Nine-Figure Trump Fine Partly Rooted in Fraud at FiDi Tower
Two weeks from today, on Monday, March 25, former President Donald Trump will have to post a bond of $454 million dollars stemming from the recent verdict in a civil suit brought by the State Attorney General (AG), which found that he had fraudulently inflated the values of various real estate properties in order to obtain more favorable terms from lenders.
The February 16 verdict by State Supreme Court Judge Arthur Engoron hinged in part on Mr. Trump’s proprietorship of a Lower Manhattan building, the historic skyscraper at 40 Wall Street. The judge’s decision contained a detailed analysis of the former president’s stewardship over the 1930 landmark, which Mr. Trump gained control of in 1995.
The decision focuses primarily on the “statements of financial condition” (SFCs) that Mr. Trump submitted to lenders (among them Capital One Bank, Ladder Capital, and Deutsche Bank’s Private Wealth Management Division) when seeking loans that were collateralized by 40 Wall Street.
Judge Engoron’s decision quotes Michiel McCarty, an investment banker specializing in real estate who was called as an expert witness by the AG, noting that Mr. McCarty “testified reliably and convincingly that defendants profited by paying lower interest rates on loans from Deutsche Bank’s Private Wealth Management Division, based on fraudulent SFCs, than the interest rates they would have paid under non-recourse loans simultaneously offered to them. He further testified that defendants profited by paying a lower interest rate on the 40 Wall Street Ladder Capital loan, based on a fraudulent SFC, than the interest rate on a non-recourse loan, and compared the terms of the then-existing Capital One non-recourse loan that 40 Wall Street was subject to before refinancing with Ladder Capital.” (“Non-recourse” refers to a loan secured exclusively by a single asset, which lenders consider riskier—and for which they charge higher interest—than loans that allow them in the event of default to pursue any assets a borrower may have.)
The judge cites numerous misstatements in the SFCs related to 40 Wall Street, including a claim that the property was generating an annual net operating income of $26.2 million, when in fact it was operating at an annual loss of between $7.3 and $20.9 million. He also cites Mr. Trump’s financial team double-counting $1.4 million in anticipated income from a retail lease to upscale grocer Dean & Deluca for a store that never opened. Judge Engoron further notes that Mr. Trump told a Forbes reporter in 2022 that 40 Wall Street “was 72 stories tall, when in fact, it is only 63, resulting in an overvaluation of $50 million. The article also reported that Donald Trump told Forbes that 40 Wall Street had a net operating income of $64 million in 2015, when in fact, the building ran a deficit of more than $8.7 million for the 12-month period ending on March 31, 2015.” In the aggregate, the judge’s decision finds that while Mr. Trump’s team had privately valued 40 Wall Street at $540 million, they told lenders it was worth $735 million.
On the basis of these assurances, Mr. Trump was able to borrow money at lower rates of interest than otherwise would have been possible. For the loans on 40 Wall Street, Mr. McCarty calculated that the factual misstatements contained in the SFCs resulted in depriving lenders of $24,265,291 in the years 2015 through 2022 in additional interest charges they otherwise would have been entitled to.
The building at 40 Wall Street is one of ten that the AG’s civil suit focused on. The aggregate fraud at all of these properties resulted in the February verdict and judgement that Mr. Trump must pay a total penalty of $454 million.
Today is the deadline for the AG to file arguments opposing Mr. Trump’s request to have this amount reduced or its collection paused while he appeals the trial verdict. This deadline comes on the heels of a February 28 ruling, by an intermediate appellate court, which refused to stop collection of the full verdict and declined Mr. Trump’s compromise offer of a $100-million deposit, triggering the next (and likely final) appeal to the State’s highest court.
A request for comment submitted to Mr. Trump’s legal team was not answered.