Preview
INDEX NO. 452564/2022
NYSCEF DOC. NO. 1688 RECEIVED NYSCEF 02/16/2024
SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY
PRESENT: HON. ARTHUR F. ENGORON PART 37
Justice
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PEOPLE OF THE STATE OF NEW YORK, BY LETITIA INDEX NO. 452564/2022
JAMES, ATTORNEY GENERAL OF THE STATE OF NEW
YORK,
Plaintiff,
-V-
Decision and Order
DONALD J. TRUMP, DONALD TRUMP JR., ERIC TRUMP, After Non-| ury Trial
ALLEN WEISSELBERG, J] EFFREY MCCONNEY, THE
DONALD J. TRUMP REVOCABLE TRUST, THE TRUMP.
ORGANIZATION, INC., TRUMP ORGANIZATION LLC, DJ T
HOLDINGS LLC, DJ T HOLDINGS MANAGING MEMBER,
TRUMP ENDEAVOR 12 LLC, 401 NORTH WABASH
VENTURE LLC, TRUMP OLD POST OFFICE LLC, 40 WALL
STREET LLC, SEVEN SPRINGS LLC,
Defendants.
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Arthur F. Engoron, Justice
After presiding over a non-jury trial that began on October 2, 2023, and ended on December 13,
2023, with closing arguments on January 11, 2024, this Court makes the following findings of
fact and conclusions of law and issues this Decision and Order:
SUMMARY
Donald Trump and entities he controls own many valuable properties, including office buildings,
hotels, and golf courses. Acquiring and developing such properties required huge amounts of
cash. Accordingly, the entities borrowed from banks and other lenders. The lenders required
personal guarantees from Donald Trump, which were based on statements of financial condition
compiled by accountants that Donald Trump engaged. The accountants created these
“compilations” based on data submitted by the Trump entities. In order to borrow more and at
lower rates, defendants submitted blatantly false financial data to the accountants, resulting in
fraudulent financial statements. When confronted at trial with the statements, defendants’ fact
and expert witnesses simply denied reality, and defendants failed to accept responsibility or to
impose internal controls to prevent future recurrences. As detailed herein, this Court now finds
defendants liable, continues the appointment of an Independent Monitor, orders the installation
of an Independent Director of Compliance, and limits defendants’ right to conduct business in
New Y ork for a few years.
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INTRODUCTION
In this civil action, plaintiff, the People of the State of New York, by Letitia James, Attorney
General of the State of New Y ork, seeks monetary penalties and injunctive relief against Donald
John Trump (“Donald Trump”) (the former president of the United States); Donald Trump, Jr.
(“Donald Trump, Jr.” or “Trump, Jr.”) and Eric Trump (two of his sons); Allen Weisselberg and
Jeffrey McConney (two former employees of defendant The Trump Organization, Inc.); and
various real estate holding entities. Plaintiff essentially alleges (1) that the individual defendants
violated New Y ork Executive Law § 63(12) by submitting false financial statements to banks
and insurance companies to obtain better rates on loans and insurance coverage; and (2) that the
holding entities are liable for the individual defendants’ misdeeds. Defendants (1) allege that the
statements were completely or substantially correct; and (2) crow that the borrowers paid back
all loans fully and on time.
Common Law Fraud
The instant action is not a garden-variety common law fraud case. Common law fraud (also
known as “misrepresentation”) has five elements: (1) A material statement; (2) falsity; (3)
knowledge of the falsity (“scienter’); (4) justifiable reliance; and (5) damages. See, e.g., Kerusa
Co. LLC v W102Z/515 Real Estate Ltd. Partnership, 12 NY3d 236, 242 (2009) (“[TJhe elements
of common law fraud” are “a false representation . . . in relation to a material fact; scienter;
reliance; and injury.”). Alleging the elements is easy; proving them is difficult. Is the statement
one of fact or opinion? Material according to what standard? Knowledge demonstrated
how? Justifiable subjectively or objectively? In mid-twentieth century New Y ork, to judge by
contemporary press reports and judicial opinions, fraudsters were having a field day.
Executive Law Section 63(12)
Along came Executive Law § 63(12), which began life as Laws of 1956, Chapter 592, “An act to
amend the executive law, in relation to cancellation of registration of doing business under an
assumed name or as partners for repeated fraudulent or illegal acts.” Jacob Javits, then the
Attomey General of the State of New York (the position that Attorney General James now
occupies), pushed for the bill, as did the Better Business Bureau of New Y ork City. See Senate
Bill Jacket, February 21, 1956. State Comptroller Arthur Levitt asked, “Why not grant the
Attomey General authority to enjoin anyone from continuing in a business activity if such person
has been guilty of frequent fraudulent dealings.” The preponderance of the evidence standard,
the one used in almost all civil cases would apply. Comptroller Levitt noted: “In a suit for an
injunction, there is no need to prove the charge beyond a reasonable doubt, as in a criminal
case—a mere preponderance of evidence would be sufficient.” Id.
In the subsequent six decades, the State has toughened the statute. In Laws of 1965, Chapter
666, the definitions of the words “fraud” and “fraudulent” were expanded to include “any device,
scheme or artifice to defraud and any deception, misrepresentation, concealment, false pretence
[sic], false promise or unconscionable contractual provisions.” The statute casts a wide net.
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“The general grant of power to the Attorney General under section 63(12) has traditionally been
his most potent.” 3 Fordham Urb. L. J. 491, 502 (1975).
Executive Law § 63(12) now reads as follows:
Whenever any person shall engage in repeated fraudulent or illegal
acts or otherwise demonstrate persistent fraud or illegality in the
carrying on, conducting or transaction of business, the attorney
general may apply... for an order enjoining the continuance of such
business activity or of any fraudulent or illegal acts, directing
restitution and damages and, in an appropriate case, cancelling any
certificate filed under and by virtue of the provisions of section four
hundred forty of the former penal law or section one hundred thirty
of the general business law, and the court may award the relief
applied for or so much thereof as it may deem proper. The word
“fraud” or “fraudulent” as used herein shall include any device,
scheme or artifice to defraud and any deception, misrepresentation,
concealment, suppression, false pretense, false promise or
unconscionable contractual provisions. The term “persistent fraud”
or “illegality” as used herein shall include continuance or carrying
on of any fraudulent or illegal act or conduct. The term “repeated”
as used herein shall include repetition of any separate and distinct
fraudulent or illegal act, or conduct which affects more than one
person. Notwithstanding any law to the contrary, all monies
recovered or obtained under this subdivision by a state agency or
state official or employee acting in their official capacity shall be
subject to subdivision eleven of section four of the state finance law.
The Financial Marketplac
This Court takes judicial notice that New Y ork State, particularly New Y ork City, is the financial
capital of the country and one of the financial capitals of the world. The City’s fabled Wall
Street is synonymous with capital formation, investing, trading, lending, and borrowing. Ina
summary judgment Decision and Order dated September 26, 2023, NY SCEF Doc. 1531, the
Court addressed the State’s judicially recognized interest in an honest marketplace:
“In varying contexts, courts have held that a state has a quasi-
sovereign interest in protecting the integrity of the marketplace.”
People v Grasso, 11 NY 3d 64, 69 at n 4 (2008); People v Coventry
First LLC, 52 AD3d 345, 346 (Ist Dept 2008) (“the claim pursuant
to Executive Law § 63(12) constituted proper exercises of the
State’s regulation of businesses within its borders in the interest of
securing an honest marketplace”); People v Amazon.com, Inc., 550
F Supp 3d 122, 130-131 (SDNY 2021) (“[Tyhe State’s statutory
interest under § 63(12) encompasses the prevention of either
“fraudulent or illegal’ business activities. Misconduct that is illegal
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for reasons other than fraud still implicates the government’s
interests in guaranteeing a marketplace that adheres to standards of
fairness ...”).
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. 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. New Y ork
means business in combating business fraud.
Procedural Background
This action follows an extensive investigation conducted by plaintiff, the Office of the Attorney
General of the State of New York (“OAG”). In 2020, OAG commenced a special proceeding to
enforce a series of subpoenas against various named defendants and other persons and entities.
This Court presided over that proceeding and issued several orders compelling, in part,
compliance with OAG’s subpoenas. See People v The Trump Org., Sup Ct, NY County, Index
No. 541685/2020.
OAG filed the instant complaint on September 21, 2022. On November 3, 2022, in response to a
motion by OAG, this Court found preliminarily that defendants had a propensity to engage in
persistent fraud by submitting false and misleading Statements of Financial Condition (“SFCs”)
on behalf of Donald Trump. NY SCEF Doc. No. 183. Accordingly, the Court granted a
preliminary injunction against any further fraud and appointed the Hon. Barbara S. Jones (ret.) as
an independent monitor to oversee defendants’ financial statements and significant asset
transfers. NY SCEF Doc. Nos. 193 and 194. To date, Judge Jones has delivered six reports to
this Court, dated December 19, 2022, February 3, 2023, April 11, 2023, August 2, 2023,
November 29, 2023, and January 26, 2024. NY SCEF Doc. Nos. 441, 489, 617, 647, 1641, 1681.
Defendants moved to dismiss the complaint. In a Decision and Order dated January 6, 2023, this
Court denied the motion. NY SCEF Doc. No. 453. Defendants appealed, resulting in a June 27,
2023 Order, wherein the A ppellate Division, First Department modified this Court’s order to the
extent of: (1) declaring that in this case the “continuing wrong doctrine does not delay or extend
[the statute of limitations]”;! (2) finding that claims are timely against defendants subject to a
tolling agreement? if they accrued after July 13, 2014, and timely against defendants not subject
to the tolling agreement if they accrued after February 6, 2016; and (3) dismissing the complaint
' As this Court explained ad nauseum at trial, statutes of limitation bar claims, not evidence.
? The Trump Organization’s Chief Legal Officer, Alan Garten, originally entered into a tolling agreement
on behalf of “the Trump Organization” on August 27, 2021; the agreement was extended one time by an
amendment dated May 3, 2022. NY SCEF Doc. No. 1260. It tolls the statute of limitations for the period
from November 5, 2020, through May 31, 2022. Id. at 2. This Court previously found, pursuant to the
terms of the agreement, that it binds “all directors [and] officers” and “present or former parents” of the
Trump Organization and its affiliates and subsidiaries.
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as against defendant Ivanka Trump on statute of limitations grounds, finding that she was not
bound by the tolling agreement, as she was not an employee of the Trump Organization at the
time Garten entered into the agreement. People v Trump, 217 AD3d 609 (1st Dept 2023).
The Complaint
The Complaint asserts seven causes of action. The first cause of action is of a type known as a
“stand-alone § 63(12) claim.” Consistent with the wording of the statute, plaintiff need only
prove that defendants used false statements in business.
The second through seventh causes of action require plaintiff to prove that defendants intended
to violate a provision of the Penal Law. The second cause of action, pursuant to New York Penal
Law § 175.10, requires plaintiff to prove that defendants intended to falsify business records.
The third cause of action requires plaintiff to prove that defendants intended to conspire to falsify
business records. The fourth cause of action, pursuant to New Y ork Penal Law § 175.45,
requires plaintiff to prove that defendants intended to issue a false financial statement. The fifth
cause of action requires plaintiff to prove that defendants intended to conspire to issue a false
financial statement. The sixth cause of action, pursuant to New York Penal Law § 176.05,
requires plaintiff to prove that defendants intended to engage in insurance fraud. The seventh
cause of action requires plaintiff to prove that defendants intended to conspire to engage in
insurance fraud.
Summary Judgment
In a 35-page Decision and Order, dated September 26, 2023, this Court granted plaintiff
summary judgment only on liability and only on the first cause of action. Simply put, the Court
found that plaintiff had capacity and standing to sue; that non-party disclaimers and party
“worthless clauses” do not insulate defendants’ material misrepresentations; that intent, scienter,
and reliance are not elements of a stand-alone § 63(12) claim; that disgorgement of profits is an
available remedy; and that the subject financial statements materially misrepresented the value of
the Trump Tower Triplex, The Seven Springs Estate, certain apartments in Trump Park Avenue,
40 Wall Street, Mar-a-Lago, and a golf course in Aberdeen, Scotland. NY SCEF Doc. 1531.
This Court also held that the tolling agreement the parties entered into bound all defendants, such
that the applicable statute of limitations allowed claims accruing on or after July 13, 2014. This
Court also ordered the cancellation of defendants’ business certificates filed under and by virtue
of GBL § 130. The Appellate Division stayed the cancellation of the certificates pending the
final disposition of defendants’ appeal of the summary judgment rulings.
The Trial
The eleven-week trial of this action addressed whether defendants are liable pursuant to the
second through seventh causes of action and what monetary penalties and/or injunctive relief this
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Court should impose. Plaintiffis seeking “disgorgement” of “ill-gotten gains,” and to limit
defendants’ abilities to conduct business in New York.
Constitutional provisions guaranteeing a jury trial, such as the Seventh Amendment to the United
States Constitution, apply only to cases “at common law,” so-called “legal” cases. The phrase
“at common law” is used in contradistinction to cases that are “equitable” in nature. Whether a
case is “legal” or “equitable” depends on the relief that plaintiff sought. Here, plaintiff seeks
disgorgement and injunctions, each of which are forms of equitable relief. Thus, there was no
right to a jury,’ and the case was “tried to the Court;” the Court being the sole factfinder and the
sole “judge of credibility.”
This Court listened carefully to every witness, every question, every answer. Witnesses testified
from the witness stand, approximately a yard from the Court, who was thus able to observe
expressions, demeanor, and body language. The Court has also considered the simple
touchstones of self-interest and other motives, common sense, and overall veracity.
3 In any event, neither party applied nor moved for a jury trial.
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FINDINGS OF FACT
This Court heard testimony from 40 witnesses over 43 days* and makes the following findings of
fact:
The Non-Party Witnesse:
Donald Bender
Donald Bender is an accountant who worked for Mazars USA LLP (“Mazars”), an accounting
firm, for approximately 41 years. From approximately 2011-2021, Bender spent approximately
half of his time working on engagements for Donald Trump and the Trump Organization, and
between 2-4% of his time working on Donald Trump’s SFCs. Trial Transcript (“TT”) 106-107.
Donald Trump engaged Mazars to create SFC “compilations,” comprised of accounting data that
defendants sent to Mazars; Mazars simply “compiled” that data into SFC format. “Audits” are
the highest level of review of accounting data; “reviews” subject the data to medium-level
scrutiny; “compilations” require the least scrutiny of the data. The accountant does not test or
audit the raw numbers and thus cannot, and does not, assure the accuracy of the statement. TT
113. Mazars compiled Donald Trump’s SFCs from 2011 through 2020.
Bender received all his information for the compilations from Jeffrey McConney or a member of
his team, such as Patrick Bimey. TT 114-116, 221-222, 387.
Mazars would not have issued the SFCs if Allen Weisselberg had not represented that the
information in the SFCs was in conformity with Generally Accepted Accounting Principles
(“GAAP”) or if Mazars had learned that any of the representations in the letter were not true. TT
199, 254-255, 263-269.
Bender made absolutely clear that under the terms of the engagement for compilation services,
the client was responsible for ensuring that assets were stated at their “estimated current values,”
and that Weisselberg was responsible for determining which GAAP departures were identified
and disclosed. TT 237-238, 319-320. The engagement letters, signed by a combination of
Weisselberg, Donald Trump, and Donald Trump, Jr., confirmed this by unambiguously
acknowledging that Donald Trump, through his trustees, was responsible for the preparation and
fair presentation of the personal financial information in accordance with GAAP. See, e.g., PX
741.
Bender later learned that the Trump Organization had withheld records, such as appraisals, that
Mazars had requested while preparing the compilations, leading Mazars to conclude that the
Trump Organization had falsely represented that it had complied fully and truthfully with all
inquiries from Mazars. Mazars subsequently terminated its relationship with the Trump
Organization. TT 242-243; PX 2992, 2994. Bender stated that it was not until he was
interviewed by the Manhattan District Attorney’s Office, in spring 2021, that he learned that the
Trump Organization had withheld appraisals from Mazars. TT 536-538. Bender made clear that
4 Indeed, the trial transcript spans 6,758 pages, excluding closing arguments.
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Mazars would not have issued the SFCs if it had known that it had not been provided with all
appraisals. TT 251.
Camron Harris
Camron Hanis is an audit partner at Whitley Penn, an accounting firm that compiled Donald
Trump’s SFC for 2021. TT 442. His testimony buttressed Donald Bender’s that compilers
simply use the numbers provided by the client; they do not check them. TT 447-448; PX-1497.
Harris’s contemporaneous notes, taken during or shortly after a meeting with Jeffrey McConney
and Mark Hawthom of the Trump Organization, state:
Patrick [Birney] explained that he is the primary preparer of the
valuations. Patrick obtained all of the necessary information for the
valuations from external and internal sources. He worked with other
team members to pull this information together, such as Ray Flores.
Ray Flores performs the first review of Patrick’s spreadsheet and
financial statements. Prior to issuance of the SOFC, an individual
from upper management of the Trump Organization, and also one
of the Trump family members, will read and review the financial
statements.
TT 450-451. Harris also indicated that the Trump Organization designated McConney as the
“individual with suitable skills, knowledge and experience to oversee [Whitley Penn’s]
preparation of your financial statements,” as the Whitley Penn compilation engagement
agreement required. TT 459-464; PX-2300. Harris stressed the “fundamental” importance of
the client’s obligations, particularly during a compilation engagement, emphasizing that “[u]nder
a compilation, we are not doing anything, you know, to verify the accuracy of that information,
so that responsibility and accountability follows within the client to be doing those things so that
the information is correct, because we didn’t do anything to verify that it is correct.” TT 464-
465.
Harris further made clear that Whitley Penn would not have issued the 2021 SFC without a
signed representation letter from the client, indicating that it acknowledged its responsibility for
providing a fair presentation of values in accordance with GAAP. TT 480-481.
Nicholas Haigh
Nicholas Haigh worked as a risk officer and managing director of Deutsche Bank’s Private
Wealth Management Division from 2008 to 2018. TT 980.
The Private Wealth Management Division serviced high net worth individuals and provided
various products to them, including credit products. As the risk officer, Haigh’s job was to
examine the client’s credit exposure and determine whether a client’s credit request fit within the
bank’s desired risk profile. TT 982.
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When a client wanted a loan or other “credit facility” from the Private Wealth Management
Division, a relationship manager would interface with the client and then speak with a lending
officer at the bank. The lending officer would document the terms of a proposed loan in a credit
memorandum that would be sentto Haigh and his team for final approval. TT 986-987. If the
credit risk management team was comfortable with the terms and information contained in the
credit memorandum, they would approve and sign off on the proposal. TT 989. Haigh was the
most senior credit officer to sign off on the Deutsche Bank loans to the Trump Organization
entities. TT 992.
In 2011, the risk management team approved the terms of a credit facility to the “Trump
Family” “based on the financial strength of the guarantor,” emphasizing that “[t]he financial
profile of the guarantor includes on an adjusted basis, 135 million in encumbered liquidity, 2.4
billion in net worth and approximately 48 million in adjusted recurring net cash flow.” The risk
management team noted that “[a]lthough facility is being extended to [a special purpose vehicle]
for the purposes of financing the purchase of the resort, the credit exposure is being
recommended primarily based on the financial profile of the guarantor,” further emphasizing the
“(full and unconditional guarantee of DJT which eliminates any shortfall associated with
operating and liquidating Collateral.” PX 293; TT 1001.
Haigh made clear that:
The wealth management business at Deutsche Bank would not make
loans secured just on collateral without a strong financial guarantee
or personal guarantee from a financially strong person. Given that
this was unusual collateral as a golf resort and spa, we would not
really want to have to foreclose on that collateral and so we would
most likely look to the guarantor to remedy any default — payment
default on the loan.
TT 1003-1004.
In deciding to approve the credit facility, Haigh relied on Donald Trump’s 2011 SFC and
assumed that the representations of value of the assets and liabilities were “broadly accurate.”
TT 1009-1010; PX 330. The Deutsche Bank Credit Report’s “Financial Analysis” is based on
numbers provided by the “family office” (here, the Trump Organization) and contains the same
numbers represented in the SFC. PX 293; TT 1010-1013.
Before approving the credit facility, the Private Wealth Management Division consulted
Deutsche Bank’s Valuation Services Group about market conditions to arrive at a conservative
estimate of the value of the commercial real estate should a need arise to liquidate during “bad
market conditions.” TT 1013-1016. In so doing, the Valuation Services Group applied a 50%
5 The funds from this “Trump Family” credit facility would later be used to purchase Doral under the
entity Trump Endeavor 12 LLC.
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“haircut” to the valuations presented by the client, which Haigh affirmed was the “standardized
number for commercial real assets.”® TT 1016, 1041.
Haigh affirmed that the Private Wealth Management Division would not have done business
with Donald Trump without a personal guarantee, and that the personal guarantee was the reason
for favorable pricing on the loan and the large size of the loan itself. TT 1017, 1020-1021, 1032.
The Doral loan was conditioned on certain continuing covenants. One such covenant required
Donald Trump to maintain a minimum net worth of $2.5 billion, excluding any value related to
his brand. PX 293; TT 1024. As the “ultimate signer” of the credit risk management team,
Haigh determined the required amount of Donald Trump’s minimum net worth “in order to make
sure that the bank would be fully protected under adverse market conditions.” TT 1025-1026. In
the event of a default of any of the covenants, Haigh stated the bank would have “various
remedies ... which it can pursue like waiving the breach, which it might do for an
inconsequential breach; negotiating some variation of the terms of the loan; or potentially
accelerating the loan and ask for repayment.” TT 1028.
The covenant obligated Donald Trump to provide an annual financial statement. Haigh stressed
that the annual SFCs were required because “[t]he bank wants to be sure that the client’s
financial strength is being maintained and also the bank wants to be able to test its covenants
periodically,” and that “[t]he bank would use the financial information that [the client] provided
to test itselfto try and ensure that the client is in compliance with those covenants.” TT 1022-
1023.
In 2012, the Trump Organization, under the entity 401 North Wabash Venture LLC, sought
another loan from Deutsche Bank’s private wealth division for a new project in Chicago
(“Trump Chicago”). PX 291; TT 1028-1029. The credit memorandum indicates that the
beneficial owner of the borrower was “Donald J. Trump.” PX 291. Like the previous credit
facility, the Chicago facility was conditioned on a full and unconditional guarantee provided by
Donald Trump; the Deutsche Bank risk team specifically noted “[a]lthough facilities are secured
by the collateral, given its unique nature, the credit exposure is being recommended based on the
financial profile of the guarantor.” PX 291; TT 1030-1033. Similarto the previous credit
facility review, the risk management team utilized Deutsche Bank’s Valuation Services Group to
estimate the value of the liquidation of the commercial assets in bad market conditions and
applied a standard 50% haircut to the valuations represented by the client.’ TT 1033.
5 Haigh also confirmed that in addition to the 50% standard “haircut” applied to most commercial real
estate assets, the risk management team applied a 75% haircut to Seven Springs as “properties under
development or not yet developed potentially have a large range of outcomes of their value.” TT 1040-
1041; PX 293.
7 Beyond the 50% standard “haircut,” the credit risk management team adjusted another value that had
been provided by the client. Upon discovering that Trump Tower had recently been refinanced, but not
by Deutsche Bank, the financing entity had commissioned an appraisal that was made available to
Deutsche Bank. Upon realizing that the independent appraised value was less than the number reported
by the client, the credit risk management team confirmed that they were “adjusting the property value to
reflect the recent appraisal and new debt.” PX 291; TT 1034-1035.
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While he was seeking the loan from the Private Wealth Management Division and waiting to see
if it would be approved, Donald Trump was simultaneously exploring a loan from Deutsche
Bank’s Commercial Investment Bank Division, which maintained a commercial real estate
lending group. PX 470; TT 1036-1038. The dueling proposals resulted in an internal Deutsche
Bank memo, as Haigh explained, reflecting that “[t]wo business divisions at Deutsche Bank were
making proposals on the same potential loan and ... we wanted to be sure that they made sense
with regard to each other so the bank didn’t look foolish in front of the client with two
completely different sets of term sheets that bore no relation to each other.” PX 470; TT 1036-
1038. The memo indicated that for Trump Chicago, the Commercial Investment Bank Division
would be willing to provide a loan on a non-recourse basis (i.e., no personal guarantee) at
LIBOR plus 8%, and that the private wealth division would be willing to provide a loan on a full
recourse basis (with an unconditional personal guarantee) at LIBOR plus 4%. PX 470; TT 1036-
1038.
In 2014, the Trump Organization sought several more approvals from Deutsche Bank: (1) aloan
for the Washington, D.C. “Old Post Office” project; (2) the renewal of an existing Trump
Endeavor 12, LLC credit facility for Doral; and (3) an increase in the Trump Chicago credit
facility. PX 294; TT 1041-1045. The approval process for these three discrete items was the
same as the previous approval processes, except that a higher level of authority was needed to
approve the transactions within the credit risk management team. TT 1045. Like the previous
credit facilities, approval required Donald Trump, as guarantor, to maintain a minimum net
worth of $2.5 billion, as “[t]he bank wanted to be sure that in an adverse market scenario the
client would always have enough financial resources to be able to pay off our loan.” TT 1048-
1049. Like the previous credit facilities, the credit risk management team noted that “[a]lthough
all three Facilities are secured by Collateral, given the unique nature of these credits, the credit
exposure is being recommended based on the financial profile of the Guarantor.” PX 294; TT
1050. Haigh noted that the Private Wealth Management Division did not normally extend loans
that involved substantial reconstruction on its collateral, here, the Old Post Office, so the loan
was approved in reliance Donald Trump’s personal guarantee. TT 1050-1051. Once again, as a
required covenant, Donald Trump was obligated to provide certifications and annual statements
of financial condition so that the bank could test his required covenants at any time. TT 1049.
Rosemary Vrabli
Rosemary Vrablic worked at Deutsche Bank in the Private Wealth Management Division and
was the chief relationship manager for the Trump Organization. TT 994, 5484-5486. Vrablic
explained that her job was to be “an intermediary between the customer and/or prospect and the
credit and lending parts of the bank.” TT 5486. Vrablic served as the client intermediary for the
bank for all three of the loans that Deutsche Bank’s Private Wealth Management Division
extended to Donald Trump. TT 5486-5487.
Jared Kushner, Ivanka Trump’s husband, introduced Vrablic to Donald Trump in 2011. TT
5486, 5498-5499, 5511-5512. Vrablic testified that one goal of herjob was to initiate a broad-
based relationship with Donald Trump. TT 5499. Ivanka Trump was Vrablic’s main liaison for
the subject credit facilities. TT 5504.
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Vrablic was not a part of the credit risk analysis team, and she had no input or authority on
whether credit was ultimately extended. TT 5578. She was not involved in the bank’s annual
review of Donald Trump’s SFCs. TT 5554, 5578-5579.
Vrablic confirmed, and emails corroborate, that when considering whether to extend the Doral
loan, the head of the global asset management group wrote: “I support the transaction, but we
need iron clad full recourse under all circumstances,” indicating that an iron-clad personal
guarantee was a non-negotiable term of the loan. DX 313; TT 5519-5521, 5572-5573. Vrabalic
further confirmed that each of the Trump family members she dealt with, including Donald
Trump, Donald Trump, Jr., and Ivanka Trump, fully understood the recourse requirement to
obtain a loan from the Private Wealth Management Division. TT 5574-5777; PX 1129.
Vrablic expected Donald Trump to submit accurate financial information to the bank. TT 5579.
Doug Larson
Doug Larson is a valuation advisor and certified New Y ork real estate appraiser who currently
works at Newmark. Prior to working at Newmark, he worked at Cushman & Wakefield for
almost 25 years. TT 1558-1559.
In 2015, while at Cushman & Wakefield, Larson appraised 40 Wall Street for Ladder Capital as
part of its due diligence. TT 1560-1570; PX 118.
Larson testified clearly and credibly that although his name is cited as the source to justify a
2.940 capitalization (or “cap”) rate® on Niketown, a property in which Donald Trump owned two
long-term leases on 57" Street, Larson never had a specific conversation with Jeffrey McConney
in which he advised him that such a cap rate would be appropriate; nor was he aware that he was
listed as a source for such a cap rate. TT 1572-1575; See, e.g., PX 758. Larson further said that
he would not have advised McConney to select that cap rate, as “it’s not how we would value [it]
in our practice.” TT 1583. Larson stated that McConney was incorrect in stating that he
consulted with Larson when valuing Trump Tower. TT 1581.
Upon learning that his name had been repeatedly used to justify cap rates that he had not
recommended, Larson said it was “inappropriate and inaccurate ... I should have been told and,
you know, an appraisal should have been ordered.” TT 1587.
Larson further took issue with his name being used to justify a cap rate on the property
controlled by a Vornado partnership interest. In 2012, Larson appraised the property at 1290
Avenue of the Americas at $2 billion with a cap rate of 4.5 percent. PX 1824; TT 1588-1589.
Notwithstanding, in the following SFC’s supporting data, McConney cites Larson as the source
for using a 3.12 percent cap rate, even though he never worked with McConney to pick a cap rate
8 A capitalization rate is calculated by dividing a property’s net operating income by the current market
value. This ratio, expressed as a percentage, is an estimation of an investor’s return on real estate. The
higher the cap rate, the lower the value. Cap rates have an extraordinarily large effect on the value of a
property.
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to value that property, and that he would not have, as valuing minority interests is a specialized
area beyond his expertise. TT 1589-1595.
In a 2015 appraisal of 40 Wall Street, Larson included the value of a Dean & Deluca lease that
yielded annual rent of $1.4 million, and he applied a 4.25 percent cap rate, for a total valuation of
$540 million. Notwithstanding, the 2015 SFC backup data double-counted the Dean & Deluca
lease. McConney also chose a much lower cap rate than that on the appraisal and listed the total
Preview
INDEX NO. 452564/2022 NYSCEF DOC. NO. 1688 RECEIVED NYSCEF 02/16/2024 SUPREME COURT OF THE STATE OF NEW YORK NEW YORK COUNTY PRESENT: HON. ARTHUR F. ENGORON PART 37 Justice - -- -X PEOPLE OF THE STATE OF NEW YORK, BY LETITIA INDEX NO. 452564/2022 JAMES, ATTORNEY GENERAL OF THE STATE OF NEW YORK, Plaintiff, -V- Decision and Order DONALD J. TRUMP, DONALD TRUMP JR., ERIC TRUMP, After Non-| ury Trial ALLEN WEISSELBERG, J] EFFREY MCCONNEY, THE DONALD J. TRUMP REVOCABLE TRUST, THE TRUMP. ORGANIZATION, INC., TRUMP ORGANIZATION LLC, DJ T HOLDINGS LLC, DJ T HOLDINGS MANAGING MEMBER, TRUMP ENDEAVOR 12 LLC, 401 NORTH WABASH VENTURE LLC, TRUMP OLD POST OFFICE LLC, 40 WALL STREET LLC, SEVEN SPRINGS LLC, Defendants. - -- -X Arthur F. Engoron, Justice After presiding over a non-jury trial that began on October 2, 2023, and ended on December 13, 2023, with closing arguments on January 11, 2024, this Court makes the following findings of fact and conclusions of law and issues this Decision and Order: SUMMARY Donald Trump and entities he controls own many valuable properties, including office buildings, hotels, and golf courses. Acquiring and developing such properties required huge amounts of cash. Accordingly, the entities borrowed from banks and other lenders. The lenders required personal guarantees from Donald Trump, which were based on statements of financial condition compiled by accountants that Donald Trump engaged. The accountants created these “compilations” based on data submitted by the Trump entities. In order to borrow more and at lower rates, defendants submitted blatantly false financial data to the accountants, resulting in fraudulent financial statements. When confronted at trial with the statements, defendants’ fact and expert witnesses simply denied reality, and defendants failed to accept responsibility or to impose internal controls to prevent future recurrences. As detailed herein, this Court now finds defendants liable, continues the appointment of an Independent Monitor, orders the installation of an Independent Director of Compliance, and limits defendants’ right to conduct business in New Y ork for a few years. 1 of 92 Page 1 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 INTRODUCTION In this civil action, plaintiff, the People of the State of New York, by Letitia James, Attorney General of the State of New Y ork, seeks monetary penalties and injunctive relief against Donald John Trump (“Donald Trump”) (the former president of the United States); Donald Trump, Jr. (“Donald Trump, Jr.” or “Trump, Jr.”) and Eric Trump (two of his sons); Allen Weisselberg and Jeffrey McConney (two former employees of defendant The Trump Organization, Inc.); and various real estate holding entities. Plaintiff essentially alleges (1) that the individual defendants violated New Y ork Executive Law § 63(12) by submitting false financial statements to banks and insurance companies to obtain better rates on loans and insurance coverage; and (2) that the holding entities are liable for the individual defendants’ misdeeds. Defendants (1) allege that the statements were completely or substantially correct; and (2) crow that the borrowers paid back all loans fully and on time. Common Law Fraud The instant action is not a garden-variety common law fraud case. Common law fraud (also known as “misrepresentation”) has five elements: (1) A material statement; (2) falsity; (3) knowledge of the falsity (“scienter’); (4) justifiable reliance; and (5) damages. See, e.g., Kerusa Co. LLC v W102Z/515 Real Estate Ltd. Partnership, 12 NY3d 236, 242 (2009) (“[TJhe elements of common law fraud” are “a false representation . . . in relation to a material fact; scienter; reliance; and injury.”). Alleging the elements is easy; proving them is difficult. Is the statement one of fact or opinion? Material according to what standard? Knowledge demonstrated how? Justifiable subjectively or objectively? In mid-twentieth century New Y ork, to judge by contemporary press reports and judicial opinions, fraudsters were having a field day. Executive Law Section 63(12) Along came Executive Law § 63(12), which began life as Laws of 1956, Chapter 592, “An act to amend the executive law, in relation to cancellation of registration of doing business under an assumed name or as partners for repeated fraudulent or illegal acts.” Jacob Javits, then the Attomey General of the State of New York (the position that Attorney General James now occupies), pushed for the bill, as did the Better Business Bureau of New Y ork City. See Senate Bill Jacket, February 21, 1956. State Comptroller Arthur Levitt asked, “Why not grant the Attomey General authority to enjoin anyone from continuing in a business activity if such person has been guilty of frequent fraudulent dealings.” The preponderance of the evidence standard, the one used in almost all civil cases would apply. Comptroller Levitt noted: “In a suit for an injunction, there is no need to prove the charge beyond a reasonable doubt, as in a criminal case—a mere preponderance of evidence would be sufficient.” Id. In the subsequent six decades, the State has toughened the statute. In Laws of 1965, Chapter 666, the definitions of the words “fraud” and “fraudulent” were expanded to include “any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, false pretence [sic], false promise or unconscionable contractual provisions.” The statute casts a wide net. 2 of 92 Page 2 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 “The general grant of power to the Attorney General under section 63(12) has traditionally been his most potent.” 3 Fordham Urb. L. J. 491, 502 (1975). Executive Law § 63(12) now reads as follows: Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply... for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages and, in an appropriate case, cancelling any certificate filed under and by virtue of the provisions of section four hundred forty of the former penal law or section one hundred thirty of the general business law, and the court may award the relief applied for or so much thereof as it may deem proper. The word “fraud” or “fraudulent” as used herein shall include any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions. The term “persistent fraud” or “illegality” as used herein shall include continuance or carrying on of any fraudulent or illegal act or conduct. The term “repeated” as used herein shall include repetition of any separate and distinct fraudulent or illegal act, or conduct which affects more than one person. Notwithstanding any law to the contrary, all monies recovered or obtained under this subdivision by a state agency or state official or employee acting in their official capacity shall be subject to subdivision eleven of section four of the state finance law. The Financial Marketplac This Court takes judicial notice that New Y ork State, particularly New Y ork City, is the financial capital of the country and one of the financial capitals of the world. The City’s fabled Wall Street is synonymous with capital formation, investing, trading, lending, and borrowing. Ina summary judgment Decision and Order dated September 26, 2023, NY SCEF Doc. 1531, the Court addressed the State’s judicially recognized interest in an honest marketplace: “In varying contexts, courts have held that a state has a quasi- sovereign interest in protecting the integrity of the marketplace.” People v Grasso, 11 NY 3d 64, 69 at n 4 (2008); People v Coventry First LLC, 52 AD3d 345, 346 (Ist Dept 2008) (“the claim pursuant to Executive Law § 63(12) constituted proper exercises of the State’s regulation of businesses within its borders in the interest of securing an honest marketplace”); People v Amazon.com, Inc., 550 F Supp 3d 122, 130-131 (SDNY 2021) (“[Tyhe State’s statutory interest under § 63(12) encompasses the prevention of either “fraudulent or illegal’ business activities. Misconduct that is illegal 3 of 92 Page 3 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 for reasons other than fraud still implicates the government’s interests in guaranteeing a marketplace that adheres to standards of fairness ...”). 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. 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. New Y ork means business in combating business fraud. Procedural Background This action follows an extensive investigation conducted by plaintiff, the Office of the Attorney General of the State of New York (“OAG”). In 2020, OAG commenced a special proceeding to enforce a series of subpoenas against various named defendants and other persons and entities. This Court presided over that proceeding and issued several orders compelling, in part, compliance with OAG’s subpoenas. See People v The Trump Org., Sup Ct, NY County, Index No. 541685/2020. OAG filed the instant complaint on September 21, 2022. On November 3, 2022, in response to a motion by OAG, this Court found preliminarily that defendants had a propensity to engage in persistent fraud by submitting false and misleading Statements of Financial Condition (“SFCs”) on behalf of Donald Trump. NY SCEF Doc. No. 183. Accordingly, the Court granted a preliminary injunction against any further fraud and appointed the Hon. Barbara S. Jones (ret.) as an independent monitor to oversee defendants’ financial statements and significant asset transfers. NY SCEF Doc. Nos. 193 and 194. To date, Judge Jones has delivered six reports to this Court, dated December 19, 2022, February 3, 2023, April 11, 2023, August 2, 2023, November 29, 2023, and January 26, 2024. NY SCEF Doc. Nos. 441, 489, 617, 647, 1641, 1681. Defendants moved to dismiss the complaint. In a Decision and Order dated January 6, 2023, this Court denied the motion. NY SCEF Doc. No. 453. Defendants appealed, resulting in a June 27, 2023 Order, wherein the A ppellate Division, First Department modified this Court’s order to the extent of: (1) declaring that in this case the “continuing wrong doctrine does not delay or extend [the statute of limitations]”;! (2) finding that claims are timely against defendants subject to a tolling agreement? if they accrued after July 13, 2014, and timely against defendants not subject to the tolling agreement if they accrued after February 6, 2016; and (3) dismissing the complaint ' As this Court explained ad nauseum at trial, statutes of limitation bar claims, not evidence. ? The Trump Organization’s Chief Legal Officer, Alan Garten, originally entered into a tolling agreement on behalf of “the Trump Organization” on August 27, 2021; the agreement was extended one time by an amendment dated May 3, 2022. NY SCEF Doc. No. 1260. It tolls the statute of limitations for the period from November 5, 2020, through May 31, 2022. Id. at 2. This Court previously found, pursuant to the terms of the agreement, that it binds “all directors [and] officers” and “present or former parents” of the Trump Organization and its affiliates and subsidiaries. 4 of 92 Page 4 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF 02/16/2024 as against defendant Ivanka Trump on statute of limitations grounds, finding that she was not bound by the tolling agreement, as she was not an employee of the Trump Organization at the time Garten entered into the agreement. People v Trump, 217 AD3d 609 (1st Dept 2023). The Complaint The Complaint asserts seven causes of action. The first cause of action is of a type known as a “stand-alone § 63(12) claim.” Consistent with the wording of the statute, plaintiff need only prove that defendants used false statements in business. The second through seventh causes of action require plaintiff to prove that defendants intended to violate a provision of the Penal Law. The second cause of action, pursuant to New York Penal Law § 175.10, requires plaintiff to prove that defendants intended to falsify business records. The third cause of action requires plaintiff to prove that defendants intended to conspire to falsify business records. The fourth cause of action, pursuant to New Y ork Penal Law § 175.45, requires plaintiff to prove that defendants intended to issue a false financial statement. The fifth cause of action requires plaintiff to prove that defendants intended to conspire to issue a false financial statement. The sixth cause of action, pursuant to New York Penal Law § 176.05, requires plaintiff to prove that defendants intended to engage in insurance fraud. The seventh cause of action requires plaintiff to prove that defendants intended to conspire to engage in insurance fraud. Summary Judgment In a 35-page Decision and Order, dated September 26, 2023, this Court granted plaintiff summary judgment only on liability and only on the first cause of action. Simply put, the Court found that plaintiff had capacity and standing to sue; that non-party disclaimers and party “worthless clauses” do not insulate defendants’ material misrepresentations; that intent, scienter, and reliance are not elements of a stand-alone § 63(12) claim; that disgorgement of profits is an available remedy; and that the subject financial statements materially misrepresented the value of the Trump Tower Triplex, The Seven Springs Estate, certain apartments in Trump Park Avenue, 40 Wall Street, Mar-a-Lago, and a golf course in Aberdeen, Scotland. NY SCEF Doc. 1531. This Court also held that the tolling agreement the parties entered into bound all defendants, such that the applicable statute of limitations allowed claims accruing on or after July 13, 2014. This Court also ordered the cancellation of defendants’ business certificates filed under and by virtue of GBL § 130. The Appellate Division stayed the cancellation of the certificates pending the final disposition of defendants’ appeal of the summary judgment rulings. The Trial The eleven-week trial of this action addressed whether defendants are liable pursuant to the second through seventh causes of action and what monetary penalties and/or injunctive relief this 5 of 92 Page 5 of 92 INDEX NO. 452564/2022 NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 Court should impose. Plaintiffis seeking “disgorgement” of “ill-gotten gains,” and to limit defendants’ abilities to conduct business in New York. Constitutional provisions guaranteeing a jury trial, such as the Seventh Amendment to the United States Constitution, apply only to cases “at common law,” so-called “legal” cases. The phrase “at common law” is used in contradistinction to cases that are “equitable” in nature. Whether a case is “legal” or “equitable” depends on the relief that plaintiff sought. Here, plaintiff seeks disgorgement and injunctions, each of which are forms of equitable relief. Thus, there was no right to a jury,’ and the case was “tried to the Court;” the Court being the sole factfinder and the sole “judge of credibility.” This Court listened carefully to every witness, every question, every answer. Witnesses testified from the witness stand, approximately a yard from the Court, who was thus able to observe expressions, demeanor, and body language. The Court has also considered the simple touchstones of self-interest and other motives, common sense, and overall veracity. 3 In any event, neither party applied nor moved for a jury trial. 6 of 92 Page 6 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 FINDINGS OF FACT This Court heard testimony from 40 witnesses over 43 days* and makes the following findings of fact: The Non-Party Witnesse: Donald Bender Donald Bender is an accountant who worked for Mazars USA LLP (“Mazars”), an accounting firm, for approximately 41 years. From approximately 2011-2021, Bender spent approximately half of his time working on engagements for Donald Trump and the Trump Organization, and between 2-4% of his time working on Donald Trump’s SFCs. Trial Transcript (“TT”) 106-107. Donald Trump engaged Mazars to create SFC “compilations,” comprised of accounting data that defendants sent to Mazars; Mazars simply “compiled” that data into SFC format. “Audits” are the highest level of review of accounting data; “reviews” subject the data to medium-level scrutiny; “compilations” require the least scrutiny of the data. The accountant does not test or audit the raw numbers and thus cannot, and does not, assure the accuracy of the statement. TT 113. Mazars compiled Donald Trump’s SFCs from 2011 through 2020. Bender received all his information for the compilations from Jeffrey McConney or a member of his team, such as Patrick Bimey. TT 114-116, 221-222, 387. Mazars would not have issued the SFCs if Allen Weisselberg had not represented that the information in the SFCs was in conformity with Generally Accepted Accounting Principles (“GAAP”) or if Mazars had learned that any of the representations in the letter were not true. TT 199, 254-255, 263-269. Bender made absolutely clear that under the terms of the engagement for compilation services, the client was responsible for ensuring that assets were stated at their “estimated current values,” and that Weisselberg was responsible for determining which GAAP departures were identified and disclosed. TT 237-238, 319-320. The engagement letters, signed by a combination of Weisselberg, Donald Trump, and Donald Trump, Jr., confirmed this by unambiguously acknowledging that Donald Trump, through his trustees, was responsible for the preparation and fair presentation of the personal financial information in accordance with GAAP. See, e.g., PX 741. Bender later learned that the Trump Organization had withheld records, such as appraisals, that Mazars had requested while preparing the compilations, leading Mazars to conclude that the Trump Organization had falsely represented that it had complied fully and truthfully with all inquiries from Mazars. Mazars subsequently terminated its relationship with the Trump Organization. TT 242-243; PX 2992, 2994. Bender stated that it was not until he was interviewed by the Manhattan District Attorney’s Office, in spring 2021, that he learned that the Trump Organization had withheld appraisals from Mazars. TT 536-538. Bender made clear that 4 Indeed, the trial transcript spans 6,758 pages, excluding closing arguments. 7 of 92 Page 7 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF 02/16/2024 Mazars would not have issued the SFCs if it had known that it had not been provided with all appraisals. TT 251. Camron Harris Camron Hanis is an audit partner at Whitley Penn, an accounting firm that compiled Donald Trump’s SFC for 2021. TT 442. His testimony buttressed Donald Bender’s that compilers simply use the numbers provided by the client; they do not check them. TT 447-448; PX-1497. Harris’s contemporaneous notes, taken during or shortly after a meeting with Jeffrey McConney and Mark Hawthom of the Trump Organization, state: Patrick [Birney] explained that he is the primary preparer of the valuations. Patrick obtained all of the necessary information for the valuations from external and internal sources. He worked with other team members to pull this information together, such as Ray Flores. Ray Flores performs the first review of Patrick’s spreadsheet and financial statements. Prior to issuance of the SOFC, an individual from upper management of the Trump Organization, and also one of the Trump family members, will read and review the financial statements. TT 450-451. Harris also indicated that the Trump Organization designated McConney as the “individual with suitable skills, knowledge and experience to oversee [Whitley Penn’s] preparation of your financial statements,” as the Whitley Penn compilation engagement agreement required. TT 459-464; PX-2300. Harris stressed the “fundamental” importance of the client’s obligations, particularly during a compilation engagement, emphasizing that “[u]nder a compilation, we are not doing anything, you know, to verify the accuracy of that information, so that responsibility and accountability follows within the client to be doing those things so that the information is correct, because we didn’t do anything to verify that it is correct.” TT 464- 465. Harris further made clear that Whitley Penn would not have issued the 2021 SFC without a signed representation letter from the client, indicating that it acknowledged its responsibility for providing a fair presentation of values in accordance with GAAP. TT 480-481. Nicholas Haigh Nicholas Haigh worked as a risk officer and managing director of Deutsche Bank’s Private Wealth Management Division from 2008 to 2018. TT 980. The Private Wealth Management Division serviced high net worth individuals and provided various products to them, including credit products. As the risk officer, Haigh’s job was to examine the client’s credit exposure and determine whether a client’s credit request fit within the bank’s desired risk profile. TT 982. 8 of 92 Page 8 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 When a client wanted a loan or other “credit facility” from the Private Wealth Management Division, a relationship manager would interface with the client and then speak with a lending officer at the bank. The lending officer would document the terms of a proposed loan in a credit memorandum that would be sentto Haigh and his team for final approval. TT 986-987. If the credit risk management team was comfortable with the terms and information contained in the credit memorandum, they would approve and sign off on the proposal. TT 989. Haigh was the most senior credit officer to sign off on the Deutsche Bank loans to the Trump Organization entities. TT 992. In 2011, the risk management team approved the terms of a credit facility to the “Trump Family” “based on the financial strength of the guarantor,” emphasizing that “[t]he financial profile of the guarantor includes on an adjusted basis, 135 million in encumbered liquidity, 2.4 billion in net worth and approximately 48 million in adjusted recurring net cash flow.” The risk management team noted that “[a]lthough facility is being extended to [a special purpose vehicle] for the purposes of financing the purchase of the resort, the credit exposure is being recommended primarily based on the financial profile of the guarantor,” further emphasizing the “(full and unconditional guarantee of DJT which eliminates any shortfall associated with operating and liquidating Collateral.” PX 293; TT 1001. Haigh made clear that: The wealth management business at Deutsche Bank would not make loans secured just on collateral without a strong financial guarantee or personal guarantee from a financially strong person. Given that this was unusual collateral as a golf resort and spa, we would not really want to have to foreclose on that collateral and so we would most likely look to the guarantor to remedy any default — payment default on the loan. TT 1003-1004. In deciding to approve the credit facility, Haigh relied on Donald Trump’s 2011 SFC and assumed that the representations of value of the assets and liabilities were “broadly accurate.” TT 1009-1010; PX 330. The Deutsche Bank Credit Report’s “Financial Analysis” is based on numbers provided by the “family office” (here, the Trump Organization) and contains the same numbers represented in the SFC. PX 293; TT 1010-1013. Before approving the credit facility, the Private Wealth Management Division consulted Deutsche Bank’s Valuation Services Group about market conditions to arrive at a conservative estimate of the value of the commercial real estate should a need arise to liquidate during “bad market conditions.” TT 1013-1016. In so doing, the Valuation Services Group applied a 50% 5 The funds from this “Trump Family” credit facility would later be used to purchase Doral under the entity Trump Endeavor 12 LLC. 9 of 92 Page 9 of 92 INDEX NO. 452564/2022 NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 “haircut” to the valuations presented by the client, which Haigh affirmed was the “standardized number for commercial real assets.”® TT 1016, 1041. Haigh affirmed that the Private Wealth Management Division would not have done business with Donald Trump without a personal guarantee, and that the personal guarantee was the reason for favorable pricing on the loan and the large size of the loan itself. TT 1017, 1020-1021, 1032. The Doral loan was conditioned on certain continuing covenants. One such covenant required Donald Trump to maintain a minimum net worth of $2.5 billion, excluding any value related to his brand. PX 293; TT 1024. As the “ultimate signer” of the credit risk management team, Haigh determined the required amount of Donald Trump’s minimum net worth “in order to make sure that the bank would be fully protected under adverse market conditions.” TT 1025-1026. In the event of a default of any of the covenants, Haigh stated the bank would have “various remedies ... which it can pursue like waiving the breach, which it might do for an inconsequential breach; negotiating some variation of the terms of the loan; or potentially accelerating the loan and ask for repayment.” TT 1028. The covenant obligated Donald Trump to provide an annual financial statement. Haigh stressed that the annual SFCs were required because “[t]he bank wants to be sure that the client’s financial strength is being maintained and also the bank wants to be able to test its covenants periodically,” and that “[t]he bank would use the financial information that [the client] provided to test itselfto try and ensure that the client is in compliance with those covenants.” TT 1022- 1023. In 2012, the Trump Organization, under the entity 401 North Wabash Venture LLC, sought another loan from Deutsche Bank’s private wealth division for a new project in Chicago (“Trump Chicago”). PX 291; TT 1028-1029. The credit memorandum indicates that the beneficial owner of the borrower was “Donald J. Trump.” PX 291. Like the previous credit facility, the Chicago facility was conditioned on a full and unconditional guarantee provided by Donald Trump; the Deutsche Bank risk team specifically noted “[a]lthough facilities are secured by the collateral, given its unique nature, the credit exposure is being recommended based on the financial profile of the guarantor.” PX 291; TT 1030-1033. Similarto the previous credit facility review, the risk management team utilized Deutsche Bank’s Valuation Services Group to estimate the value of the liquidation of the commercial assets in bad market conditions and applied a standard 50% haircut to the valuations represented by the client.’ TT 1033. 5 Haigh also confirmed that in addition to the 50% standard “haircut” applied to most commercial real estate assets, the risk management team applied a 75% haircut to Seven Springs as “properties under development or not yet developed potentially have a large range of outcomes of their value.” TT 1040- 1041; PX 293. 7 Beyond the 50% standard “haircut,” the credit risk management team adjusted another value that had been provided by the client. Upon discovering that Trump Tower had recently been refinanced, but not by Deutsche Bank, the financing entity had commissioned an appraisal that was made available to Deutsche Bank. Upon realizing that the independent appraised value was less than the number reported by the client, the credit risk management team confirmed that they were “adjusting the property value to reflect the recent appraisal and new debt.” PX 291; TT 1034-1035. 10 of 92 Page 10 of92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 While he was seeking the loan from the Private Wealth Management Division and waiting to see if it would be approved, Donald Trump was simultaneously exploring a loan from Deutsche Bank’s Commercial Investment Bank Division, which maintained a commercial real estate lending group. PX 470; TT 1036-1038. The dueling proposals resulted in an internal Deutsche Bank memo, as Haigh explained, reflecting that “[t]wo business divisions at Deutsche Bank were making proposals on the same potential loan and ... we wanted to be sure that they made sense with regard to each other so the bank didn’t look foolish in front of the client with two completely different sets of term sheets that bore no relation to each other.” PX 470; TT 1036- 1038. The memo indicated that for Trump Chicago, the Commercial Investment Bank Division would be willing to provide a loan on a non-recourse basis (i.e., no personal guarantee) at LIBOR plus 8%, and that the private wealth division would be willing to provide a loan on a full recourse basis (with an unconditional personal guarantee) at LIBOR plus 4%. PX 470; TT 1036- 1038. In 2014, the Trump Organization sought several more approvals from Deutsche Bank: (1) aloan for the Washington, D.C. “Old Post Office” project; (2) the renewal of an existing Trump Endeavor 12, LLC credit facility for Doral; and (3) an increase in the Trump Chicago credit facility. PX 294; TT 1041-1045. The approval process for these three discrete items was the same as the previous approval processes, except that a higher level of authority was needed to approve the transactions within the credit risk management team. TT 1045. Like the previous credit facilities, approval required Donald Trump, as guarantor, to maintain a minimum net worth of $2.5 billion, as “[t]he bank wanted to be sure that in an adverse market scenario the client would always have enough financial resources to be able to pay off our loan.” TT 1048- 1049. Like the previous credit facilities, the credit risk management team noted that “[a]lthough all three Facilities are secured by Collateral, given the unique nature of these credits, the credit exposure is being recommended based on the financial profile of the Guarantor.” PX 294; TT 1050. Haigh noted that the Private Wealth Management Division did not normally extend loans that involved substantial reconstruction on its collateral, here, the Old Post Office, so the loan was approved in reliance Donald Trump’s personal guarantee. TT 1050-1051. Once again, as a required covenant, Donald Trump was obligated to provide certifications and annual statements of financial condition so that the bank could test his required covenants at any time. TT 1049. Rosemary Vrabli Rosemary Vrablic worked at Deutsche Bank in the Private Wealth Management Division and was the chief relationship manager for the Trump Organization. TT 994, 5484-5486. Vrablic explained that her job was to be “an intermediary between the customer and/or prospect and the credit and lending parts of the bank.” TT 5486. Vrablic served as the client intermediary for the bank for all three of the loans that Deutsche Bank’s Private Wealth Management Division extended to Donald Trump. TT 5486-5487. Jared Kushner, Ivanka Trump’s husband, introduced Vrablic to Donald Trump in 2011. TT 5486, 5498-5499, 5511-5512. Vrablic testified that one goal of herjob was to initiate a broad- based relationship with Donald Trump. TT 5499. Ivanka Trump was Vrablic’s main liaison for the subject credit facilities. TT 5504. 11 of 92 Page 11 of92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF 02/16/2024 Vrablic was not a part of the credit risk analysis team, and she had no input or authority on whether credit was ultimately extended. TT 5578. She was not involved in the bank’s annual review of Donald Trump’s SFCs. TT 5554, 5578-5579. Vrablic confirmed, and emails corroborate, that when considering whether to extend the Doral loan, the head of the global asset management group wrote: “I support the transaction, but we need iron clad full recourse under all circumstances,” indicating that an iron-clad personal guarantee was a non-negotiable term of the loan. DX 313; TT 5519-5521, 5572-5573. Vrabalic further confirmed that each of the Trump family members she dealt with, including Donald Trump, Donald Trump, Jr., and Ivanka Trump, fully understood the recourse requirement to obtain a loan from the Private Wealth Management Division. TT 5574-5777; PX 1129. Vrablic expected Donald Trump to submit accurate financial information to the bank. TT 5579. Doug Larson Doug Larson is a valuation advisor and certified New Y ork real estate appraiser who currently works at Newmark. Prior to working at Newmark, he worked at Cushman & Wakefield for almost 25 years. TT 1558-1559. In 2015, while at Cushman & Wakefield, Larson appraised 40 Wall Street for Ladder Capital as part of its due diligence. TT 1560-1570; PX 118. Larson testified clearly and credibly that although his name is cited as the source to justify a 2.940 capitalization (or “cap”) rate® on Niketown, a property in which Donald Trump owned two long-term leases on 57" Street, Larson never had a specific conversation with Jeffrey McConney in which he advised him that such a cap rate would be appropriate; nor was he aware that he was listed as a source for such a cap rate. TT 1572-1575; See, e.g., PX 758. Larson further said that he would not have advised McConney to select that cap rate, as “it’s not how we would value [it] in our practice.” TT 1583. Larson stated that McConney was incorrect in stating that he consulted with Larson when valuing Trump Tower. TT 1581. Upon learning that his name had been repeatedly used to justify cap rates that he had not recommended, Larson said it was “inappropriate and inaccurate ... I should have been told and, you know, an appraisal should have been ordered.” TT 1587. Larson further took issue with his name being used to justify a cap rate on the property controlled by a Vornado partnership interest. In 2012, Larson appraised the property at 1290 Avenue of the Americas at $2 billion with a cap rate of 4.5 percent. PX 1824; TT 1588-1589. Notwithstanding, in the following SFC’s supporting data, McConney cites Larson as the source for using a 3.12 percent cap rate, even though he never worked with McConney to pick a cap rate 8 A capitalization rate is calculated by dividing a property’s net operating income by the current market value. This ratio, expressed as a percentage, is an estimation of an investor’s return on real estate. The higher the cap rate, the lower the value. Cap rates have an extraordinarily large effect on the value of a property. 12 of 92 Page 12 of 92 INDEX NO. 452564/2022 FILED: NEW YORK COUNTY CLERK 02/16/2024 03:24 PM NYSCEF DOC. NO. 1688 RECEIVED NYSCEF: 02/16/2024 to value that property, and that he would not have, as valuing minority interests is a specialized area beyond his expertise. TT 1589-1595. In a 2015 appraisal of 40 Wall Street, Larson included the value of a Dean & Deluca lease that yielded annual rent of $1.4 million, and he applied a 4.25 percent cap rate, for a total valuation of $540 million. Notwithstanding, the 2015 SFC backup data double-counted the Dean & Deluca lease. McConney also chose a much lower cap rate than that on the appraisal and listed the total