Trump Ordered His Companies to Fight Criminal Tax Fraud Case

Greg Farrell and Patricia Hurtado
·6 min read
803
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

(Bloomberg) -- The criminal tax fraud case against a pair of Trump Organization companies playing out in a Manhattan courtroom this month went all the way to trial because of one man: Donald Trump.

Most Read from Bloomberg

Companies under criminal investigation often cut deals to lessen or avoid prosecution in exchange for paying a penalty and changing their conduct. But because the two Trump business units would have had to say their employees knowingly committed tax fraud, the boss wouldn’t let them strike a plea deal with prosecutors, according to a person familiar with the decision who asked not to be named discussing a private matter.

The Manhattan district attorney’s office alleges the two Trump companies ran a tax evasion scheme for more than a decade, showering executives including longtime chief financial officer Allen Weisselberg with perks -- like luxury apartments and private school tuition -- as compensation hidden from the government.

Read More: Star Witness Against Trump Firm Testifies They Cheated Together

The defense says Weisselberg went rogue and the companies didn’t benefit from his acts. Trump, who isn’t charged, has called the case a baseless vendetta.

In opting to fight it out, the Trump companies risk conviction on the strongest charges the DA’s office could muster -- and the public airing of the Trump Organization’s inner workings in open court. And Trump runs those risks even as he runs for president, having entered the race on Tuesday.

But rolling the dice on a trial holds the possibility of a triumphant acquittal, an attractive prospect for the self-described fighter who calls the probes facing him and his business political maneuvers. The case is being prosecuted jointly by Manhattan District Attorney Alvin Bragg and New York Attorney General Letitia James. Trump, the Republican Party’s most powerful figure, has branded it as “another witch hunt” by James, who like Bragg is a Democrat.

The financial penalty the court could impose if the DA wins a guilty verdict is only about $1.6 million -- the sum of the various fines attached to the different counts the defendant companies face, including conspiracy and tax fraud.

Trump spokesperson Taylor Budowich didn’t respond to a text and phone call seeking comment on the case. Trump Organization lawyer Alan Garten didn’t respond to an email. A spokesperson for Bragg had no comment.

Risky Move

Still, trial by jury is always a gamble. If the two companies, Trump Corp. and Trump Payroll Corp., are convicted, it could set off a cascade of consequences.

“This is no small potatoes prosecution,” given the claim that the defendants have flouted the law for years, said Bennett Gershman, a professor at Pace University’s law school. If they are found guilty, he said, the Trump Organization itself could face “a host of intangibles.”

“The parent company, as a felon, could be barred from having contracts with government agencies,” Gershman said, “and it could make it more difficult to do business with banks.”

“This is a big deal,” he said.

If the jury does return a guilty verdict, the Trump Organization is likely to argue that it can’t be held criminally accountable, as a whole, for the acts of the two subsidiaries.

And the fallout of a conviction might not be so severe, said Daniel R. Alonso, who was a chief assistant in the Manhattan DA’s office and is now a partner at Buckley LLP. State law is weak in holding corporations criminally accountable, Alonso said.

Some convicted companies have been sentenced to meet a “conditional discharge,” a series of requirements such as cleaning up compliance programs or accepting the imposition of a court-appointed monitor, Alonso said.

Read More: Trump Knew of Alleged Tax Scam, Controller Says CFO Told Him

Trump has a decades-long history of legal combat. He began fighting the case when the DA’s office issued a subpoena for his tax returns in 2019, and fought that information demand right up to the US Supreme Court, where he lost.

Graver Threats

The case has changed substantially since Bragg inherited it from his predecessor, Cyrus Vance Jr. The two lead prosecutors in the matter were planning to secure an indictment against Trump himself early this year. Bragg didn’t believe they had a strong enough case against the former president. The two prosecutors resigned.

Graver threats hover over Trump. Aside from criminal probes over the Mar-a-Lago papers and efforts to overturn the 2020 election, the trial comes amid a $250 million civil suit against the Trump Organization by James. The AG claims Trump and three of his children inflated the value of the firm’s assets and is seeking penalties including a permanent ban on the four running companies in the state.

As for reputation, marketing expert Allen Adamson sees no disadvantage to Trump’s doing battle in front of a jury in Bragg’s case. Quite the contrary.

“It’s strengthening his brand to go through with the trial -- win, lose or draw,” Adamson said. “There’s no downside to fighting. Even if he loses, he pays a small fine, versus being put in an orange jumpsuit.” Considering the larger legal threat Trump might have faced over the alleged activity, he said, “this is not even a blip.”

Loyalty to Trump

One unusual aspect of the trial is the loyalty that some prosecution witnesses may feel to the Trump Organization. Weisselberg, the DA’s star witness, pleaded guilty in August and agreed to testify truthfully in exchange for serving as few as 100 days in jail. But he is still drawing his full $640,000 salary and has worked for the family since 1973, starting with Trump’s father, Fred Trump.

Prosecutors found their first witness, Trump Organization Controller Jeffrey McConney, so evasive that they sought to have him declared a hostile witness. In a dramatic day in court Monday, the judge granted that request, giving them more latitude in questioning him.

Weisselberg’s testimony so far has been the highlight of the trial.

Questioned by prosecutor Susan Hoffinger, Weisselberg confirmed that he had defrauded tax authorities by hiding $1.7 million in income, and he said his crimes benefited himself and the Trump companies on trial.

Under an aggressive cross-examination by Trump Payroll lawyer Alan Futerfas, Weisselberg admitted tearfully that he had let down the Trump family, who had employed him for almost 50 years and had not conspired in any way with Donald Trump or his sons Eric and Don Jr.

Still, while being questioned by Hoffinger on Friday, Weisselberg told jurors the Trump companies had benefited from his misconduct. When it was his turn, Futerfas hammered at the former Trump CFO, insisting that the fraud had benefited Weisselberg alone. Futerfas argued the savings to the Trump companies -- in unpaid payroll tax of 1.45% on the $1.7 million he hid from tax authorities -- was minimal.

“Do you agree that 1.45% of $1.7 million is $24,650?” Futerfas asked.

“I’m not calculating it but if you did, I’d say it’s correct, yes,” said Weisselberg.

The case is People v. Trump Organization, 01473-2021, New York State Supreme Court (Manhattan).

Read More

  • Trump CFO Got Demotion, ‘Small Birthday Cake’ After His Plea

  • Trump Perks for Weisselbergs Included Free Rent, Tax Preparer

  • Trump Firm’s Tax Fraud Trial Promises Ex-CFO as Star Witness

(Updates with Weisselberg’s testimony.)

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.