Opinion: The case against Trump's company is bogus

[Jason MacDonald]

CNN
—
In mid-1950s New York, business corruption was rife, and mafia
families were on the rise. Jacob Javits, who was the New York state
attorney general at the time, pushed the state legislature to create
a law that would give his office sweeping power to identify and go
after repeated fraudsters. From that request, Executive Law 63 (12)
was born.

Today, the Executive Law is the centerpiece of current New York
Attorney General Letitia James’ case against former President Donald
Trump. To ignore the injustice of the law as applied to Trump is to
welcome its unfair application to us all.

James is attempting to use the Executive Law against Trump in a way
it’s never been used before, making the case that he defrauded
certain financial institutions despite those institutions having
actually profited from doing deals with him. That makes little
sense, illustrating the law’s potential for rough justice,
especially in the hands of a highly motivated attorney general.

Trump was supposed to testify once again on Monday after appearing
on the witness stand last month, but he said online late Sunday that
he would not be testifying again after all. On Tuesday, Trump’s
defense rested its case.

James’ case argues that the financial statements that Trump
submitted to various lending institutions were fraudulent because
they exaggerated the value of his real estate holdings. That sounds
bad. But what the AG doesn’t allege is that any of those lenders
complained about Trump’s valuations or that his valuations violated
those lenders’ rules or even that Trump defaulted on any of the
loans he received — he hasn’t.

Can someone be sued by the government for fraud if the supposedly
fraudulent conduct hasn’t harmed anyone? Under the Executive Law,
yes; Trump’s case proves it. The commercial consequences of the law
are disturbingly obvious and potentially devastating.

If an individual puts two properties up for sale at double the value
assessed by a third-party appraiser, could the AG go after that
seller for repeated “fraud” under the Executive Law, despite buyers
happily paying the asking prices? Apparently. What about a deli
owner claiming in ads to have the “best sandwiches in the world”?
Could the AG go after that owner for “fraud” even though customers
have only praised and never complained about the quality of those
sandwiches? In theory, yes. And does anything in the law allow the
court to rein in the AG for overreaching? Far from it — New York
courts have ruled that the AG’s power to act under the Executive Law
is basically immune from questioning.

Following the guidance of those courts, presiding New York State
Supreme Court Justice Arthur Engoron ruled in favor of James in
September, finding that Trump had violated the Executive Law. In
allowing trial to proceed on the issue of damages, Engoron also
ruled that disgorgement — the remedy sought by the attorney general,
which compels an individual to return illegally made profits — is
“equitable in nature, mandating that the trial be a bench trial, one
that a judge alone decides.” That ruling makes clear how the
Executive Law allows a court to deny an accused individual their
constitutional right to a jury trial.

Equitable disgorgement usually involves ill-gotten profits — in an
insurance scam, for example, in which an individual tricks another
into paying premiums for a non-existent policy, disgorgement would
require the scammer to pay back whatever profits they illegally
collected from the victim. That kind of straightforward calculation
might be appropriate for a judge to decide alone. But there are no
victims in Trump’s case and, therefore, no ill-gotten profits.

So when James asks that an “estimated” $250 million be disgorged
from Trump, what she’s really seeking is a massive penalty — not a
specified, equitable remedy pegged to a victim’s suffering, but the
kind of unspecified and punitive money damages typically left for
juries to decide.

Instead of a jury, however, Trump gets Engoron, who isn’t
sympathetic to the free-market economic principles underlying his
defense. In his September ruling, Engoron ridiculed Trump for
“essentially argu[ing] that value is inherently subjective.” But
value is often subjective, particularly in the real estate market.
Engoron’s decision obscures this point by mainly citing cases
dealing with tax assessment challenges — not decisions implicating
contracting business entities like the ones at issue in Trump’s
case.

Engoron similarly mocked Trump for arguing that “no sophisticated
counterparty would have considered the [financial statements] and
other information provided by [Trump] as material to extend credit …
without doing their own due diligence.” But Trump’s argument makes
business sense — a bank’s ultimate decision to lend is based on its
own self-informed valuation, not the borrower’s. These points have
played out through evidence presented at trial.

During a full day of testimony just after Thanksgiving, an executive
of one of Trump’s lenders confirmed that there was nothing “unusual”
about Trump’s inflated valuations — that the bank had done its own
due diligence and determined that Trump’s assets were less valuable
than he claimed but decided to loan Trump money anyway. Individuals
and corporations are entitled to value things as they please and to
enter into contracts accordingly. But under the Executive Law, the
AG and the court are free to interfere with and even punish that
conduct.

If all that isn’t bad enough, the punishment the attorney general
can seek for supposed fraud under the Executive Law isn’t limited to
life-altering disgorgement — the AG can also strip the accused party
of its license to do business in New York, as James has done to
Trump (the move is on hold while the decision is appealed).

Trump’s case illustrates why none of us should want the government
to have the power that it does under the Executive Law. That’s not
to say that Trump didn’t puff up the value of his real estate
holdings — he surely did.

But that’s not a reason to ignore that the Executive Law allows the
government an unrestricted and unconstitutional power to devastate
individuals’ livelihoods for puffery in their private business
dealings with ultimately satisfied customers. If that behavior is
punishable as “fraud,” Trump will suffer for it. But many good and
hard-working people might suffer for it as well.

https://www.cnn.com/2023/12/13/opinions/trump-civil-trial-court-
fraud-assets-talel/index.html