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Trump’s NY Tax Fraud Hit Eclipsed by Impact of Felony Conviction

Jan. 13, 2023, 5:16 PM

The $1.6 million penalty two Trump companies must pay for their tax fraud crimes is the maximum under the law, but it is likely to be eclipsed by longer-term blowback to the Trump Organization.

The two business units were sentenced on Friday in New York State Supreme Court after a felony conviction last month. The real punishment lies ahead, in potential fallout that goes beyond reputational damage to freezing the firm out of coveted deals, bank loans and government contracts, legal experts say.

“Doing business with a company that has been found guilty of unscrupulous practices may exceed the risk tolerance of lenders, insurers and potential business partners,” said Barbara McQuade, a former federal prosecutor who now teaches at the University of Michigan’s law school.

Donald Trump with Donald Trump Jr., Eric, Melania, Tiffany and Ivanka at the Trump International Hotel in Washington.
Photographer: Andrew Harrer/Bloomberg

The sentencing comes after the jury returned its verdict against the two units on all 17 counts, including conspiracy, criminal tax fraud and falsifying business records. The case stems from a scam spanning more than a decade to hide taxable income by compensating executives with unreported perks like luxury cars and private school tuition. At the center was longtime chief financial officer Allen Weisselberg,who became the prosecution’s star witness at last year’s trial.

Read More: Trump Companies Are Convicted in NY Criminal Tax Fraud Trial

Now the stain of the felony will likely make it harder for Trump’s company to secure bank loans, at least in the US, experts say. It will also make it more difficult to win government contracts, like the one that let Trump develop Washington’s Old Post Office into a luxury hotel.

“Does any company want to disclose they’re entering into a deal with a company convicted of tax fraud?” said Frank Agostino, a former Internal Revenue Service lawyer now in private practice and specializing in tax cases. Some companies, lenders and municipalities are bound by “morals clauses” that prohibit doing business with felons, he said.

Trump Probe Continues

Manhattan District Attorney Alvin Bragg, whose office won the verdict along with the state attorney general’s office, called it a “historic sentencing.”

“It’s the first time ever for a criminal conviction of former president Trump’s companies, and indeed I would go so far as to say the first time ever for any former president,” Bragg said after court.

He added that New York state penalties for corporations convicted of crimes were “not enough” compared with federal fines for corporate wrongdoing, and “need to change in order to capture this kind of decade-plus, systemic, egregious fraud.”

But Bragg said it wasn’t over. He said the sentencing of the two companies and, earlier this week, Weisselberg “closes this important chapter of our ongoing investigation into the former president and his businesses. We now move on to the next chapter.”

Alvin Bragg
Source: 30269270A

The Trump Organization said in a statement that it “did nothing wrong” and would appeal the verdict.

“New York has become the crime and murder capital of the world, yet these politically motivated prosecutors will stop at nothing to get President Trump and continue the never ending witch-hunt which began the day he announced his presidency,” the firm said in a statement. It said Weisselberg, too, was a “victim” and was “threatened, intimidated and terrorized” into testifying for the prosecution.

Read More: Trump Ex-CFO Weisselberg Gets 5 Months in Jail, $500,000 Bonus

Lawyers for the two business units — Trump Corp. and Trump Payroll Corp. — had no comment on the verdict’s possible consequences. Trump spokesman Steven Cheung didn’t respond to an email seeking comment.

Trump’s Perils

Trump’s legal troubles in New York are far from over. A $250 million civil fraud case brought by Attorney General Letitia James is scheduled for trial in October. Not only are the financial stakes in that case far greater, but the suit also seeks to bar Trump and three of his children from ever running any business in the state.

Read More: Trump Sued by New York Over ‘Fraudulent’ Asset Valuations

James has already succeeded in getting a corporate monitor installed at the Trump Organization. Previous litigation by her office resulted in the dissolution of the Trump Foundation, which violated the state law governing charities.

“The attorney general’s lawsuit is a real threat with real teeth,” said Daniel Horwitz, a former prosecutor at the Manhattan DA’s office who is now at the law firm McLaughlin & Stern. “If the AG gets the relief she’s seeking, it will essentially put an end to the Trump Organization in New York state as we know it.”

Allen Weisselberg
Source: Bloomberg

Trump himself wasn’t charged in the criminal case, but the outcome arrived amid his run for president and a series of other legal threats.

QuickTake: What Trump’s Legal Perils Mean for Trump’s Candidacy

Besides James’s case, they include criminal probes of efforts by Trump and his allies to overturn the 2020 presidential election and the treatment of classified government documents at Mar-a-Lago, his Florida home.

Trump has called all the cases and probes he faces baseless political vendettas.

Weisselberg’s Deal

The Manhattan case grew out of an investigation of the Trump Organization’s business practices begun under former DA Cyrus Vance Jr., who in 2021 secured an indictment of Weisselberg and the two Trump companies. Weisselberg struck a plea deal with Bragg’s office last August. Prosecutors have said their probe began after a Bloomberg News story about Weisselberg’s perks.

Read More: Trump Perks for Weisselbergs Included Free Rent

After the conviction, Trump said in a statement that it was unfair to prosecute his companies for the acts of the disgraced former CFO, with Weisselberg himself “and every witness repeatedly testifying that President Trump and the Trump Family knew nothing about his actions, which he admits were done solely for his own benefit.”

He said New York “is a hard place to be ‘Trump,’ as businesses and people flee our once Great City!”

The case is New York v. Trump Organization, 01473-2021, New York State Supreme Court (Manhattan).

Read More

  • Trump Said Fight It When DA Charged His Firms With Tax Fraud
  • ‘He Was the Boss’: Trump’s Sign-Offs Come Up in Tax Fraud Trial
  • Trump Knew of Alleged Tax Scam, Controller Says CFO Told Him

To contact the reporters on this story:
Greg Farrell in New York at gregfarrell@bloomberg.net;
Patricia Hurtado in Federal Court in Manhattan at pathurtado@bloomberg.net

To contact the editors responsible for this story:
Misyrlena Egkolfopoulou at megkolfopoul@bloomberg.net

Peter Jeffrey

© 2023 Bloomberg L.P. All rights reserved. Used with permission.