Trump May Face Harsh Financial Penalties in Fraud Trial Under a New York Law


When a New York judge delivers a final ruling in Donald J. Trump’s civil fraud trial as soon as Friday, the former president could face hundreds of millions in penalties and new restrictions on his family business.

That 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 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.

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 does 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) requires 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.

The attorney general is seeking to recover about $370 million from Mr. Trump and his company, a potentially crushing amount. Of that total, $168 million represents the sum that Mr. Trump saved on loans by inflating his worth, she argues. In other words, the extra interest the lenders missed.

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

The law also empowers Justice Engoron to set new restrictions on Mr. Trump and his family business, all of which he is expected to appeal. Ms. James is seeking a lifetime prohibition on Mr. Trump serving as a leader of any company based in New York, including his own. She also wants the judge to prevent the company, known as the Trump Organization, from obtaining loans from New York banks for five years.

Ms. James did not spare Mr. Trump’s adult sons. She asked Justice Engoron to bar them from running a New York company for five years, raising the prospect that a Trump might not be running the family business.

The law allows other creative — and potentially bruising — punishments, including the cancellation of business certificates that companies use to operate in New York. Justice Engoron did that in his pretrial order, though he also went a step further, ordering that some of Mr. Trump’s New York operations be dissolved entirely.

Legal experts have questioned his ability to do so, and Justice Engoron could adjust that order.

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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