Donald Trump’s New York City fraud trial has raised an important legal issue regarding Judge Engoron’s fairness in judging the case. We know that Donald Trump attacked Judge Engoron’s clerk for her political activism. It is rarely productive to attack staff in a trial but one can be honest enough to acknowledge that a judge picks his/her staff and Judge Engoron’s clerk’s political activism may reflect his own views as well.
More disturbing is the fact that Judge Arthur Engoron relied upon a tax appraisal as the basis for valuing Mar-a-Lago. Now the judge contests the claim that a tax appraisal was the basis for his determination of fraud against Trump. The New York Post reported the court saying ““Please, press, stop saying that I valued it at $18 million”. But New York Attorney General Letitia James introduced that evidence so at least in part it contributed to his decision that Donald Trump, the Trump Organization, Eric Trump and Donald Trump Jr. overvalued the asset.
Why consider a tax assessment at all? That is the question. In general when an attorney presents evidence of the value of commercial property the starting point is income. The property value relies on property’s net operating income from prior years and projected going forward. A value for that free cash flow is calculated. In other words if Mar-a-Lago generates $ 10 million a year in profit after all expenses, what would I pay to how that $ 10 million a year income? Add to that the prestige of the name, future repair costs (a negative) and future increases in income and on that you have some valuation. The tax assessment means little and most often relates to the initial purchase price with adjustments that are usually not based on cash flow. Direct income from a property may under estimate value if the property generates income from related activities e.g. golf tournaments which provide cash flow to separate entities, management agreements and other calculations not reflected in tax assessments.
The other legal issues are:
- What is fraud if Trump provided accurate cash flow numbers. Shouldn’t the loan makers do their own value assessment?
- What harm was done? Did anyone NOT get paid? (Did they loan at better rates than if the valuations were more spot on?)
As trial lawyers, our group, Lawyers in Lafayette have top business professionals as part of our full time legal team. We have an MBA, RIA and real estate broker on our legal team. Our outside consultants are the best in the business. If a judge made a reference to a tax assessment in a case that we handled, we would be prepared to object immediately to the assessment but in truth, the evidence never should have made it on the record.
If you have a complex business case, call Lawyers in Lafayette at (925) 291-5388
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