Trump’s Civil Fraud Trial Penalty Was Made Possible by This New York Law

Trump’s Civil Fraud Trial Penalty Was Made Possible by This New York Law


The $355 million penalty that a New York judge ordered Donald J. Trump to pay in his civil fraud trial might seem steep in a case with no victim calling for redress and no star witness pointing the finger at Mr. Trump. But a little-known 70-year-old state law made the punishment possible.

The law, often referred to by its shorthand, 63(12), which stems from its place in New York’s rule book, is a regulatory bazooka for the state’s attorney general, Letitia James. Her office has used it to aim at a wide range of corporate giants: the oil company Exxon Mobil, the tobacco brand Juul and the pharma executive Martin Shkreli.

On Friday, the law enabled Ms. James to win an enormous victory against Mr. Trump. Along with the financial penalty, the judge barred Mr. Trump from running a business in New York for three years. His adult sons were barred for two years.

The judge also ordered a monitor, Barbara Jones, to assume more power over Mr. Trump’s company, and asked her to appoint an independent executive to report to her from within the company.

A lawyer for Mr. Trump, Christopher M. Kise, reacted with fury, saying “the sobering future consequences of this tyrannical abuse of power do not just impact President Trump.”

“When a court willingly allows a reckless government official to meddle in the lawful, private and profitable affairs of any citizen based on political bias, America’s economic prosperity and way of life are at extreme risk of extinction,” he said.

In the Trump case, Ms. James accused the former president of inflating his net worth to obtain favorable loans and other financial benefits. Mr. Trump, she argued, defrauded his lenders and in doing so, undermined the integrity of New York’s business world.

Mr. Trump’s conduct “distorts the market,” Kevin Wallace, a lawyer for Ms. James’s office, said during closing arguments in the civil fraud trial.

“It prices out honest borrowers and can lead to more catastrophic results,” Mr. Wallace said, adding, “That’s why it’s important for the court to take the steps to protect the marketplace to prevent this from happening again.”

Yet the victims — the bankers who lent to Mr. Trump — testified that they were thrilled to have him as a client. And while a parade of witnesses echoed Ms. James’s claim that the former president’s annual financial statements were works of fiction, none offered evidence showing that Mr. Trump explicitly intended to fool the banks.

That might seem unusual, but under 63(12), such evidence was not necessary to find fraud.

The law did not require the attorney general to show that Mr. Trump had intended to defraud anyone or that his actions resulted in financial loss.

“This law packs a wallop,” said Steven M. Cohen, a former federal prosecutor and top official in the attorney general’s office, noting that it did not require the attorney general to show that anyone had been harmed.

With that low bar, Justice Arthur F. Engoron, the judge presiding over the case, sided with Ms. James on her core claim before the trial began, finding that Mr. Trump had engaged in a pattern of fraud by exaggerating the value of his assets in statements filed to his lenders.

Ms. James’s burden of proof at the trial was higher: To persuade the judge that Mr. Trump had violated other state laws, she had to convince him that the former president acted with intent. And some of the evidence helped her cause: Two of Mr. Trump’s former employees testified that he had final sign-off on the financial statements, and Mr. Trump admitted on the witness stand that he had a role in drafting them.

Still, her ability to extract further punishments based on those other violations is also a product of 63(12), which grants the attorney general the right to pursue those who engage in “repeated fraudulent or illegal acts.”

In other fraud cases, authorities must persuade a judge or jury that someone was in fact defrauded. But 63(12) required Ms. James only to show that conduct was deceptive or created “an atmosphere conducive to fraud.” Past cases suggest that the word “fraud” itself is effectively a synonym for dishonest conduct, the attorney general argued in her lawsuit.

Once the attorney general has convinced a judge or jury that a defendant has acted deceptively, the punishment can be severe. The law allows Ms. James to seek the forfeit of money obtained through fraud.

Of the roughly $355 million that Mr. Trump was ordered to pay, $168 million represents the sum that Mr. Trump saved on loans by inflating his worth, she argued. In other words, the extra interest the lenders missed.

The penalty was in the judge’s hands — there was no jury — and 63(12) gave him wide discretion.

The law also empowered Justice Engoron to set new restrictions on Mr. Trump and his family business, all of which Mr. Trump is expected to appeal.

The judge also ordered a monitor to assume more power over Mr. Trump’s company, who will appoint an independent executive who will report to the monitor from within the company.

Even before she filed her lawsuit against the Trumps in 2022, Ms. James used 63(12) as a cudgel to aid her investigation.

The law grants the attorney general’s office something akin to prosecutorial investigative power. In most civil cases, a person or entity planning to sue cannot collect documents or conduct interviews until after the lawsuit is filed. But 63(12) allows the attorney general to do a substantive investigation before deciding whether to sue, settle or abandon a case. In the case against Mr. Trump, the investigation proceeded for nearly three years before a lawsuit was filed.

The case is not Mr. Trump’s first brush with 63(12). Ms. James’s predecessors used it in actions against Trump University, his for-profit education venture, which paid millions of dollars to resolve the case.

The law became so important to Ms. James’s civil fraud case that it caught the attention of Mr. Trump, who lamented the sweeping authority it afforded the attorney general and falsely claimed that her office rarely used it.

He wrote on social media last year that 63(12) was “VERY UNFAIR.”

William K. Rashbaum contributed reporting.



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