Trump Loses Half a Billion to New York
New York charges Trump almost $500 million for a common business practice
New York state charged Donald Trump, two of his sons, and a business partner with fraud in 2023 and the case was decided last week. According to the state of New York, Trump and his organization knowingly “submitted false financial statements” to financial institutions in order to get favorable financing. Trump’s financial statements told banks that his real estate assets were worth more than they were “actually” worth in order to get better loans and interest rates. For that, Trump and his associates must now pay New York nearly $500 million. As annoying as it can be to defend Trump, this is clearly a miscarriage of justice.
The biggest problem with this case is that there were no damaged parties. No people came forward to accuse Trump of fraud that materially damaged them. The state of New York is charging Trump for fraud supposedly on behalf of defrauded banks, but the most stunning fact of the case is that the banks themselves testified in defense of Trump.
Banks are in the business of profiting by lending money, and they do their best to ensure that their loans are sound. To do that, banks contract with appraisers and auditors who independently examine real estate values and the validity of financial statements. Banks take the self-reported evaluations of clients into consideration, but they primarily use their own evaluations to determine the creditworthiness of people like Trump who ask for loans. Value, by its nature, is subjective, so banks must always perform their own due diligence. And after doing so, the banks determined that Trump was creditworthy, and they gave him loans. The banks determined that the loans were good business when the loans were originated, and they still think so today based on their testimonies.
It is common for asset owners to inflate the value of their assets when self-reporting due to emotional and cognitive biases. As an example, I recently sold an antique clarinet online. I listed it for $150. After several months of waiting and some negotiation, it sold for $120. The clarinet was unique and nothing else like it has sold for years, so it stands to reason that the clarinet was worth $120 in an open market, but I thought it was worth $150. Based on the state of New York’s reasoning in Trump’s case, I was being fraudulent in my belief that the clarinet was worth 25% more than the open market dictated. Even though the buyer was happy, the state of New York might charge me $30 plus punitive interest for the imaginary “fraud” I committed.
Legal action should never be taken when there is no damaged party. In my case, the buyer agreed to pay $120 after researching the clarinet. In Trump’s case, the banks agreed to originate the loans after researching the soundness of the investment. No one was damaged. Therefore, no one should be legally liable to pay damages.
Worst of all, the state of New York seemed to intentionally single Trump out with its limited use of this law. According to several investors in the state of New York, including Kevin O’Leary, it is common business practice in the state for real estate owners to self-report values that exceed the values banks appraise. If New York was to apply this law unbiasedly, it would have to sue developers across the state, yet this is one of, if not the only, instance in which the state used the law when no parties were damaged.
Regardless of whether we like Trump or not, the law must be administered righteously and unbiasedly. In this case, it was neither. It was not righteous because no one was damaged, so fining Trump a punitive $500 million is blatantly wrong. Nor was the case unbiased since the law is not routinely used in similar cases. As detestable as Trump can be, misusing the law to punish him should concern us all.