A Manhattan judge on Tuesday found Trump and his real-estate company liable for fraud.
The judge ordered Trump Organization’s New York corporate charters revoked immediately.
A receiver will be appointed to ‘dissolve’ the company – but years of appeals may play out first.
Experts are calling it the “corporate death penalty.” And what happens next is unchartered territory.
In a stunning decision on Tuesday, a Manhattan judge found that Donald Trump committed widespread, longstanding and ongoing fraud at the Trump Organization, and ordered what experts in New York financial crimes say amounts to the dissolution of his company.
The penalty, awarded on behalf of New York attorney general Letitia James, is so extreme, that Trump may fight James and the judge for years before anything actually happens.
And the penalty is so rare, that the only previous time it’s been attempted on such a grand scale – when James sought the corporate death penalty in her three-year-old, ongoing fraud lawsuit against the NRA – has failed.
“It’s a staggering judgement,” said John Moscow, a former financial crimes prosecutor for the Manhattan district attorney’s office.
“It means you are no longer a company, and the judge is appointing someone to take over the assets and distribute them as the court sees fit.”
The ruling by New York Supreme Court Justice Arthur Engoron spends more some 35 pages describing Trump’s frauds, and disassembling his lawyers’ arguments. Then it yanks the corporate charter in two short paragraphs.
The first paragraph orders the immediate cancellation of any “certificates,” meaning corporate licenses, that are held by Trump, his two adult sons, Trump Organization, and its underlying LLCs.
The second orders that “within 10 days of the date of this order, the parties are directed to recommend the names of no more than three potential independent receivers to manage the dissolution of the canceled LLCs.”
“The findings of fraud are just so obvious,” said Moscow, senior counsel at Baach Kaufmann Middlemiss.
James has alleged that Trump exaggerated the worth of his assets to banks and insurers by as much as $3.6 million in a single year.
“But how it unfolds, I just don’t know,” Moscow said.
Trump continues to own his buildings, agreed Moscow and another veteran Manhattan financial crimes prosecutor, Diana Florence, now also in private practice.
Florence likens it to losing a driver’s license – it doesn’t change that you own the car, but it changes everything about what you can and can’t do with it.
“Without a corporate charter, you can’t operate as a corporation. You can’t get loans, you can’t apply for a government contract.
“It’s comparable to once a person dies. A dead person can’t sell property. Only the executor of the estate can do that – or in this case, the receiver,” she said.
“Usually, when a corporation goes away, it’s because of bankruptcy,” Florence said.
“This is the same thing, but it’s called a judicial dissolution,” she said. “It’s something that is almost never done. It’s a big mess, actually,” she said.
In theory, the receiver would continue to collect rents, pay taxes, pay the bills and the company salaries until the assets are sold off, with Trump, who is Trump Organization’s sole beneficiary, receiving what’s left over after any debts and liabilities are met, Florence said.
Those debts may include a $250 million judgement the attorney general will seek when the case goes to trial next month.
Can Trump transfer everything to a new, non-New York corporation and keep running things from out of state? Florence thinks not.
“He can’t, because he, Donald Trump, is no longer in charge,” she said.
“The receiver will be in charge, and they are answerable to the court. Trump can’t tell the receiver what to do,” she said.
Still, “I think nothing will happen for a long time. It’ll be years, I think,” she said.
But if the court has its way, and the ruling survives the inevitable appeals, “Trump will ultimately get the cash,” she said, though “he could try to bid on the properties like anybody else.”
Lawyers for Trump and the attorney general are back before the judge Wednesday for a final pre-trial hearing.
Read the original article on Business Insider