Analysis-Trump’s civil fraud verdict appeal may hinge on ‘no victims’ defense

Analysis-Trump’s civil fraud verdict appeal may hinge on ‘no victims’ defense

© Reuters. FILE PHOTO: Former U.S. President and Republican presidential candidate Donald Trump holds a rally in advance of the New Hampshire presidential primary election in Rochester, New Hampshire, U.S., January 21, 2024. REUTERS/Mike Segar/File Photo

By Jack Queen

NEW YORK (Reuters) – Donald Trump’s planned appeal of a $355 million judgment against him in his civil fraud case may focus on the former president’s contention that there were no actual victims from his conduct at issue in the case, which was brought under a New York anti-fraud law typically used to protect consumers.

The civil lawsuit, filed by New York state Attorney General Letitia James in 2022, centered on misleading financial statements that Trump provided to banks to secure better terms on loans that he ultimately repaid. Unlike many similar cases, this one did not involve ordinary people losing lots of money.

The attorney general’s office argued that the law at issue does not require the existence of victims to be enforceable. They also disputed the notion that there were no victims, saying Trump’s bankers were harmed because they could have charged higher interest on loans if they knew his true net worth was lower than he claimed.

Trump’s claim that there were no obvious victims, while not helpful for him when presented to Justice Arthur Engoron during the trial, could be a matter of concern for appellate judges.

“It is unusual, and that’s one of the issues here,” said white collar criminal defense attorney Paul DerOhannesian, who was not involved in the case. “We haven’t really seen this type of proceeding before against a very large New York business.”

In his Friday ruling, Engoron also barred Trump from running a corporation in New York or applying for a loan with a bank registered or chartered in the state for three years. The lending restriction could be particularly painful because most major banks are chartered in New York.

Trump, the frontunner for the Republican nomination to challenge Democratic President Joe Biden in the Nov. 5 U.S. election, has denied wrongdoing and accused James and Engoron of political bias.

James, a Democrat, brought her lawsuit in 2022 under New York Executive Law 63(12), which gives her office broad powers to file civil lawsuits for “repeated” or “persistent” fraud. This law historically has been used to protect consumers, investors and small businesses from scams, price-gouging and other predatory business practices.

These cases typically involve many victims who lost large sums of money to businesses that exploited their poor financial savvy, according to legal experts.

Defendants in those cases have run the gamut, from chicken suppliers to crypto exchanges and loan sharks. A common thread is often a large group of victims who were exploited because the did not know any better, according to legal experts.

“The attorney general’s job is to protect people who can’t protect themselves,” Syracuse University law professor Gregory Germain said. “Here, we’re dealing with very sophisticated lenders who are fully capable of protecting themselves and haven’t asked the attorney general for help.”

On appeal to a five-judge panel of the New York Appellate Division – a mid-level state appeals court – Trump’s lawyers are expected to reiterate arguments they made to no avail during the trial. They told the judge that lenders at Deutsche Bank were finance experts who were obligated to do their own due diligence and were savvy enough to know that Trump was probably exaggerating his property values.

Trump admitted on the witness stand in November that his company did not always provide accurate estimates of the value of some of his trophy properties to banks. Trump said the discrepancies did not matter because his estimates bore disclaimers and that he had plenty of cash to back up his loans.

A former Trump banker at Deutsche Bank, David Williams, testified in November that conducting due diligence on information clients provided was standard practice. In one instance, the bank adjusted Trump’s net worth down to $2.6 billion from the $4.9 billion he reported, Williams said, adding that such a revision was “not unusual or atypical.”

Severe penalties in a novel case like this one could potentially be met with skepticism on appeal, legal experts said. They could also prompt appellate judges to consider whether the attorney general overstepped her authority, according to Germain.

“I think the judges are going to have to look carefully at what the powers of the attorney general are here,” Germain said. “Are they so broad that any lie can put you out of business, even if nobody believed it?”

Engoron has been unequivocal in rejecting Trump’s arguments, saying in a September ruling in the case that Trump’s claim about a lack of victims was “completely irrelevant.”

In Friday’s decision, Engoron said that repaying loans secured on false pretenses “does not extinguish the harm that false statements inflict on the marketplace.”

The state’s lawyers are expected during the appeal to offer the same arguments they presented to Engoron. They have said this law can be used to police the integrity of the market generally and does not require complaints from victims.

They are expected to emphasize Trump’s “outrageous” conduct, including overstating his net worth by as much as $3.6 billion and lying about the size of his own apartment. They also may argue that Trump’s case is unusual because few companies are accused of fraud on this scale, according to some legal experts.

“There’s dusk and dawn, and then there’s night and day,” University of Michigan business law professor Will Thomas said. “The attorney general will probably push back by saying even if these were sophisticated actors, this behavior was so transparently fraudulent that it can’t be standard practice.”

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