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Tuesday Talk*: Was $355 Million Proper?

Put aside Trump’s braggadocio, that he’s so very rich. He is, and he’s not. He’s a whole lot wealthier than me and, likely, you, but there are many who are far more wealthy. And as the case overwhelmingly proved, Trump can’t be trusted when it comes to his own wealth. He lies. A lot.

Put aside that Trump violated New York law by fraudulently inflating the value of his assets on loan applications. He did. A lot.

Put aside that Trump repaid the loans, albeit at reduced interest rates, and no bank suffered a loss of principal and interest, albeit at a lower rate, as a result of Trump’s fraud. The law under which the attorney general sued Trump does not require that any victim be damaged. Rather, only that the business engage in ongoing fraud. Trump’s did. A lot.

But was the amount too high, too low or just right?

On Friday, New York County Supreme Court Justice Engoron ordered Donald Trump to pay a staggering $355 million for repeatedly inflating asset values in statements of financial condition submitted to lenders and insurers. When the interest that Engoron also approved is considered, the total penalty rises to $450 million. All told, Trump and his co-defendants, including three of his children and former Trump Organization CFO Allen Weisselberg, are on the hook for $364 million, or about $464 million with interest.

On its face, a penalty of nearly half a billion dollars is hard to fathom given that no lender or insurer claimed it suffered a financial loss as a result of the transactions at the center of the case, which was brought by New York Attorney General Letitia James. But the law under which James sued Trump and his co-defendants does not require any such loss. The money demanded by Engoron’s 92-page decision, which goes to the state rather than individual claimants, is styled not as damages but as “disgorgement” of “ill-gotten gains.” It aims not to compensate people who were allegedly harmed by Trump’s misrepresentations but to deter dishonesty that threatens “the financial marketplace.”

Deterrence is the primary goal here. That means specific deterrence to stop Trump from continuing to engage in fraud, and general deterrence, to stop other businesses that might be inclined to follow Trump’s path down the fraudulent way. The mechanism of deterrence involves two components: First, disgorgement of ill-gotten gains, as a business cannot enjoy the fruit of its fraud. But second, merely disgorging unlawful gains would put the business back where it should have been had it not engaged in fraud. That’s hardly a deterrent if the worse that can happen is you end up where you would have been had you done business lawfully.

Accordingly, there must be something beyond merely putting a business where it would have been anyway. There must be some incentive not to engage in fraud. There must be some element of punishment. As for the statutory interest on judgments of 9%, that applies to everyone in New York and isn’t a punishment as a judgment debtor can avoid interest if he so chooses by paying the debt.

Whether it’s disgorgement or punishment, how much was the right amount? Granted, neither the notion of deterrence nor conducting business without engaging in fraud seems to apply to Trump. It helps when he can sell NFTs of his head on a body he never did and never will have or high-top sneakers that match his toilet bowl. Or when contributions to his campaign and PAC are used to pay off his personal debts. It’s easier to be rich when other people, poorer people, pay your bills.

But despite all of this, it’s not at all clear that Trump’s misrepresentations mattered to Deutsche Bank, a sophisticated lender that was hardly inclined to trust the valuations provided by putative borrowers and would have loaned money on the same terms regardless.

Did those deviations ultimately matter in the decisions that lenders and insurers made? Engoron’s summary provides reason to doubt that they did. Deutsche Bank, he notes, routinely “applied a 50% ‘haircut’ to the valuations presented by” clients, which a witness “affirmed was the standardized number for commercial real assets.” A defense witness opined that lenders generally just want to see “the engagement of a warm body of a billionaire to stand behind the loan in his equity infusion and capital.”

The question, then, isn’t whether you feel Trump is a lying, sniveling worm or a brave he-man with unfortunate bone spurs, but whether the judgment of $355 million was arguably appropriate or an outrageous excess imposed because Trump was, well, Trump?

*Tuesday Talk rules apply.

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