In most civil litigation, the party commencing the litigation (plaintiff) must suffer some injury and seeks to hold the party sued (defendant) responsible or liable for its injury. A plaintiff asserts a variety of different claims for relief or causes of action to hold a defendant liable for plaintiff’s harm.
New York Attorney General Letitia James (AG) is the plaintiff in the lawsuit pending in the New York Supreme Court, County of New York, over which Judge Engoron in presiding.
In a press release issued by the AG on the same date she commenced action, she described the matter as a “lawsuit against Donald Trump, the Trump Organization, senior management, and involved entities for engaging in years of financial fraud to obtain a host of economic benefits.” A copy of that press release can be found here.
The AG alleged that defendants falsely inflated Trump’s “net worth by billions of dollars to induce banks to lend money to the Trump Organization on more favorable terms than would otherwise have been available to the company, to satisfy continuing loan covenants, to induce insurers to provide insurance coverage for higher limits and at lower premiums, and to gain tax benefits, among other things.”
None of the financial institutions that loaned money or provided insurance to former president Trump, his sons, or any of their enterprises is a plaintiff in the lawsuit.
The AG is acting pursuant to her authority under New York Executive Law 63(12). This statute empowers the AG to civilly sue those who engage in “persistent and repeated fraud and illegality”. It confers standing on the AG, notwithstanding that neither the AG or New York State are victims of the alleged fraud.
The AG accused defendants of “violating other state laws prohibiting the submission of false financial statements, the falsification of business records, and the commission of insurance fraud.”
Both the Trump defendants and many critics have asserted that the case is comparable to a crime without a victim since the banks and insurance companies have not complained of any harm resulting from the allegedly fraudulent representations made in defendants’ financial statements.
Defendants have also asserted that the institutions did not rely on the financial statements to their detriment since they are aware that such statements are often exaggerated and that the institutions undertake their own diligence before extending credit.
Prior to the trial, Justice Engoron granted partial summary judgment against defendants on one claim for persistent violations of Section 63(12) of New York’s Executive Law.
Defendants attacked the AG’s standing to bring the lawsuit on summary judgment. In his summary judgment decision, Judge Engoron noted that Section 63(12) does not require the AG to demonstrate that any party suffered financial losses or that defendants acted with intent to defraud.
This is not the first time that the AG has exercised its authority under Executive Law Section 63(12) or that Trump has been a target under that authority. Former AG Eric Schneiderman sued Trump University under the statute. That lawsuit resulted in a $25 million settlement in 2018.
An executive from Deutsche Bank testified on November 29, 2023 that “[w]e are expected to conduct some due diligence and verify the information provided, to the extent that is possible”. Institutions often adjust the values downward for purposes of conservatively assessing the creditworthiness of any borrower.
Predicated on this testimony, defendants’ moved for a directed verdict dismissing the lawsuit.
In earlier filings, the AG contended that the bank’s performance of their own diligence is not a defense and that she is not required to demonstrate that the fraud in the financial statements harmed the banks.
Justice Engoron stated, “[t]he mere fact that the lenders were happy, doesn’t mean that the statute wasn’t violated” and took the motion for directed verdict under advisement, suggesting it will be denied.