Trump's Fake It 'Til You Make It Empire

And what's happening now that he has to tell the truth.

While we wait to see how Trump manages to come up with half a billion dollars in bond money as he appeals his fraud and defamation verdicts, there are a couple of important takeaways from Justice Arthur Engoron’s Friday order which haven’t gotten significant attention.

The first is the Trump Organization’s tacit admission that its entire portfolio was built on years of glittery lies packaged into fraudulent statements of financial condition (SFCs) to induce banks, insurance companies, and government entities to do business with it. And there’s no better proof of this than the fact that, when the court forced the company to quit lying, it stopped putting out SFCs at all.

As the judge noted in his ruling:

Moreover, the fact that the Trump Organization has refused to prepare SFCs, even though various loan covenants obligate them to do so, ever since the monitor was appointed, leads the Court to conclude that the Trump Organization cannot, or will not, prepare an accurate SFC that is GAAP compliant and that values assets at their estimated current values. That the Trump Organization has taken to manufacturing its own version of its assets, one that fails to include any valuations, is a telling admission that it simply cannot, or will not, prepare an SFC without committing fraud.

In plain English, when the Trump Organization couldn’t pump out fantastical valuations for its assets, it started putting out SFC-Lites, because the accurate figures were either horribly embarrassing or too low to meet the lenders’ net worth and liquidity requirements. And that’s before Trump had to find half a billion dollars in cash to stave off collection efforts by NYAG Letitia James and E. Jean Carroll!

The ruling relies heavily on a January 26 status report by retired Judge Barbara Jones, whom Justice Engoron appointed as independent monitor of the Trump Organization in November of 2022. She noted that Trump has simply refused to produce SFCs for more than a year, despite his ongoing obligation to prove to his lenders that he is both wealthy and liquid enough to continue to hold their money. Instead he’s generated a list of the properties, along with the expenses and debt associated with them.

In lieu of an SFC, beginning in 2022, Defendants instead prepared and submitted a list of the Trust's Material Assets and Material Liabilities ("MAML"). The MAML contains a listing of certain significant properties owned by the Trust and a description of any loans associated with those properties. The MAML does not include estimated values of the properties listed, nor does it include a balance sheet of the guarantor or any representations regarding its financial condition. Further, and with limited exception described below, we are not aware of the Trump Organization having conducted any entity valuations or property appraisals during the Monitorship.

Judge Jones also “identified certain deficiencies in the financial information that I have reviewed,” including multiple errors in documents “sent to a third-party lender, finance company or counterparty.” These errors reflect the reality that, with no controller or CFO for a year now, the Trump Organization is essentially flying blind.

Naturally Trump and his lawyers flipped their shit over Judge Jones’s findings.

“The January 26 Report, issued mere days before an expected decision, has only two obvious purposes: (1) ensure the Monitor continues to receive exorbitant fees (in excess of $2.6 million to date); and (2) fill the gaping hole in the Attorney General’s case, namely, that there is no basis to support continued oversight,” they huffed.

In reality, the court invited the state and the defendants to submit lists of candidates to serve as monitor, and Judge Jones was the only name which appeared on both lists. Indeed, Judge Jones is the go-to special master candidate for everybody, which is why she wound up doing the document review for both Michael Cohen and Rudi Giuliani. Brass tacks: Judge Jones can bill every hour until the end of time, with or without Donald Trump, and she doesn’t need this gig.

Trump went on to howl that Jones had turned up nothing more than “minor and immaterial discrepancies and simple math errors (i.e., millions paid so the Monitor can ‘uncover’ seven (7) immaterial disclosure items, three (3) irrelevant inconsistencies and five (5) clerical errors).”

Some of these “minor” errors amounted to more than a million dollars, but, in the event, the monitor’s report only served to confirmed what Justice Engoron has been saying all along.

“The Trump Organization does not have the ability to operate with a functional financial reporting structure that would protect against fraud in the future,” he wrote, as he barred the Trump family from serving as officers in their own company, mandated the appointment of a controller, and enhanced Judge Jones’s authority. “The fact that there are virtually no internal controls in place at the Trump Organization, creates an atmosphere conducive to fraud.”

But buried in a footnote in the monitor’s status letter was the second unnoticed BFD, flagged immediately by The Daily Beast’s Roger Sollenberger. It’s a little Easter egg for longtime Trump watchers, who have wondered for years about financing for the Trump Tower in Chicago.

The Windy City project was doomed from the start, thanks in part to a spectacularly terrible layout, and by 2008 Trump was in litigation with his lenders. He actually sued Deutsche Bank, claiming that the housing bubble was either an act of God or of DB itself, and thus he was off the hook for the $600 million he owed. Which is crazy — but not as crazy as the fact that DB continued to lend him money for another 15 years.

In 2012, Trump persuaded Fortress Credit Corporation to accept $48 million to pay off the note it had made to finance the Chicago project. The loan balance was somewhere in the neighborhood of $100 million, so Fortress took a roughly $52 million haircut. In theory, Trump and his company should have picked up the loan forgiveness as cancellation-of-indebtedness income and paid taxes on it. There’s no evidence that they did, though, and they very clearly asserted their Fifth Amendment right not to answer the NY Attorney General’s questions about it ten years later.

But when he was president, Trump was forced to fill out annual financial disclosures listing his debts and assets. In them, he reported to the Office of Government Ethics (OGE) that he was owed more than $50 million by Chicago Unit Acquisition LLC, an entity associated with the Trump Tower Chicago project which appeared to have no assets or any obvious purpose other than to owe Trump money.

“We don’t assess any value to it because we don’t care,” Trump told the New York Times in 2016. “I have the mortgage. That is all there is. Very simple. I am the bank.”

As Mother Jones’s Russ Choma reported in 2019, the whole thing smelled like a paper transaction concocted to cover up the imputed income from the forgiven Fortress loan by suggesting that Trump had somehow taken over a portion of the company’s debt, converting it into a mortgage he owned personally.

To be clear: Trump didn’t buy his debt from Fortress. The lender wrote it off. So if Trump did create a sham loan to himself to avoid picking up the taxes, he wouldn’t even have a fig leaf to cover himself with.

Which is why people who’ve been on this beat a long time were very interested in Footnote 6 in Jones’s status report:

Of particular note, I discussed the springing loan previously disclosed as being between Donald J. Trump individually and Chicago Unit Acquisition (an entity related to the Trump Chicago Tower) with the Trump Organization several times. When I inquired about this loan, I was informed that there are no loan agreements that memorialize the loan, but that it was a loan that was believed to be between Donald J. Trump, individually, and Chicago Unit Acquisition for $48 million. However, in recent discussions with the Trump Organization, it indicated that it has determined that this loan never existed - and thus that it would be removed from any upcoming forms submitted to the Office of Government Ethics and would also be removed from subsequent versions of the MAML.

And just like that, $50 million in paper debt to Trump himself disappeared!

Or did it?

In their nastygram protesting Jones’s report, his lawyers called this a “demonstrable falsehood.”

“The Trump entities of course never said the loan did not exist,” they fumed. “Rather, they provided a copy of an internal memorandum reflecting simply that ‘no liabilities or obligations are outstanding’ under the loan at that time. See Exh. G. The Monitor’s deliberate mischaracterization casts further doubt on her competency and veracity.”

Here’s Exhibit G, in its entirety.

Clear as mud!

See, it was a $50 million debt which existed, but not on paper, except when Trump said it under penalty of perjury in his financial disclosure. And, it doesn’t exist now, because it got paid off, or possibly because Trump canceled it with the power of his mind. Anyway, it’s all on the up and up, just trust us, okay?

LOL.