Why You Should Pay Attention to Trump's Civil Fraud Case
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This is On The Media's Midweek Podcast. I'm Michael Loewentjer.

Another week, another Donald Trump case. Former U.S. President Donald Trump has returned to court in New York for the second day of a multimillion-dollar civil fraud trial. Trump, his two sons, and the Trump Organization are accused of using false financial statements and inflating their net worth by billions of dollars.

In addition to this civil case, Trump is facing four criminal indictments. The January 6th insurrection case in D.C., the Stormy Daniels hush money case in New York, the classified documents case in Florida, and the political interference case in Georgia.

It's a lot to keep track of, but for now at least, all eyes are on the downtown Manhattan courtroom. Because if New York State Attorney General Letitia James is successful, this civil trial could result in Trump losing control of his businesses and his most valuable assets, like Trump Tower. Russ Buettner is a reporter on the New York Times investigation desk, the team that hunted down Trump's tax returns and other elusive financial documents.

I called Russ to learn about what Trump's history of fraud means for his future, the revelations of the trial so far, and what details have gotten lost in the deluge of coverage.

Before even the trial began, the judge decided that he had seen enough in the motion practice and the testimony that had come before him in written form to determine that the Trumps committed persistent and repeated fraud during the course of this period of time that's covered. That sort of burden of proof had been met in that. So there is fraud. That's settled.

What exactly then will they be determining at the trial? The big part of it will be determining the damages that will have to be paid. The attorney general has asked for fines estimated to be at $250 million, could be more, could be less, to try to determine the financial benefit that went to the Trump organization and the Trump family in committing these frauds that they allege in that case.

Can you give an example of like one of the properties and the particular maneuvers that Trump and his organization allegedly went through to exaggerate its value? One that's very clear is what he did to value his residence in Trump Tower. He has a large apartment there.

He took a very optimistic per square foot rate, saying his apartment was 30,000 square feet. Well, in actuality, his apartment is 10,000 square feet. So he just inflated it by three times. How did he think he was going to get away with that? That's just such an outrageous lie. It

It is outrageous, and it's so obvious on the face. Even his defense attorney, in the course of the pretrial hearings, acknowledged they had no defense for that. That was not a right thing to do. This is all really important because he's trying to get the banks, in a lot of cases, to give him these loans on a personal guarantee, just saying, I'm Donald Trump, I'm rich, I'm good for the money. And this is interesting because in public, his defense says,

is that no one was harmed by this. As it turns out, in New York, the question of financial harm doesn't really factor into this type of culpability. Is that right? That's correct. It's not a component of this at all. A fraud is a fraud. I'm also not really sure that the banks would say they weren't harmed. I mean, if a bank issuing a $140 million loan, which had happened in one case, my

might have charged him, if they were presented with truthful information, an interest rate of 8%. And instead, based on the representations he made, charged him 6%. The bank most certainly lost a lot of money on that. But again, as you said, that's not a component of this. It's not important. And the judge made that very clear.

So how widespread was this kind of fraud? Do we know? Look, I mean, the examples are numerous. There's also a pattern here where he is paying for appraisals of a property. They give him one number and then he presents another number to the banks. And one example for 40 Wall Street, the office building he owns in lower Manhattan.

He had appraisals that he had paid for that came back valued at $200 million, $220 million. But when he submitted his statements of financial condition to the banks, he said it was worth $525 million and then later $735 million. So that's how the attorney general gets to fraud. He has actual documents that he's paid to obtain that show a low figure. And then he multiplies that by two or three when he gives it to the bank.

There are also numerous cases where he knows that there are restrictions on what he can do with a property. Mar-a-Lago, for example. Decades ago, in order to hang on to Mar-a-Lago in a way that he could afford to do it,

He said he would never use it for anything other than a club. Well, that greatly diminishes its value on the open market. But when he submits a value to the banks, he doesn't say that. And he values it at 600, $700 million, pretending that anything can be done to that property. And it's just the same as any other Palm Beach property that you could tear it down, build something by the ocean with a beautiful view. And that's just not the case.

And recently in court, Trump has said that it's worth a billion dollars. You know, the math on that just doesn't work out. Didn't he say that he got some expert who says he could sell Mar-a-Lago to like an emperor or a king or even Elon Musk and that that's why it's worth a billion dollars? That's exactly right. He just pulled those identifiable people out of a hat.

when there was questions asked to try to probe what the substance of that was, there wasn't any there there. He hadn't done any financial analysis. He hadn't done any kind of market study. He just felt confident that that could happen. And the judge dismissed that as like an unsubstantiated fantasy, I think are the words that he used.

Now, you've been reporting on Trump's wealth for years, and you contributed to some intricate investigations into the former president's financial records. You had two big pieces I'm thinking of in 2018 and in 2020 in The New York Times. The

The first article from 2018 found that Trump used fraudulent tax maneuvers and what you described as sham corporations to increase the money he could funnel from his father's real estate empire into his own coffers. So what did you learn? Well, there was a...

time-honored tradition in the family of trying to Mickey Mouse around with financial statements. I don't think Fred Trump, Donald Trump's father, ever did anything quite like what we're talking about here on his own. But as his then-grown children started trying to take his estate away from him, suddenly some really unique and fraudulent devices showed up. One of them was a thing called "all-county building supply."

Fred Trump was making so much money, in some cases $50 million a year, that his businesses were just flooded with cash. And he hadn't set up any trust funds at that point for his children. This was now in the early 1990s. If he had passed away without a trust fund, all of that money would have been hit by an estate tax that was at the time 55%. So what they decided to do was they created a shell corporation and the children owned that shell corporation in equal shares.

where Fred Trump had been buying goods and services, everything from window cleaner to boilers and HVAC systems directly. Now, all county would buy it. And then all county would add 20 to 25 percent on to each invoice and bill Fred Trump for that with that extra pad built in. And the kids would split that extra pad.

And that, some years, was totaling up to more than a million dollars for each of his then four surviving children. Again, faced with that problem that Fred Trump had so much cash and no real trust to deal with it, they gave away a building one year as a charity. There were a lot of black residents living there, right?

There were. In fact, he had been since the 70s funneling African-American residents to this one building. And his records show it was the worst maintained building they had in their portfolio. And that's ugly enough. But then they gave the building away and they said it was worth, I think, $32 or $35 million. It was clear from work we did that it was worth about $15 million optimistically.

But they used that $32 million number as a tax write-off on Fred Trump's tax return to lower his taxes and maintain their inheritance. And then when they shifted the whole empire to Donald Trump and his siblings,

They did that through a trust fund after Fred Trump had been overtaken by Alzheimer's, and they really undervalued the properties. Trump Village, his biggest, grandest apartment complex towards the end of his career, they valued it almost worthless. And then sold it a few years later. The buyer obtained mortgages that showed the banks believed it was worth a billion dollars.

undervaluing assets in one scenario, overvaluing them in another. That's a pretty time-tested maneuver in Donald Trump's life. Because of the power of the state AG's office, surely they have access to way more financial information in this civil case than you did when you were reporting on some of his tax returns in your 2020 investigation. Can you tell us a little bit about what you uncovered about Donald Trump and how he got away with paying so

so little in federal taxes? - The pattern of practice that we saw in how his business world operates is unique to him. And that's for a couple of reasons. One is that in spite of creating this image that he's a self-made man and that his father just gave him what he calls a small loan of a million dollars.

He received in today's money about a half a billion dollars from his father over the course of his life. That's real money and you can lose a lot and still be rich with that kind of a start. His first effort at forming his own businesses are all petering out in the 1990s.

He tries to put things back together. He's burning through his inheritance a little bit. And all of a sudden, an up-and-coming revolutionary television producer named Mark Burnett shows up on his doorstep and wants to make Donald Trump the center of his latest television show, which he's going to call The Apprentice. Well, that creates a whole separate windfall for Donald Trump outside of any business expertise at all. He would go on to make about $220 million just being the star of the show,

And then he would make another $200-plus million from celebrity endorsement deals. So just by then, he's already got a billion dollars, the equivalent of today. And so by the 2000 teens, he's getting into a situation where he's still making a lot of money from The Apprentice, a lot of money from endorsement deals.

And he's using that money to prop up businesses that are losing money. So he has all these things that are demanding money. And we see the money moving from this easy entertainment and inheritance fortune into filling in holes on these other businesses while he's maintaining that he's this incredibly successful guy who built this empire all on his own.

Also, really, we see towards the end of that period, when he gets close to running for office, the apprentice money is drying up, the celebrity endorsement money is drying up, and he's running out of extra cash to prop up these other businesses. I think that's why this might feel like such an existential threat to him. This civil lawsuit in particular? This civil lawsuit in particular. In that 2020 investigation, looking at some of his tax records, did you have any observations

aha moments where something unclear about Donald Trump you could kind of see with clarity for the first time.

When he had talked for so long about being under audit and he couldn't release his tax returns like most presidential candidates because he was under audit. That's a bit of a red herring. There's nothing that precludes someone under audit from releasing their tax returns to anyone. Yeah, the IRS was like, release the tax returns. We don't really care. And it wouldn't even negatively affect the outcome of an audit necessarily. Right.

In the records that we obtained, we were able to see what that audit was. It was a very aggressive maneuver. He had not paid income taxes in the last 20 years, except for the first three years of The Apprentice, because he had this flush of cash. He didn't have business losses for the first time, big enough to take his taxable income below zero. So he paid a little bit of income tax for those three years. Well, then in 2010, I believe,

He swore off his casino investment, and he used that to say, I deserve back as a refund all of the income tax I paid in 2004, 5, and 6, which was $70 million. Right.

And the IRS policy on those sort of things is to essentially give the benefit of the doubt to the taxpayer, in this case, the no taxpayer. So they gave him a refund for that money, $70 million, plus almost $3 million in interest. And that automatically starts an audit. Well, that's the audit that had remained open. And as far as we know, it was still open through last year. So it's not just an audit. It's an audit that with penalties, you

If the decision went against him and he had to give that refund back with penalties and interest, it would easily be well over $100 million today. If I remember correctly from your reporting, Michael Cohen would later discuss it in one of his depositions that Trump had said something allegedly like, I can't believe the government is so stupid. They would give me all this money back.

To give me this refund, I believe was the quote. I can't believe the IRS is so stupid they would give me this refund. It's a fair point. When you spend so many years studying the tax code deeply and looking at case study after case study of some of this craven behavior, what have you learned in general about the vulnerabilities of our laws that allow the ultra wealthy to get away without paying their fair share?

Donald Trump files about 500 tax returns a year, each for a separate entity that owns part or all of one particular business or revenue stream. The IRS, we've learned, has never audited in any single year all of those.

The best that they've done is that they've tried to find one or two entities that if they audited them and came to a conclusion that there had been a wrongful return filed, that the amount would be big enough to warrant doing that, that it would materially change his tax position. And Donald Trump has abused that lack of threat throughout his life. And that's something that pertains to most wealthy people, especially people who own their own businesses through partnerships.

that they just never really get looked at the way most Americans would if they said they were spending, you know, $100 more a month on their home office than they actually were. W-2s are automatically easy to document. And that's something that could really be changed. There's been movements within the IRS and out of the IRS to change the auditing of partnerships and complex corporate structures for a long time. And it's just never really gotten any steam.

When it comes to this civil lawsuit, he's already kind of started drawing from his usual playbook. He's gone after New York Attorney General Letitia James, calling her names, calling the case a witch hunt. When it comes to the political spin around this case and the facts that are emerging, is there anything that we should be wary of as the case unfolds? Look, so far, their representations of the case have been extraordinarily light on the facts.

Their position is that no one was hurt in this, therefore it's not a violation of this statute. The judges said that's not true. Legal experts say that's not true. And that it's all unfair and he's being persecuted because of who he is. On Monday, before Donald Trump entered the courtroom and then again during a break in the proceedings, he said that the judge in this case was a deranged Democratic operative.

And he called the attorney general, who's African American, a racist who's out to get him. We have a racist attorney general who's a horror show who ran on the basis that she was going to get Trump before she even knew anything about me. She used this to run for governor. She failed in her attempt to run for governor. She had virtually no polling.

She came back and she said, well, now I'll go back to get Trump again. And this is what we have. It's a scam. It's a sham. I have to say I've watched thousands of hours of tape of him over the years going back to the 1970s. Usually when he is a little angry, you can kind of see the wheels turning a little bit, that it's a performance. Boy, in these breaks on Monday, he really seemed genuinely angry.

For so long, many of Trump's critics have been waiting for his day of reckoning. Could this civil lawsuit produce a death blow? What's at stake here?

It has the potential to be a death blow. It's really hard to say sitting from where we are right now because we don't know yet what the final judgment would be that this judge comes to about the amount. And then whatever the figure is, it's going to be appealed and will take time.

probably a substantial period of time to litigate. But during that period of time, it appears, unless this changes on appeal, that there will be a receiver appointed to sort of control these businesses, to take them away from Donald Trump. And I would add that the businesses that are in this lawsuit are

actually own almost all other businesses he has. So this is substantially his entire empire, if you will. And that receiver will be looking to protect enough cash to make sure that whatever the judgment is, is available if and when this case is fully adjudicated all the way through. I

I have to tell you, having looked at his tax returns, if you're trying to find $250 million, it's not real easy. And if the receiver should say, look, the only place we can get that kind of money is on the commercial and retail space in Trump Tower. That's been one of the few things that he created, his very first bit of new construction that has consistently generated profit for the family. And if a receiver said that's the one that has to go to pay this,

That would be a catastrophic blow to the family. This case will have a big impact on Donald Trump's finances going forward. Also, his identity. This is how he made his argument to the American people that he should be president of the United States, was that he had such a remarkable career in business. So this case, more than the other ones, hits him where he lives.

The other ones could put his liberties at question. There are cases where there could be prison time. This one, emotionally, I think is an even harder hit for him. Russ, thank you very much. Thank you, Micah. Russ Buechner is a reporter on the Investigations Desk at The New York Times. Thanks for tuning into the Midweek Podcast. On this week's big show, we bring you episode two of our miniseries that we've made in collaboration with ProPublica. It's titled, We Don't Talk About Leonard.

It's an investigation of the machine that conservative activist Leonard Leo has built across the country to swing courts to the right. The new episode drops on Friday. I'm Michael Ellinger.