fraud cases. It also provides for more drastic remedies, empowering Ms. James to recover ill-gotten gains as well as to seek the cancellation of business certificates that companies need to operate in New York.
The attorney general’s office used the same statute in a previous, successful case against Mr. Trump’s for-profit education venture, Trump University.
Although Justice Engoron had the authority to cancel the Trump family business’s certificates in New York, several legal experts described it as a rare step.
Steven M. Cohen, a former federal prosecutor who served as a top aide to Andrew M. Cuomo when he was attorney general, said such actions are only taken “in extreme cases involving persistent and pervasive fraudulent conduct.”
“Think of it as the court concluding that this corporate citizen has consistently behaved in a manner that forfeiture of the privilege of operating in New York is warranted,” said Mr. Cohen, an adjunct corporate law professor at New York Law School.
Mr. Trump — who moved to Florida after his presidency and has many properties outside New York — has denied wrongdoing and attacked both Ms. James and Justice Engoron, noting that they are both Democrats. In a social media post on Tuesday, Mr. Trump called Justice Engoron “deranged.”
Mr. Kise in his own statement called Justice Engoron’s ruling “outrageous” and “completely disconnected from the facts and governing law.” He said that the judge ignored “basic legal, accounting and business principles.”
Justice Engoron’s courtroom demeanor can be unusual. He brings more levity to the proceedings than most judges, often cracking jokes and discouraging members of the public from standing when he enters the courtroom.
He is fond of popular culture references, albeit dated ones. At Wednesday’s hearing, he told an anecdote that appears in the 1971 film adaptation of “Fiddler on the Roof.” His ruling on Tuesday cited “Duck Soup,” a Marx Brothers film from 1933.
And he openly consults with his clerk, Ms. Greenfield, and permits her to ask questions of the lawyers appearing before them, a practice that reflects her influence over the proceedings.
Justice Engoron has adopted a consistently skeptical stance toward Mr. Trump and his legal team, which sought unsuccessfully to move the case out of his courtroom. Last year, the judge held Mr. Trump in contempt, imposing a $110,000 fine on the former president, and in his ruling on Tuesday, Justice Engoron levied sanctions on Mr. Trump’s lawyers for making arguments that he had previously rejected. He ordered each to pay $7,500.
The blows may keep coming. Ms. James is seeking to permanently bar Mr. Trump from running a business in New York and blocking him for five years from applying for loans from a financial institution registered in the state. Only once the civil trial is over will the full picture of the consequences emerge.
Ms. James said in a statement on Tuesday, “We look forward to presenting the rest of our case at trial.”
The confusion surrounding Justice Engoron’s order to strip Mr. Trump of control over some properties stems partly from the company’s unorthodox corporate structure. The Trump Organization, in reality, is only a name for a constellation of hundreds of different legal entities that comprise Mr. Trump’s properties, ventures and other assets. Each is owned by Mr. Trump’s trust, and many are outside New York, and thus almost certainly beyond the reach of this case.
But every one of Mr. Trump’s New York properties, nearly a dozen of them, could be swept up in Justice Engoron’s decision.
He ordered that every Trump entity that Ms. James named as a defendant, including the financial district office building at 40 Wall Street, lose its business certificate. He also canceled the certificates of “any other entity controlled or beneficially owned” by Mr. Trump, which is a broader universe of New York properties that includes Trump Tower, the commercial space inside his hotel overlooking Central Park, a golf club in Westchester County and residential towers on the East Side of Manhattan.
The judge even expanded on the punishment that Ms. James had sought, canceling the certificates of any entity controlled by Mr. Trump’s sons.
Justice Engoron’s decision could remove the certificate of the Trump Corporation, the entity that employs hundreds of people in Mr. Trump’s corporate offices, as well as the Trump Organization. The organization’s demise would be more symbolic than sweeping, given that it is only a brand name, not an owner of property or an employer of people.
At the hearing on Wednesday, Justice Engoron made an understated reference to the sweeping nature of his ruling, even as he declined to answer questions about its final consequences.
“The contour of the case has changed significantly since yesterday,” he said, mildly, as the hearing began.