Trump on trial: Day eight recap — New York court hears how property valuations formed basis of fraud
Cross-examination of Deutsche Bank risk manager Nicholas Haigh continued on Thursday morning with Trump attorney Jesus Suarez questioning him about a 2012 loan of $107m secured by a Trump luxury hotel and condominium building in Chicago and a personal guarantee by Donald Trump.
Suarez kept making the point that the bank would lowball its valuations of Mr Trump’s net worth and assets after its own valuations and analysis of Trump properties and lend in accordance with those figures.
The implication Suarez was trying to get across to Judge Arthur Engoron (as there is no jury) was that Deutsche Bank knew the Trump Organization figures were inflated but still did business with them and therefore was not defrauded.
“Increasing the relationship with President Trump was important to Deutsche Bank’s private wealth management business, wasn’t it?” Suarez asked.
“Yes it was one of the aims of the private wealth management business to increase its relationships with all of its clients,” Haigh said.
Deutsche Bank was by far the biggest creditor to Trump and as of May 2022 the company owed the bank approximately $340m and spent tens of millions of dollars servicing the debt, according to the New York attorney general’s office.
Suarez continued to go through loan after loan and eventually Judge Engoron seemed to get bored and said that the examination was redundant and obvious, and the document says what it says.
“We can all read,” he said, pithily.
Returning to evidence heard yesterday, Suarez points to the reasoning the bank gives for extending credit to Trump other than his alleged net worth — his experience as a developer, his relationship with the bank etc.
He went on to note that there were no issues with repayments or refinancing. Judge Engoron said that that is not in dispute and points to his September summary judgment finding the defendants did defraud lenders but everything was paid on time.
Former Trump Organization CFO Allen Weisselberg then returned to the witness stand for the resumption of his direct examination by Louis Solomon of the New York Attorney General’s Office.
Weisselberg was asked about the Trump partnership with real estate company Vornado in which they hold a 30 per cent stake in two office buildings in New York and San Francisco. Specifically, the prosecution wanted to know how cash is distributed from that partnership as that would affect the company’s liquidity profile.
There is also mention of an email exchange with Eric Trump in which they discuss holding off on paying back a small loan to keep the cash balance healthier on financial statements.
Solomon then brought up Weisselberg’s 2022 guilty plea to several counts of falsifying business records and tax fraud. He served a little over three months in jail and had to pay back taxes and other penalties that came out to be about $2m.
Weisselberg then parted ways with the Trump Organization and signed a severance agreement that stated in part that unless he was subpoenaed, he wouldn’t voluntarily cooperate or communicate with anyone with adverse claims against the company.
“Is it just a coincidence that under this separation agreement, you are being paid two million dollars, almost the exact amount you had to pay [in the criminal case]?” Solomon asked.
“Pure coincidence,” Weisselberg replied.
Court resumed after lunch with the news that Weisselberg would not be retaking the stand [more on this later] but either side may recall him for testimony at some point in the future.
The next witness called was Patrick Birney, Vice President of Financial Operations at the Trump Organization and he was questioned by Eric Haren of the New York Attorney General’s Office.
Birney’s direct superiors at the Trump Organization were Weisselberg and former controller Jeff McConney and he was intimately involved with working on the assessments of Donald Trump’s net worth.
He confirms on the stand that he started helping to prepare Trump’s statements of financial condition around 2016, and continued to do so through until 2021.
After responding to a series of questions regarding appraisal and accounting technicalities that seemed designed to imply he had no formal training with “I don’t think so” and “no”, he then says: “I was not the final decision maker.”
Asked who was, he replied: “Allen Weisselberg.”
He testifies that there could be twenty to thirty drafts of Trump’s net worth statements.
In collating data for these statements each building had to be valued using a “cap rate”. These figures are important as a small change in the rate could result in a huge change in the estimated value of a property.
Dan Alexander of Forbes explained on X: “You take a profitability figure (net operating income) and divide it by a cap rate. The result is the estimated value. So a building that throws off, say, $7M of profit would be worth $7M/.05 = $140M with a ‘5 cap’.”
He continued: “Let’s say you want to make your building look more valuable. If you applied a “3 cap” to $7M of profitability, then suddenly, the building’s estimated value would fly up to $7M / .03 = $233M. A small tweak to an arcane number and–poof–your building looks $93M more valuable.”
These small changes could not only change the value of assets but ultimately the total net worth of Trump.
Birney testified that the process for preparing the statements of financial condition was different in 2020 than in previous years, with more people involved, including lawyers. This is likely because the New York Attorney General’s Office launched its civil investigation into the valuation process and Trump’s wealth in March 2019.
Questioning of Birney closed out day eight of the New York civil fraud trial of Donald Trump on the topic of the former president’s residences.
The court again heard about the change in the reported square footage of the triplex penthouse at Trump Tower with another reference to the Forbes article that revealed the lie about its size.
Prosecutors then turned from the size of the apartment to its value per square foot prompting the defence team to ask about the relevance of this method of pricing. The response was that it is another key variable in the calculation.
Discussion then turned to Mar-a-Lago and the implication that it is valued by the Trump Organization as a private home when in fact it is only allowed to be used as a members club under rules set by Palm Beach authorities. As it is under significant restrictions, unlike a private home — how would you assign a value to that?
Court then adjourned for the day.