Trump’s Harsh Punishment Was Made Possible by
This New York Law
The little-known measure meant hundreds of millions in
penalties in the civil fraud case brought by Attorney General Letitia James.
By Ben
Protess and Jonah E. Bromwich
Feb. 16,
2024
https://www.nytimes.com/2024/02/16/nyregion/trump-fraud-trial-ny-law.html
The $355
million penalty that a New York judge ordered Donald J. Trump to pay in his
civil fraud trial might seem steep in a case with no victim calling for redress
and no star witness pointing the finger at Mr. Trump. But a little-known
70-year-old state law made the punishment possible.
The law,
often referred to by its shorthand, 63(12), which stems from its place in New
York’s rule book, is a regulatory bazooka for the state’s attorney general,
Letitia James. Her office has used it to aim at a wide range of corporate
giants: the oil company Exxon Mobil, the tobacco brand Juul and the pharma
executive Martin Shkreli.
On Friday,
the law enabled Ms. James to win an enormous victory against Mr. Trump. Along
with the financial penalty, the judge barred Mr. Trump from running a business
in New York for three years. His adult sons were barred for two years.
The judge
also ordered a monitor, Barbara Jones, to assume more power over Mr. Trump’s
company, and asked her to appoint an independent executive to report to her
from within the company.
A lawyer
for Mr. Trump, Christopher M. Kise, reacted with fury, saying “the sobering
future consequences of this tyrannical abuse of power do not just impact
President Trump.”
“When a
court willingly allows a reckless government official to meddle in the lawful,
private and profitable affairs of any citizen based on political bias,
America’s economic prosperity and way of life are at extreme risk of
extinction,” he said.
.
In the
Trump case, Ms. James accused the former president of inflating his net worth
to obtain favorable loans and other financial benefits. Mr. Trump, she argued,
defrauded his lenders and in doing so, undermined the integrity of New York’s
business world.
Mr. Trump’s
conduct “distorts the market,” Kevin Wallace, a lawyer for Ms. James’s office,
said during closing arguments in the civil fraud trial.
“It prices
out honest borrowers and can lead to more catastrophic results,” Mr. Wallace
said, adding, “That’s why it’s important for the court to take the steps to
protect the marketplace to prevent this from happening again.”
Yet the
victims — the bankers who lent to Mr. Trump — testified that they were thrilled
to have him as a client. And while a parade of witnesses echoed Ms. James’s
claim that the former president’s annual financial statements were works of
fiction, none offered evidence showing that Mr. Trump explicitly intended to
fool the banks.
That might
seem unusual, but under 63(12), such evidence was not necessary to find fraud.
The law did
not require the attorney general to show that Mr. Trump had intended to defraud
anyone or that his actions resulted in financial loss.
“This law
packs a wallop,” said Steven M. Cohen, a former federal prosecutor and top
official in the attorney general’s office, noting that it did not require the
attorney general to show that anyone had been harmed.
With that
low bar, Justice Arthur F. Engoron, the judge presiding over the case, sided
with Ms. James on her core claim before the trial began, finding that Mr. Trump
had engaged in a pattern of fraud by exaggerating the value of his assets in
statements filed to his lenders.
Ms. James’s
burden of proof at the trial was higher: To persuade the judge that Mr. Trump
had violated other state laws, she had to convince him that the former
president acted with intent. And some of the evidence helped her cause: Two of
Mr. Trump’s former employees testified that he had final sign-off on the
financial statements, and Mr. Trump admitted on the witness stand that he had a
role in drafting them.
Still, her
ability to extract further punishments based on those other violations is also
a product of 63(12), which grants the attorney general the right to pursue
those who engage in “repeated fraudulent or illegal acts.”
In other
fraud cases, authorities must persuade a judge or jury that someone was in fact
defrauded. But 63(12) required Ms. James only to show that conduct was
deceptive or created “an atmosphere conducive to fraud.” Past cases suggest
that the word “fraud” itself is effectively a synonym for dishonest conduct,
the attorney general argued in her lawsuit.
Once the
attorney general has convinced a judge or jury that a defendant has acted
deceptively, the punishment can be severe. The law allows Ms. James to seek the
forfeit of money obtained through fraud.
Of the
roughly $355 million that Mr. Trump was ordered to pay, $168 million represents
the sum that Mr. Trump saved on loans by inflating his worth, she argued. In
other words, the extra interest the lenders missed.
The penalty
was in the judge’s hands — there was no jury — and 63(12) gave him wide
discretion.
The law
also empowered Justice Engoron to set new restrictions on Mr. Trump and his
family business, all of which Mr. Trump is expected to appeal.
The judge
also ordered a monitor to assume more power over Mr. Trump’s company, who will
appoint an independent executive who will report to the monitor from within the
company.
Even before
she filed her lawsuit against the Trumps in 2022, Ms. James used 63(12) as a
cudgel to aid her investigation.
The law
grants the attorney general’s office something akin to prosecutorial
investigative power. In most civil cases, a person or entity planning to sue
cannot collect documents or conduct interviews until after the lawsuit is
filed. But 63(12) allows the attorney general to do a substantive investigation
before deciding whether to sue, settle or abandon a case. In the case against
Mr. Trump, the investigation proceeded for nearly three years before a lawsuit
was filed.
The case is
not Mr. Trump’s first brush with 63(12). Ms. James’s predecessors used it in
actions against Trump University, his for-profit education venture, which paid
millions of dollars to resolve the case.
The law
became so important to Ms. James’s civil fraud case that it caught the
attention of Mr. Trump, who lamented the sweeping authority it afforded the
attorney general and falsely claimed that her office rarely used it.
He wrote on
social media last year that 63(12) was “VERY UNFAIR.”
William K.
Rashbaum contributed reporting.
Ben Protess
is an investigative reporter at The Times, writing about public corruption. He
has been covering the various criminal investigations into former President
Trump and his allies. More about Ben Protess
Jonah E.
Bromwich covers criminal justice in New York, with a focus on the Manhattan
district attorney's office, state criminal courts in Manhattan and New York
City's jails. More about Jonah E. Bromwich
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