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Donald Trump has worst day yet in NY civil fraud trial as underling's scribbled note ties him to conspiracy
by Laura Italiano
Business Insider
Nov 21, 2023, 3:30 PM MST
https://www.businessinsider.com/trump-w ... ss-2023-11

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Donald Trump at a campaign event in Ohio and key evidence in his New York fraud trial. Gaelen Morse/Reuters, left. Insider, right.

** The Trump civil fraud trial is now in its eighth week in New York.
** The defense called Donald Trump's former spreadsheet czar Jeffrey McConney to testify.
** McConney said he wrote "DJT TO GET FINAL REVIEW" on a document the state alleges is fraud-filled.

Donald Trump had his worst day yet in his ongoing civil fraud trial in New York on Tuesday at the hands of his own key witness, a former Trump Organization executive who linked the former president directly to the fuzzy math at the center of the case.

The witness was Jeffrey McConney, who was the comptroller and spreadsheet czar at the Trump Org. McConney had been called to the witness stand by the defense, but on cross-examination by lawyers for the state attorney general's office Tuesday, he linked Trump firmly to the conspiracy and fraud counts that have yet to be decided in the non-jury trial.

McConney was handed People's Exhibit 3054, a draft of Trump's net-worth statement for 2014. He was asked to look at a note scribbled in thin blue ink on the draft's first page, "DJT TO GET FINAL REVIEW," which he said he'd written.

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A handwritten note that links Donald Trump to the counts in his NY fraud trial. NY attorney general's office/Insider

Trump has denied involvement in preparing a decade's worth of these annual net-worth statements, which New York's attorney general, Letitia James, has alleged — and the trial judge has agreed — were each year riddled with billions of dollars of exaggerations.

The AG has alleged the net-worth statement that McConney was handed the draft for, from 2014, contained $3.5 billion in exaggerations.

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Jeffrey McConney, a former comptroller for Donald Trump. Seth Wenig/AP

"Donald Trump would get final review?" Andrew Amer, the state's lawyer, asked McConney.

"That was my understanding, yes," McConney answered from the witness stand, his voice gruff.

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Trump attending his New York civil fraud trial. Pool/Getty Images

Amer asked next whether Trump would get the final review of every net-worth statement until leaving for the White House in 2017, after which Eric Trump would approve the drafts.

"That was my understanding, yes," McConney answered again. Asked whether that was his handwriting on the drafts — the thin blue pen marks — McConney also said yes, it was.

Why the spreadsheet czar's scribbles matter

McConney's testimony was significant for several reasons — not just the damage it did to Trump, but the damage it did to Trump's two eldest sons; to the Trump Org's former chief financial officer, Allen Weisselberg; and to McConney himself.

The three Trumps and the two ex-executives are all defendants in the AG's lawsuit, which alleges that Trump used net-worth exaggerations to win hundreds of millions of dollars in interest-rate discounts and property-sale profits. James is seeking at least $250 million in penalties and to bar the five defendants from ever running a New York business again.

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Trump talking to reporters outside the courtroom during his civil fraud trial in New York. AP Photo/Seth Wenig

Starting with the damage to McConney himself, his blue-ink notations directly contradict his testimony from the prior day.

The spreadsheet czar had testified on direct examination Monday that he would review each year's draft net-worth statement with Weisselberg, who would then give the approved draft to the outside accounting firm, Mazars USA, which would print the final statement.

This chain of command — McConney to Weisselberg to Mazars — leaves out one very important link, as the state's lawyer, Amer, pointed out on cross on Tuesday.

"I believe there was a step in between that involved Donald Trump prior to 2017?" Amer said to McConney, who appeared uncomfortable on the stand as he said Trump indeed did the ultimate signing off.

Trump, who has not attended the trial for the past two weeks, had said on the witness stand on November 6 that he had little involvement in the drafting of these net-worth statements. In a pretrial deposition, he denied knowing who had written "DJT to get final review" on that 2014 draft.

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An excerpt from Donald Trump's pretrial deposition in his NY civil fraud case. NY Attorney General's Office/Insider

But McConney's blue-ink handwriting is all over the net-worth statement drafts, showing he revised language and even added cautionary notes that were then passed along for Trump's "final review," as McConney said in his own description of the drafting process.

In one key cautionary note from the 2015 draft, McConney made a notation in ink that "this computation also includes forecasted deals that have not signed yet." In the note, McConney asked whether Trump wanted to exclude some $151 million in as-yet-fictional assets from the net-worth statement.

The final version of that year's net-worth statement shows McConney's suggestion was ignored, possibly by Trump himself. The AG alleges that Trump routinely padded out his net-worth statements with the same sorts of nonexistent assets.

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"Do you want to delete these deals?" Trump was asked in a handwritten note warning of $151 million in "forecasted" deals. NY Attorney General's Office/Insider

McConney's many handwritten notes indicate it was Trump and his top executives who made the last edits and then signed off on these net-worth statements. As such, the notes do serious damage to the primary Trump defense: blame Mazars, blame the accountants.

The attorney general's office also appears poised to argue that these handwritten notes show McConney, Weisselberg, and Trump intentionally conspired in cooking the numbers each year. Intent and conspiracy are two elements that must be proved for the attorney general to win all six of the yet-decided counts in the case.

Still to be proved or disproved: conspiracy and intent

New York Supreme Court Justice Arthur Engoron has already found, pretrial, that Trump's 2014-through-2021 statements fraudulently inflated his wealth.

The trial is meant to determine whether the five defendants further broke six specific state laws: falsifying business records, filing false financial statements, insurance fraud, and conspiracy to commit each of these counts. These six counts all require proof that the frauds and falsehoods were committed intentionally.

Since the case is civil, not criminal, the judge will not issue a "guilty" verdict. Instead, his verdict will find whether the five defendants are "liable" for monetary and other penalties for violating these six laws.

How else do McConney's handwritten notes harm the defense?

The fact that these incriminating, hand-scrawled drafts were turned over to authorities by Mazars but not by the Trump Organization could come up at the end of the trial as evidence that Trump's side failed to retain and turn over documents as required by state subpoenas.

McConney's cross-examination came minutes after a dramatic, tearful conclusion to his direct testimony.

The longtime Trump executive became weepy in answering the final question from the defense lawyer Jesus Suarez, who asked why he'd left the Trump Organization after 35 years working there.

He left to "stop being accused of misrepresenting assets for the company that I loved working for," he said, wiping away tears as he described a history of being subpoenaed on the federal and state level in connection with the Trump Organization.

"It was like working with family," he said. "I feel proud of what I did."

The trial continues Monday with testimony expected by the chief accounting officer for Trump Hotels, Mark Hawthorn. It will be the ninth week of trial and the third week of the defense case.

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https://iapps.courts.state.ny.us/nyscef ... tzC9ofmw==

SUPREME COURT OF THE STATE OF NEW YORK
NEW YORK COUNTY

PRESENT: HON. ARTHUR F. ENGORON

PEOPLE OF THE STATE OF NEW YORK, BY LETITIA JAMES, ATTORNEY GENERAL OF THE STATE OF NEW YORK,

Plaintiff,

-v-

DONALD J. TRUMP, DONALD TRUMP JR., ERIC TRUMP, ALLEN WEISSELBERG, JEFFREY MCCONNEY, THE DONALD J. TRUMP REVOCABLE TRUST, THE TRUMP ORGANIZATION INC. TRUMP ORGANIZATION LLC DJT HOLDINGS LLC, DJIT 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.

PART: 37
INDEX NO. 452564/2022

Decision and Order Denying Defendants' Motions for a Directed Verdict

At least five times during the recently concluded ten-and-a-half week trial of this matter, defendants moved for a directed verdict. The first such time was at the close of plaintiff's case, which is when defendants normally move for such relief. This court took that motion, and most of the others, under advisement. It denied two of them on the spot. At the close of plaintiff's rebuttal case, defendants requested permission to move, yet again, pursuant to CPLR 4401, for a directed verdict. Plaintiff opposed the request. Not wanting to impose an undue prior restraint, this Court granted the request. The instant letter-motion ensued. This Court hereby denies that motion and, furthermore, denies all the prior motions that the Court previously took under advisement.1

Rather than marshal and detail, yet again, the evidence in support of plaintiff's prima facie case, and defendants' failure to do more than raise issues of fact, this court will highlight some of the fatal flaws in the instant motion.

The most glaring flaw is to assume that the testimony of defendants' experts, notably Messrs. Jason Flemmons and Eli Bartov, is true and accurate, or at least that the Court, as the trier of fact, will accept it as true and accurate. Bartov is a tenured professor, but all that his testimony proves is that for a million or so dollars, some experts will say whatever you want them to say. His overarching point was that the subject statements of financial condition were accurate in every respect. As this Court discussed in excruciating detail in its September 26, 2023 summary judgment decision, the Statements of Financial Condition ("SFCs") contained numerous obvious errors. By doggedly attempting to justify every misstatement, Professor Bartov lost all credibility.2

Mr. Flemmons acknowledged that he had never valued property, much less was he a valuation "expert," but he attempted to opine on values. The crux of Mr. Flemmons' testimony was that so long as defendants selected one of the "methods" that ASC 274 permits, then any numbers may be entered into such methodology, regardless of their accuracy or relationship to reality.

Mr. Flemmons also, inexplicably, acknowledged that future income had to be discounted to present value on a financial statement, while at the same time stating there were no Generally Accepted Accounting Principles ("GAAP") departures where defendants failed to apply a discount rate to future income. He opined that Mazars should have followed up on items in the SFCs but then stated, adamantly, that it would have been "highly unusual" for Mazars to make an inquiry for any appraisals in the client's possession.3 He was reluctant to acknowledge that an asset controlled by a third-party cannot be considered "cash," while also acknowledging that it was a "red flag."

Defendants persist in arguing that if a loan closes prior to the period during which the statute of limitations allows suit, then any required follow-up SFCs made during that period is somehow sacrosanct. That contention is belied by a plain reading of Executive Law Section 63(12), by the law of the case doctrine, and, perhaps most importantly, by common sense. Closing is not a get-out-of-jail-free card for future misstatements. All that Section 63(12) requires is a false statement used in business; the subject financial statements fit that definition "to a T."

In their zeal to "protect the record," defendants yet again raise the specter that plaintiff has no standing and no capacity to bring the instant action. This Court has confidence that the Court of Appeals can easily reach and determine those arguments, which personify frivolity.

Defendants' arguments against disgorgement fall short in three respects: disgorgement does not depend on damages (a different concept); the testimony showed that the lenders did rely, in part, on Donald J. Trump's SFCs; and Section 63(12) contemplates disgorgement. Disgorgement is the return of "ill-gotten gains." If you pay a lower interest rate on a loan by overstating the value of any of your assets, thus lowering the perceived risk to the lender, your gains are ill-gotten. The lender has lost money, although the loss is not out-of-pocket, and so the loss is not what the law traditionally thinks of as damages. That the instant lenders made millions of dollars and were happy with the transactions does not mean that they were not damaged by lending at lower interest rates than they otherwise would have. Michiel McCarty's testimony credibly supported this.

Moreover, as this Court details in its September 26, 2023 decision, it is well-settled that the State has an interest in protecting the integrity of the marketplace. People v. Northern Leasing Sys., Inc., 70 Misc 3d 256, 267 (Sup Ct, NY County 2021) (holding that "[a] claim under Executive Law System 63(12) is the exercise of 'the State's regulation of businesses within its borders in the interest of securing an honest marketplace'").

Furthermore, the lenders relied, in part, on the subject financial statements, as was made clear in the testimony of Nicholas Haigh and Michiel McCarty. Indeed, many of the lenders' calculations used the SFCs as their starting point, to which they often applied a standard "haircut."

Defendants also trot out two of their standard canards, that valuations are subjective and that the law only penalizes "material" deviations. These both fall into the category of "Let no one be fooled." Valuations, as elucidated ad nauseum in this trial, can be based on different criteria analyzed in different ways. But a lie is still a lie. Valuing occupied residences as if vacant, valuing restricted land as if unrestricted, valuing an apartment as it were triple its actual size, valuing property many times the amount of concealed appraisals, valuing planned buildings as if completed and ready to rent, valuing golf courses with brand premium while claiming not to, and valuing restricted funds as cash, are not subjective differences of opinion, they are misstatements at best and fraud at worst.

Defendants are correct that discrepancies in amounts must be material to be actionable. However, the evidence in the record is replete with examples of material misstatements: the size of the triplex, the discrepancies between the appraised values and the amounts on the SFCs, the discrepancy in value between restricted property and unrestricted property, the undisclosed addition of brand value, the amount of "cash" that was illiquid, future value listed as present value without discounting to current value, etc.

Finally, defendants attempt to fall back on alleged disclaimers in the SFCs. As analyzed in the September 26, 2023 decision, the words at issue were simply Mazars' practice of ensuring that the issuer was responsible for the accuracy of the statements. They are not disclaimers at all, they are not defendants' statements, and they certainly do not shield defendants from liability; if anything, they expose defendants to liability.

As previously ordered, post-trial briefs are due by January 5, 2024, and closing arguments will be held on January 11, 2024.

Dec 18, 2023

HON. ARTHUR F. ENGORON

DATE: 12/18/2023

Non-Final Disposition

_______________

Notes:

1. One such motion came immediately after the close of the testimony of Michael Cohen, whom defendants wishfully dominated "plaintiff's star witness." In denying that motion, this Court noted that the evidence of wrongdoing already admitted into evidence was voluminous.

2. Dr. Bartov suffered essentially the same fate testifying before the Hon. Barry Ostrager in People v. Exxon Mobil Corp., 65 Misc 3d 1233(A) (Sup Ct, NY County 2019)("the Court rejects Dr. Bartov's expert testimony as unpersuasive and, in the case about the Mobile Bay facility, finds Dr. Bartov's testimony to be flatly contradicted by the weight of the evidence").

3. In any event, there is documentary evidence, previously submitted to the Court on the parties' summary judgment motions, conclusively establishing that Mazars did, in fact, make inquiries for appraisals, and were told there were none. NYSCEF Doc. No. 1262 at 243.