Before indicting a case, prosecutors prepare a prosecution memo (or “pros memo”) that lays out admissible evidence, possible charges, and legal issues. This document provides a basis for prosecutors and their supervisors to assess whether the case meets the standard set forth in the Federal Principles of Prosecution, which permit prosecution only when there is sufficient evidence to obtain and sustain a conviction. Before a decision is made about bringing charges against Trump (and co-conspirators, if any), prosecutors will prepare such a memo.

There is sufficient evidence to obtain and sustain a conviction here, if the information gleaned from government filings and statements and voluminous public reporting is accurate. Indeed, the DOJ is likely now, or shortly will be, internally circulating a pros memo of its own saying so. That DOJ memo will, however, be highly confidential, in part because it will contain information derived through the grand jury and attorney work product. Since it will not be publicly available, we offer this analysis. Ours is likely more detailed than what DOJ will prepare internally for explanatory purposes. But, given the gravity of the issues here, our memo provides a sense of how prosecutors will assemble and evaluate the considerations that they must assess before making a prosecution decision.

Our memo analyzes six federal crimes in depth:

Mishandling of Government Documents
1. Retention of National Defense Information (18 U.S.C. § 793(e))
2. Concealing Government Records (18 U.S.C. § 2071)
3. Conversion of Government Property (18 U.S.C. § 641)

Obstruction, Contempt, False Information

1. Obstruction of Justice (18 U.S.C. § 1519)
2. Criminal Contempt (18 U.S.C. § 402)
3. False Statements to Federal Investigators (18 U.S.C. § 1001)

In the course of discussing these statutes, we also touch upon others that may have been violated but where the factual predicate for applicability is less clear. For instance, additional charges could be appropriate–under 18 U.S.C. §§ 798 and 793(e) (dissemination)–if the public reporting regarding Trump’s having intentionally disseminated classified material to aides and others is accurate. Additional charges could also potentially be brought under 18 U.S.C. § 1924 if there is sufficient evidence that Trump unlawfully removed classified documents from the White House (see our discussion of DOJ precedents for past prosecutions under § 1924 in Part IV and in the Appendix). Based on the publicly available information to date, a powerful case exists for charging Trump under several federal criminal statutes, which we discuss in detail.

Methodology

In considering prosecution of a former president, we begin with the standard articulated by Attorney General Merrick Garland: “upholding the rule of law means applying the law evenly, without fear or favor.”^[1] In other words, this case must be evaluated for prosecution like any other case with similar evidence would be, without regard to the fact that the case is focused on the conduct of a former president of the United States. This memo accordingly includes a balanced assessment of this particular case, and a thorough review of past DOJ precedents for charging similar cases. Those past cases show that to decline to bring charges against Trump would be treating him far more favorably than other defendants, including those who were charged for less egregious conduct than his. “All Americans are entitled to the evenhanded application of the law,”^[2] Garland has stated, and we are guided by the values underlying those words as well.

This model prosecution memo is, however, limited in an important sense. Throughout the memo, we draw as much as possible on the unusual amount of factual information provided by the Government in its court filings. We do not, however, have visibility into the full volume of information the Justice Department has assembled. That means we could be missing important facts, including exculpatory evidence, that may inform the DOJ’s decision-making process. We may be unaware of admissibility issues with some of the evidence. And equally true, the evidence could be better or more extensive than what is available in the public record.

What’s more, by necessity, we at times rely on news reports from investigative journalists whereas the actual prosecution memo would instead rely on direct evidence the federal investigators have collected. For that reason, we do not reach an unqualified charging decision. Instead, we conclude that there is sufficient evidence to obtain a conviction here, if the Government filings and statements and voluminous public reporting we detail below are accurate. We also note that, based on the reported facts, charges would be strongly warranted based on Department precedent in similar cases.^[3]

The model prosecution memorandum is available below as a SCRIBD file and also as a separate PDF.

Also, to hear more about the memo from some of its co-authors check out the Just Security podcast. A conversation with Andrew Weissmann, Joyce Vance, and Ryan Goodman.

Model Prosecution Memo – Trump Classified Documents Second Edition June 2023 by Just Security on Scribd

– – – – – – –

^[1] Department of Justice, Attorney General Merrick Garland Delivers Remarks (Aug. 11, 2022), https://www.justice.gov/opa/speech/attorney-general-merrick-garland-delivers-remarks.

^[2] Id.

^[3] Two of the authors of this model prosecution memo, Norman Eisen and Fred Wertheimer, were among the counsel for amici supporting DOJ’s position in litigation before the U.S. District Court for the Southern District of Florida, and the U.S. Court of Appeals for the Eleventh Circuit, related to the criminal investigation mentioned in this report. For more information, see https://democracy21.org/category/news-press/press-releases.

 Photo credit: Coolcaesar from Wikimedia Commons

The post Model Prosecution Memo for Trump Classified Documents appeared first on Just Security.

Just last month, a former President Donald Trump was arraigned on an indictment for thirty-four felony false books and records charges in New York. Because those charges are felonies, Manhattan District Attorney Alvin Bragg is required to prove that the falsifications were made with the intent “to commit…aid or conceal” another crime. As expected, Bragg pointed to federal and state campaign finance violations as those possible other crimes.

But a surprise came when Bragg also suggested that tax violations may serve as a basis for this felony “bump-up.” His statement of facts declared that “The participants also took steps that mischaracterized, for tax purposes, the true nature of the payments made in furtherance of the scheme.”

Now that suggestion has been confirmed in his response on May 16 to Trump’s request for a bill of particulars: tax crimes are among the possible crimes Bragg will pursue as a predicate to bump up the charges against the former president.

Commentators have noted the potential power of the tax allegations to help Bragg bolster his case. But, the exact contours of the possible tax crimes were not clear—even with Bragg’s response to Trump’s request for a bill of particulars in hand. In this essay, we assess what potential tax-related crimes may be implicated by Trump’s alleged mischaracterization of the payments. While the campaign finance bases for the charges may well be sufficient, adding tax bases is important and offers advantages for the prosecutors. Tax-related charges could sidestep potential legal challenges related to campaign finance violations including, for example, issues of federal preemption and state statutory interpretation.

As we explain below, Bragg was wise to strengthen the case by also predicating the felony charges against Trump based on his intent to commit (or aid or conceal) crimes involving false statements to tax authorities. Perhaps the strongest case would involve statements to tax authorities falsely characterizing the payments to Michael Cohen as “legal fees,” rather than the payments’ true nature: a series of simple reimbursements for a hush money payment. Doing so caused the payments to be treated as income to Cohen, which in turn precipitated a tax gross-up so that Cohen would be relieved of any tax burden associated with the mischaracterization.Note that the DA would not have to prove that the tax crimes were actually committed, just that the parties intended them and falsified the business records with that initial intention. We explain these theories of the case below. We describe the law governing offenses involving false statements to tax authorities regardless of whether a defendant’s conduct includes an underpayment or other form of evasion of taxes.

We offer this preliminary assessment based on both Bragg’s response to Trump’s request for a bill of particulars and previously available public information. Additional information is likely to develop as the case progresses. We note below where further information would be helpful before reaching any firm conclusion on a matter.

Factual and Procedural Background

The main facts of the case have been known for some time (and are detailed and periodically updated in a Just Security chronology).

On April 4, 2023, former president Donald Trump was arraigned and pleaded not guilty in New York State Supreme Court to state felony charges that he “repeatedly and fraudulently falsified New York business records to conceal crimes that hid damaging information from the voting public during the 2016 presidential election.”

The indictment and its accompanying “statement of facts” accuse Trump of orchestrating a “catch and kill” scheme with his fixer Michael Cohen, American Media, Inc. (AMI)’s former CEO David Pecker, and others to influence the election by “identifying and purchasing negative information” about Trump “to suppress its publication and benefit” his “electoral prospects.”

DA Bragg alleges that, in October 2016, Trump had attorney Michael Cohen pay adult film actress Stormy Daniels (whose real name is Stephanie Clifford) a $130,000 payment to prevent her from publicizing an alleged sexual encounter she had with Trump. To conceal the hush money payment, it was agreed that Cohen would make the payment to Daniels via a shell company (Essential Consultants), on the agreement that Trump would later reimburse Cohen.

In 2017 Cohen was reimbursed, in eleven almost-monthly installments. The invoices Cohen submitted each stated that it was “pursuant to [a] retainer agreement” and each sought “payment for services rendered” for the relevant month of the invoice.

Some reimbursement payments were made from the Donald J. Trump Revocable Trust and others from Trump’s personal bank account. While the Trump Organization likely did not label the payments as “income” in its records, the inevitable corollary of characterizing them as legal fees was to cause the payments to be treated as “income” on Cohen’s tax returns. According to Bragg, the $130,000 payment was added “to a $50,000 payment for another expense for which” Cohen “also claimed reimbursement, for a total of $180,000.” That amount was to $360,000 so that Cohen “could characterize the payment as income on his tax returns, instead of a reimbursement,” and so that Cohen “would be left with $180,000 after paying approximately 50% in income taxes.” “An additional $60,000” was added “as a supplemental year-end bonus.” Together, these amounts totaled $420,000. These allegations are consistent with the Department of Justice’s court filings in Cohen’s federal criminal case.

The Manhattan DA’s indictment alleges that the Trump Organization’s business and organizational records included a series of invoices and ledger entries recording the arrangement, characterizing the 11 payments as legal fees for Cohen’s services. These entries form the basis of the 34 books and records counts.

DA Office Statements About the Tax Scheme

The district attorney’s office has made the following statements in relation to tax violations.

• “The participants also took steps that mischaracterized, for tax purposes, the true nature of the payments made in furtherance of the scheme.” Statement of facts, § 2 (emphasis added)
• Bragg: “Participants in the scheme took steps that mischaracterized, for tax purposes, the true nature of the reimbursements.” Press Release.
• Bragg: “In order to get Michael Cohen his money back, they planned one last false statement. In order to complete the scheme, they planned to mischaracterize the payments to Mr. Cohen as income to the New York State tax authorities.” Press Conference (emphasis added).
• Bragg: “We have charged falsifying business records for those who were seeking to cover up sex crimes and we have brought this charge for those who committed tax violations.” Press Conference.
• Assistant District Attorney Christopher Conroy: “After the election, defendant reimbursed the lawyer through a series of disguised monthly payments that hid the true nature of the payoff by causing a series of false business records in the records of the Trump Organization here in Manhattan, and even mischaracterized for tax purposes the true nature of the payment. Defendant falsified these New York business records with the intent to defraud, including the intent tocommit[sic] another crime, and to aid and conceal the commission of another crime.” Arraignment hearing (emphasis added).
• DA Office: “[T]he People further refer defendant to certain facts, among others, set forth in the Statement of Facts relating to … disguising reimbursement payments by doubling them and falsely characterizing them as income for tax reasons Court filing in response to defendant’s request for bill of particulars.

The SDNY’s Criminal Information and Sentencing Memorandum in Cohen’s case also discussed the reimbursement being “‘grossed up’ for tax purposes.”

It is worth noting that in his press conference Bragg also cited false statements to tax authorities as one of the “unlawful means” needed to prove a violation of New York Election Law, § 17-152: conspiracy to promote or prevent election. “I further indicated a number of unlawful means, including more additional false statements, including statements that were planned to be made to tax authorities.”

Bragg’s Response to Trump’s Request for Bill of Particulars

On April 27, Trump filed a Request for a Bill of Particulars seeking information concerning the other crime(s) Trump is “alleged to have committed or intended to commit or to aid or conceal the commission thereof by means of the allegedly false business record.”

Now, Bragg has responded, stating that “the crimes defendant intended to commit or to aid or conceal may include violations of … New York Tax Law §§ 1801(a)(3) and 1802,” in addition to various state and federal election crimes as well as other violations of the falsifying books and records statute. Notably, Bragg declined to state that the list of crimes included in his response as exclusive—suggesting that other crimes, including other state and federal tax crimes as described below, could also later be added to bolster the prosecution’s case.

Applicable Law

Because Bragg’s response to the request for a bill of particulars leaves open the door that other offenses than those listed might also serve as the “bump-up” predicates to the falsifying business records charges, in addition to New York state tax statutes, we also consider the possibility that prosecutors will attempt to leverage federal tax offenses for this purpose. Two statutes appear most relevant: Declaration under Penalties of Perjury (26 U.S.C. 7206(1)), and Willful Assistance in Preparation of False or Fraudulent Tax Documents (26 U.S.C. 7206(2)).

While New York State tax law is distinct from federal tax law, the two bodies of law, especially in respect of false filing statutes, share similar principles and concepts. As a result, New York State courts often look to federal law for guidance in interpreting and applying state provisions. See, e.g., People v. Essner, 124 Misc. 2d 830, 835-36 (N.Y. Sup. Ct. 1984) (court looked to federal securities laws for the applicable definition of materiality under § 175.45, issuing a false financial statement); State v. Rachmani, 71 N.Y.2d 718, 725-26 (1988) (for New York’s Martin Act, the court adopted the standard for materiality used by federal courts). Accordingly, we analyze the elements of potential charges under New York Tax Law §§ 1801(a)(3) and 1802 with reference mainly to federal law as well as state law (where available).

The two federal statutes are in many ways similar. Section 7206(1) focuses on those who cause false statements in their own tax documents—thus inclusion by Bragg of this statute would focus on Cohen’s criminal conduct of including false statements in his tax returns, which Trump sought to aid or conceal. Conversely, § 7206(2) criminalizes those who cause, assist or aid false statements in others’ tax documents—thus Bragg’s focus here would be on Trump’s intent to assist Cohen in making false statements in his tax returns.

Given their similarities, we discuss all four statutes together (the two state and the two federal tax offenses). First, we set out the elements of each offense, which are very similar. We then address the elements as follows: falsity, materiality, and intent.

Additionally, a variety of other statutes may be applicable depending on how the facts develop, and, by way of example, we also include a brief treatment of Conspiracy to Defraud the United States (18 U.S.C. 371) on the federal side, and on the state side, Offering a False instrument for Filing in the First Degree (N.Y. Penal Law, § 175.35) or Second Degree (N.Y. Penal Law, § 175.30).

Elements of the Offenses

1. New York Criminal Tax Fraud (New York Tax Law, Chapter 60, Article 37, Part 2)

New York Tax Law § 1801(a) defines a “tax fraud act” and is the basis of all New York criminal tax fraud offenses. For Bragg’s case, under § 1801, if a person willfully acts (or causes another to act) in any of the following ways, that person has perpetrated a tax fraud act:

1. knowing that a return, report, statement or other document under this chapter contains any materially false or fraudulent information, or omits any material information, files or submits that return, report, statement or document with the state or any political subdivision of the state, or with any public office or public officer of the state or any political subdivision of the state (§ 1801(a)(2))

2. knowingly supplies or submits materially false or fraudulent information in connection with any return, audit, investigation, or proceeding or fails to supply information within the time required by or under the provisions of this chapter or any regulation promulgated under this chapter (§ 1801(a)(3))

3. engages in any scheme to defraud the state or a political subdivision of the state or a government instrumentality within the state by false or fraudulent pretenses, representations or promises as to any material matter, in connection with any tax imposed under this chapter or any matter under this chapter (§ 1801(a)(4))(emphasis added)

All three of the above tax fraud acts include three elements: (1) falsity; (2) materiality; and (3) intent (willfulness). The first two provisions also require the tax document to be filed, submitted or supplied. The last provision, by its clear wording, also requires an intent to defraud the state.

Any person who commits any tax fraud act listed above is guilty, at minimum, of criminal tax fraud in the fifth degree, a Class A misdemeanor crime under § 1802. No additional mens rea is required. A misdemeanor is sufficient to serve as the predicate to make falsifying business records a felony. For felony criminal tax fraud in the first to fourth degrees under §§1803-1806, there are additional elements:

1. an intent to evade tax or defraud New York state (such intent to defraud is, as noted above, also required for 1801(a)(4) in the fifth degree); in
2. a payment to the state (whether by means of underpayment or receipt of refund or both) in a tax year; and
3. of a stated amount (the amount determining the degree of the offense).

2. Declaration under Penalties of Perjury (26 U.S.C. 7206(1))

It is a felony under § 7206(1) for any person who “[w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that it is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter.”

The elements of a Section 7206(1) conviction have been addressed at length by the case law. See e.g., United States v. Bishop, 412 U.S. 346, 350 (1973); United States v. Pirro, 212 F.3d 86, 89 (2d Cir. 2000); United States v. Clayton, 506 F.3d 405, 410, 413 (5th Cir. 2007) (per curiam). Those elements are:

1. The defendant made and subscribed a return, statement, or other document which was false as to a material matter;
2. The return, statement, or other document contained a written declaration that it was made under the penalties of perjury;
3. The defendant did not believe the return, statement, or other document to be true and correct as to every material matter; and
4. The defendant falsely subscribed to the return, statement, or other document willfully, with the specific intent to violate the law.

3. Willful Assistance in Preparation of False or Fraudulent Tax Documents (26 U.S.C. 7206(2))

Under § 7206(2), it is a felony for any person who “[w]illfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document.”

Although § 7206(2) appears calculated to apply primarily to official tax preparers, the statute has been used to prosecute criminal behavior far beyond that group of professionals (see e.g., 43 A.L.R. Fed. 128 (Originally published in 1979), §§ 10-13). It has been used to prosecute participants in any scheme which causes false statements to be made in others’ tax documents, whether or not the accused actually prepared the return. See e.g., United States v. Clark, 577 F.3d 273, 285 (5th Cir. 2009) (The statute “reaches all knowing participants in the fraud.”); United States v. Crum, 529 F.2d 1380, 1382 (9th Cir. 1976) (“The nub of the matter is that they aided and abetted if they consciously were parties to the concealment of [a taxable business] interest.”); United States v. Siegel, 472 F.Supp. 440, 444 (N.D.Ill.1979) (citing Crum, 529 F.2d 1380) (“[T]he scope of the statute extends to all participants of a scheme which results in the filing of a false return, whether or not those parties actually prepare it.”); United States v. Graham, 758 F.2d 879, 885 (3d Cir.1985) (1985) (quoting United States v. Buttorff, 572 F.2d 619, 623 (8th Cir.) (“[T]here must exist some affirmative participation which at least encourages the perpetrator.”); United States v. HooksUnited States v. Hook, 848 F.2d 785, 791, n.3 (7th Cir. 1988) (citing cases that found liability because of the defendant’s concealing actions); United States v. Hastings, 949 F.2d 400 (9th Cir. 1991) (preparing false corporate financial statements that served as the basis for preparing the corporation’s tax return); United States v. Aracri, 968 F.2d 1512 (2d Cir. 1992) (creating false invoices and shell companies used to prepare false excise tax returns); United States v. Foley, 73 F.3d 484, 493 (2d Cir. 1996) (a state legislator, accepted financial bribes from political contributors in exchange for agreeing to influence legislation and provided those contributors with fraudulent receipts to help disguise their payments as genuine business expenses). See also, IRS Tax Crimes Handbook (2009), pp.72-3; Justice Department, Criminal Tax Manual, Chapter 13, pp.5-8; Federal Tax Coordinator (2nd Ed.), ¶ V-3115.

The elements of a prosecution under Section 7206(2) are also clear and settled. See e.g., United States v. Perez, 565 F.2d 1227, 1233–34 (2d Cir. 1977); United States v. Klausner, 80 F.3d 55, 59 (2d Cir. 1996); United States v. Salerno, 902 F.2d 1429, 1432 (9th Cir. 1990); IRS Tax Crimes Handbook (2009), pp.71-2. Those elements are:

1. The defendant aided or assisted in, or procured, counseled, or advised the preparation or presentation of a return, affidavit, claim, or other document which involved a matter arising under the Internal Revenue laws;
2. The return, affidavit, claim, or other document was fraudulent or false as to a material matter; and
3. The defendant acted willfully.

Unlike with § 7206(1), under § 7206(2) there is no requirement that the document be signed under penalty of perjury. Id.

Although a plain reading of both § 7206(1) and § 7206(2) does not include a filing requirement, some courts have held that the return or statement must be filed. See e.g., United States v. Dahlstrom, 713 F.2d 1423, 1429 (9th Cir. 1983) (filing of a return is a necessary element of § 7206(2)); United States v. Boitano, 796 F.3d 1160 (9th Cir. 2015) (confirming a filing requirement under § 7206(1)); (United States v. Harvey, 869 F.2d 1439, 1448 (11th Cir. 1989) (en banc) (same). Cf. United States v. Feaster, 843 F.2d 1392 (6th Cir. 1988) (per curiam) (holding Dahlstrom as contrary to the plain reading of § 7206(2)). See also, Justice Department, Criminal Tax Manual, Chapter 13, p.2.

First Key Issue: Falsity. Bragg may argue that the representations made in Cohen’s tax returns were false statements and were false in at least two ways:(1) the mischaracterization of the funds as payment for legal services, and (2) the resulting treatment of the payments “income.”

a. False statement as to the mischaracterization of the funds as payment for legal services

According to Bragg, each of the eleven checks made out to Cohen was “issued for a phony purpose.” The checks, which were in fact simple repayments, were “illegally disguised” as payment for legal services rendered in 2017 pursuant to a “non-existent retainer agreement.” Cohen’s plea agreement said the same: “there was no such retainer agreement, and the monthly invoices COHEN submitted were not in connection with any legal services he had provided in 2017.” See also Department of Justice Sentencing Memorandum for Michael Cohen (“In fact, no such retainer agreement existed and these payments were not ‘legal expenses’ – Cohen in fact provided negligible legal services to Individual-1 or the Company in 2017 – but were reimbursement payments.”).

Trump “could not simply say that the payments were a reimbursement for Mr. Cohen’s payments to Stormy Daniels,” Bragg said during the press conference. “To do so, to make that true statement, would have been to admit a crime. So instead, Mr. Trump said that he was paying Mr. Cohen for fictitious legal services in 2017 to cover up an actual crime committed the prior year.”

b. False statement of “income”

By characterizing the reimbursement payments to Cohen as legal fees, the Trump Organization necessarily caused Cohen to report the amount as income, subject to tax on Cohen’s return. But, the repayment to Cohen of the funds paid to Daniels would simply not be regarded for tax purposes as “income.” The payment was a straight dollar-for-dollar reimbursement of a purely personal expense (whether related to Trump’s marriage or to his campaign).

It was therefore false for Cohen to then tell tax authorities that he received the $130,000 in “income.” Similarly, the Trump Organization was therefore not required to report the full $420,000 worth of payments to Cohen on Cohen’s Form W-2, as reimbursements are not “income” to be included on such a form.

However, an argument could be made that both the $130,000 reimbursement amount and the equal $130,000 “bump up” paid to cover Cohen’s taxes were income to Trump, as they represented payments by the Trump Organization for personal expenses of Trump. Such a payment is frequently referred to as a “constructive dividend,” where a business owner causes the business to pay for personal expenses. Here, it is unclear how the Donald J. Trump Revocable Trust and Trump’s personal account, the issuers of the checks, are integrated into the Trump Organization’s accounting system and tax reporting. Whether or not a payment is a dividend depends on whether the Trump Organization had earnings and profits, a matter we’re fairly certain is entirely too complicated to delve into for the purposes of Bragg’s criminal case. See e.g., Boulware v. United States, 552 U.S. 421 (2008). Moreover, it would likely also require analysis of Trump’s personal income tax returns – another quagmire.

But it’s even more likely that none of this really matters from a criminal prosecution perspective, since all of these issues arise from the same false statement: that the payments to Cohen were for legal services. In prosecuting a criminal case, simplicity is usually better; the focus is on the false statement itself, not its technical tax consequences.

Second Key Issue: Materiality. If Cohen erroneously claimed the repayments as part of his income in submitting tax returns, he would have effectively overstated his income, thus triggering an overpayment of tax. How, then, could Cohen’s tax returns form the basis of a tax violation? Indeed, some may argue that the statement was not material if it did not cause any financial loss. But the law does not require such a loss. It is a crime to submit intentionally false statements to tax authorities, even if the statement does not involve evasion of tax.

a. Materiality under federal tax law

We have not identified any New York tax case interpreting the meaning of materiality under state law. Accordingly, as noted above, we first look to federal law for guidance. In contrast to the crime of tax evasion, federal false statement tax statutes generally do not require proof of a tax deficiency, i.e. a difference between what was reported and the taxpayer’s correct tax liability. See e.g., United States v. Tsanas, 572 F.2d 340, 343 (2d Cir. 1978) (regarding § 7206(1)); Edwards v. United States, 375 F.2d 862 (9th Cir. 1967) (§ 7206(2) is directed not to evasion or defeat of tax but rather to falsification and counseling and procuring of deception as to any material matter); IRS Tax Crimes Handbook (2009), p.72 (regarding § 7206(2)); Justice Department, Criminal Tax Manual, Chapter 13, pp.12-14 (regarding § 7206(2)). Thus, a defendant may be convicted even where a tax refund is due. See e.g., United States vs. Witasick, W.D. Va., No. 4:07-CR-00030-001, 15-16 (Apr. 7, 2014).

What prosecutors must instead prove is whether the statements made were false as to a “material” matter. This is a question for the jury to decide. See e.g., Neder v. United States, 527 U.S. 1, 4 (1999); United States v. Jackson, 196 F.3d 383, 384-85 (2d Cir. 1999) (reaffirming Neder); United States v. Gaudin, 515 U.S. 506, 522-23 (1995) (holding that “materiality” is a question for the jury in prosecutions for false statements under 18 U.S.C. § 1001). It’s worth noting, as the Justice Department has in Chapter 12 of Criminal Tax Manual on § 7206(1), that “[w]hile courts still maintain that proof of a tax deficiency is not required in a section 7206(1) prosecution, … some post-Gaudin opinions indicate that the presence or lack of a tax deficiency may be relevant to a jury’s determination of materiality.”

The three questions Bragg will therefore need to consider are: (1) what “material” means; (2) is the nature of a payment considered material; and (3) does overreporting or overstating income negate materiality. One of the leading authorities on all three questions is United States v. DiVarco, 484 F.2d 670 (7th Cir. 1973), aff’g, 343 F. Supp. 101, (N.D. Ill. 1972).

Under the DiVarco definition—adopted by most circuits, including the U.S. Court of Appeals for the Second Circuit—a false statement is “material” if it has a natural tendency to influence or impede the IRS in ascertaining the correctness of reported tax or in verifying or auditing the returns of taxpayers. See, United States v. Bok, 156 F.3d 157, 164-65 (2d Cir. 1998) (regarding § 7206(1)); Neder, 527 U.S. at 16 (adopting for § 7206(1) the definition of materiality in Gaudin, 515 U.S. at 522-23 regarding 18 U.S.C. § 1001: “a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it was addressed”); United States v. Klausner, 80 F.3d 55, 60, n.4 (2d Cir. 1996) (regarding § 7206(2)); United States v. Potstada, 206 F. Supp. 792, 794 (N.D. Cal. 1962) (Under § 7206(2) “it is sufficient to allege and prove obstruction, delay or impairment of governmental functions.”).

Importantly, the statement needs to have only the “potential” for influencing or impeding the IRS. United States v. Greenberg, 735 F.2d 29, 31 (2d Cir. 1984) (“The question is rather whether the statement had the potential for an obstructive or inhibitive effect. A consideration of this potential requires an analysis of the responsibilities of the public agency — responsibilities that are assigned by law — and analysis of the relevance of the statement to those responsibilities.”); United States v. Pirro, 212 F.3d 86, 89 (2d Cir. 2000); United States v. Moon, 532 F.Supp. 1360, 1366-67 (S.D.N.Y. 1982), aff’d, 718 F.2d 1210 (2d Cir. 1983)

Prosecutors in the DiVarco case proved that income reported by the defendant on his personal tax returns as commissions from a mortgage and investment business did not come from that business. The defendant had mischaracterized the source of his taxable income. (Note, there was no dispute in DiVarco as to whether the claimed income was, in fact, taxable income, just whether the source of the taxable income was mischaracterized). The court confirmed that “source of income” is to be considered a “material matter” for tax purposes, such that willfully and knowingly stating a false source of income on tax documents is prohibited under § 7206(1)—even in the rarer cases involving an overstatement of taxable income.

It is true … that most, if not all, of the cases involving misstatement of source of income also involved an understatement of taxable income. However, “[o]ne of the more basic tenets running through all the cases is that the purpose behind the statute is to prosecute those who intentionally falsify their tax returns regardless of the precise ultimate effect that such falsification may have.” 343 F.Supp. at 103.

… The plain language of the statute does not exclude the matter of the source of income from the definition of “material matter.” In light of the need for accurate information concerning the source of income so that the Internal Revenue Service can police and verify the reporting of individuals and corporations, a misstatement as to the source of income is a material matter.

DiVarco, 484 F.2d 670, 673 (emphasis added)

The purpose of the statute is, therefore, “not simply to ensure that the taxpayer pay the proper amount of taxes — though that is surely one of its goals.” Instead, the statute “is intended to ensure also that the taxpayer not make misstatements that could hinder” the IRS “in carrying out such functions as the verification of the accuracy of that return or a related tax return.” United States v. Greenberg, 735 F.2d 29, 31 (2d Cir. 1984). New York district courts of the Second Circuit have similarly held that merely mischaracterizing the source of an income or other matter on tax documents will be considered material. United States v. Goldman, 439 F. Supp. 337, 344 (S.D.N.Y. 1977); United States v. Kaczowski, 882 F. Supp. 304 (W.D.N.Y. 1994); Moon, 532 F.Supp. 1360 (misstating source of income on personal tax returns); United States v. Cole, 463 F. 2d 163 (2d Cir. 1972) (related to the mischaracterization of personal legal bills as business expenses); see also United States v. Helmsley, 941 F.2d 71, 93 (2d Cir. 1991) (The district court’s instruction that Section 7206(2) would be violated even if the deductions were allowable but mischaracterized was hardly complex. The alleged offense involved a single predicate act: entering a false statement on a tax form.”). See also, United States v. Mirelez, 496 F.2d 915 (5th Cir. 1974) (through fear of self-incrimination, taxpayer failed to report true source of income as illegal heroin sales); United States v. Diamond, 788 F.2d 1025 (4th Cir. 1986) (falsely listing losses from commodities transactions on Schedule C of Form 1040 as being from a trade or business and misstated occupation to conceal the source of losses).

Cases involving overstatement of income

The bottom line is that Bragg can establish materiality if he can show that Trump intended Cohen to report repayment of expenses or illicit campaign contributions as income, and so to overstate that line on his tax returns. Although unusual, there have been a number of prosecutions involving overstated income.

For instance, in 1975 former New York City Cultural Affairs Commissioner Irving Goldman was indicted by New York federal prosecutors for, among other things, filing false corporation returns on behalf of a shell company he created, Jola Candy Inc., in that the returns falsely stated gross income by including payments received for goods it had charged at unnecessarily “inflated and excessive prices.” In an attempt to have the indictment dismissed, Goldman argued that, as Jola’s returns included an “overstatement of income” which resulted in an “overpayment of taxes,” the materiality element under was not made out. The Court rejected the argument, citing DiVarco.

[T]he cited authorities do suggest that a statement is material if it is capable of influencing actions of the IRS in any matter within its jurisdiction. The question then is whether overstatement of income is a material matter. The accuracy of items of taxable income reported on the return of one individual or entity may affect the ability of the IRS to assess the tax liability of another taxpayer. Furthermore, overstated income may shield from scrutiny falsely inflated deductions. Thus, an overstatement of income impairs the ability of the IRS to determine if the correct amount of tax has been paid. United States v. DiVarco, 343 F.Supp. at 103. The conclusion that an overstatement of income may result in a prosecution is buttressed by the Congressional determination to make Section 7206(1) a crime separate and apart from income tax evasion, 26 U.S.C. § 7201.

United States v. Goldman, 439 F. Supp. 337, 342 (S.D.N.Y. 1977) (emphasis added)

In United States v. Barrow, the defendant underreported income on his personal tax returns and overreported income on an amended corporate return. The Sixth Circuit held that both underreporting and overreporting were material. “Under this section, false statements are material if they make it more difficult for the IRS to verify defendant’s tax returns.” United States v. Barrow, 118 F.3d 482, 493-94 (6th Cir. 1997).

Another example is United States v. Lamberti, in which the defendant, a parolee, was accused of overstating his hours of work and income on tax returns in order to trick his parole officer into believing that he had worked the minimum hours required under his parole conditions. United States v. Lamberti, 847 F.2d 1531 (11th Cir. 1988). The Eleventh Circuit held that the overstatement of income to the Parole Commission was material for the purposes of false statements under § 18 U.S.C. 1001, and, in respect of the federal tax statute, made its position clear: “As to the completely independent § 7206(1) tax charges, his assertion hinges on his untenable theory that an overstatement of income cannot be a material false statement for purposes of 26 U.S.C. § 7206(1), because it can lead only to overestimation and overpayment of tax liability.” Id. at 1536. As the indictment “did not rest solely upon” overstatements, but instead rested “primarily” upon false statements claiming that he had only one source of income, the court held it unnecessary to consider further Lamberti’s contention that an overstatement of income cannot violate § 7206(1). Id.

In United States v. Bouzanis, one of the defendants was accused of “aiding, counseling and causing the preparation and presentation of a false and fraudulent tax return” belonging to a co-defendant, in that the return included false, inflated income, which was submitted in support of a loan application. The Illinois district court, citing Divarco and the Second Circuit decision in Greenberg, rejected the defendant’s argument that overstated income was not “material.” United States v. Bouzanis, 00 CR 1065, 2003 WL 920717, at *2 (N.D. Ill. Mar. 7, 2003).

Another case involving inflated income is United States v. Barshov, where the defendants, who had formed limited partnerships to purchase motion picture films for distribution and exhibition, inflated the purchase prices and the income generated by the films in order to maximize depreciation costs and investment credits, and caused returns to be filed based on the inflated figures. United States v. Barshov, 733 F.2d 842, 845-46 (11th Cir. 1984).

b. Materiality under New York non-tax law

As noted above, our research turned up no New York State criminal cases specifically addressing the concept of “materiality” for the purposes of New York Tax Law. Nevertheless, the general principles of materiality under federal law offer helpful guidance. Given the similarities in wording and purpose between N.Y. Tax Law § 1801(a)(2) and federal § 7206(1) and (2), it is likely that the New York state courts would adopt the federal definition of materiality as set forth in DiVarco.

The case of People v. De Leo, a decision by the Appellate Division of the Supreme Court of New York, Third Department, offers a glimpse into how New York state courts would likely define materiality under false tax filing laws. People v. De Leo, 185 A.D.2d 374, 585 N.Y.S.2d 629 (N.Y. App. Div. 1992). The defendant was convicted of second degree perjury (as well as second degree forgery and attempted grand larceny) for two false statements he made in a real property transfer gains tax affidavit. First, he falsely claimed to be acting in the capacity of attorney-in-fact for the seller of the property. Second, he significantly understated the amount of consideration he received on transfer for his role as purported attorney. The defendant argued on appeal that the false statements were not “material to the action, proceeding or matter involved” within the meaning of the perjury statute (§ 210.10). Rejecting the defendant’s contention and affirming the conviction, the Third Department court stated:

The gravamen of his claim in this regard is that the misstatement of one’s authority to act and the amount of consideration received in a transfer gains tax affidavit are not “material to the action, proceeding or matter involved” within the meaning of Penal Law § 210.10. We disagree. The purpose of the affidavit is to assess the amount of tax due, if any, upon the transfer of realty and to identify those responsible therefor (see, Tax Law art. 31–B). Because calculation of taxes owed is dependent upon the consideration recited in the affidavit, any misrepresentation regarding the consideration is indeed material to the proper assessment of tax. The materiality of a misrepresentation of one’s authority to act on behalf of a purported principal, inasmuch as it has the effect of potentially casting the principal in liability for taxes assessed, cannot be doubted. Upon review, we find the prosecution’s evidence that defendant was not an attorney-in-fact for the Colony at the time he executed the affidavit, combined with evidence that defendant effected the transfer as a means of payment for services rendered to the Colony and for which he had not been paid, thus indicating that the transfer was for consideration in excess of the $1 recited in the affidavit, satisfies both the legal sufficiency and weight of the evidence challenges.

Id. at 375. (emphasis added)

Courts have often said that false tax filing statutes are similar to perjury statutes. See e.g., United States v. Scholl, 166 F.3d 964, 980 (9th Cir. 1999) (describing §7206(1) as a perjury statute); Gaunt v. United States, 184 F.2d 284, 288 (1st Cir. 1950) (“purpose is to impose the penalties for perjury upon those who wilfully falsify their returns regardless of the tax consequences of the falsehood”); United States v. Taylor, 574 F.2d 232, 236 (5th Cir. 1978) (noting that to require the government to prove additional tax liability would “seriously jeopardize the effectiveness of section 7206(1) as a perjury statute and would imperil the self-assessment nature of our tax system”); United States v. Fawaz, 881 F.2d 259, 263 (6th Cir. 1989) (The court saw no reason to frame a different rule in the § 7206(1) context than the one applied under § 1623(a) false statement made to federal grand juries.)

The New York Criminal Jury Instruction for perjury also states that, “[d]epending on the facts of the case, it may be appropriate to adapt the language of materiality utilized by the Court of Appeals in the context of a Grand Jury proceeding; namely, that a false statement is material if it has ‘the natural effect or tendency to impede, influence or dissuade’ the public servant in the performance of his or her official functions in an action, proceeding or matter involved. People v. Davis, 53 N.Y.2d 164, 171 (1981).” (hyperlink added). This language reflects the federal position on false statement statutes, including § 7206.

Third Key Issue: Intent (Willfulness). When it comes to intent, potential criminal liability under New York State tax law is broader than federal tax law.

N.Y. Tax Law defines willfulness as “acting with either intent to defraud, intent to evade the payment of taxes or intent to avoid a requirement of [New York Tax Law], a lawful requirement of the [tax] commissioner or a known legal duty.” Section 1801(c).

Under federal law, willfulness refers to a voluntary, intentional violation of a known legal duty, including the duty to report accurate information on a tax return or other tax related documents. This means that an individual or entity must have acted with a specific intent to provide false or misleading information on their tax documents, and knew or should have known that their conduct was generally unlawful. See e.g., Cheek v. United States, 498 U.S. 192 (1991); United States v. Pomponio, 429 U.S. 10 (1976); United States v. Bishop, 412 U.S. at 412 U. S. 360. Knowledge of the specific statute is not required, so long as the individual knows the information submitted was false.

Willfulness is a question of fact. Direct proof of intent is not necessary, and instead can be inferred from a broad range conduct and evidence (including circumstantial) relating to attempts to conceal or misrepresent income, assets and other material tax matters. United States v. Libous, 645 F. App’x 78, 81 (2d Cir. 2016). The government will often seek to prove willful intent with reference to “affirmative acts” and “acts of commission.” See e.g., United States v. Smith, 206 F.2d 905 (3d Cir. 1953) (discussing U.S. Supreme Court authorities); Maxfield v. United States, 152 F.2d 593 (9th Cir. 1945); Battjes v. United States, 172 F.2d 1, 5 (6th Cir. 1949) (“Direct proof of willful intent is not necessary. It may be inferred from the acts of the parties, and such inference may arise from a combination of acts, although each act standing by itself may seem unimportant. It is a question of fact to be determined from all the circumstances.”); Katz v United States, 321 F.2d 7, 10 (1st Cir. 1993).

Potential Other Offenses

1. Additional Applicable Federal Statute: Conspiracy to Defraud the United States (18 U.S.C. 371)

As noted earlier, a wide variety of other tax-related statutes may be applicable depending on how the facts develop. One example is Conspiracy to Defraud the United States (18 U.S.C. 371).

That statute makes it a crime for two or more people to “conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy.”

The statute can be violated in two ways: (1) conspiring to commit other federal offenses; and (2) conspiring to “defraud the United States.” The two offenses can overlap in circumstances where the purpose of the conspiracy to defraud the United States involved conduct that violated federal criminal law. See e.g., United States v. Helmsley, 941 F.2d 71, 90 (2d Cir. 1991) (citing United States v. Rosenblatt, 554 F.2d 36, 40 (2d Cir. 1977).

The statute is regularly used to prosecute a broad array of criminal conspiracies to defraud the government. The case law is clear—to “defraud” the government does not require any financial or pecuniary loss. Instead, interfering with, impairing, or obstructing one of the government’s functions by deceit or dishonesty is enough. See e.g., Hass v. Henkel, 216 U.S. 462 (1910); Hammerschmidt v. United States, 265 U.S. 182 (1924); Tanner v. United States, 483 U.S. 107 (1987); United States v. Del Toro, 513 F.2d 656 (2d Cir.), cert. denied, 423 U.S. 826 (1975); United States v. Coplan 703 F. 3d 46 (2d Cir. 2012); United States v. Jacobs, 475 F.2d 270 (2d Cir.); United States v. Sprecher, 783 F. Supp. 133, 156 (S.D.N.Y. 1992), modified on other grounds, 988 F.2d 318 (2d Cir. 1993).

The statute has often been used to prosecute those who make false statements to federal tax authorities. See, e.g., United States v. Helmsley, 941 F.2d 71, 93 (2d Cir. 1991) (mischaracterization of deductions was prosecuted under §§ 371, 7206, 7201 (evasion)); United States v. Goldberg, 105 F.3d 770, 772 (1st Cir. 1997) (convicted of §§ 371 and 7206(1) for a scheme to conceal payments to individuals through use of “straw employees” and benefits to third parties); Coplan, 703 F. 3d 46, (conspiracy to deceive IRS about the purpose of transactions engineered to generate tax losses). A conspiracy to defraud the IRS charged under § 371’s defraud clause is commonly referred to as a “Klein conspiracy” after a Second Circuit decision where the defendants were convicted of conspiring to defraud the United States by impeding and obstructing the Treasury Department in collection of income taxes. United States v. Klein, 247 F.2d 908, 915 (2d Cir. 1957).

To succeed in prosecuting conspiracies to defraud the United States, the government must prove: (1) there was an illegal agreement between at least two people; (2) that the defendant voluntarily entered; (3) with specific, willful intent to achieve the objective of the conspiracy; and (4) an overt act occurred in pursuance of the objective. See e.g., United States v. Pinckney, 85 F.3d 4 (2d Cir. 1996); United States v. Nall, 949 F.2d 301, 305 (10th Cir. 1991).

Here, the conspiracy might consist of (1) an agreement between Trump and Cohen or Allen Weisselberg; (2) that Trump voluntarily entered; (3) with the specific, willful intent to defraud the IRS by mischaracterizing the reimbursement of the hush money payment as legal fees, resulting in it being reported as income; and (4) proof of overt acts by Trump such as his personal signature on a number of the checks issued to Cohen.

2. Additional Applicable State Statute: New York Filing a False Instrument (N.Y. Penal Law, § 175.30; N.Y. Penal Law, § 175.35).

Just as on the federal side, a wide variety of other statutes may be applicable depending on how the facts develop. One example is Offering a False instrument for Filing, either in the Second Degree (N.Y. Penal Law, § 175.30) or First Degree (N.Y. Penal Law, § 175.35).

“The elements of offering a false instrument for filing in the second degree are (1) knowledge that the written instrument contains a false statement or false information, and (2) offering or presenting such an instrument to a public office or public servant (3) with the knowledge or belief that it will become a permanent record of the public office to which it was submitted. To make out offering a false instrument for filing in the first degree, the People are also required to prove (4) the defendant’s intent to defraud the state, one of its political subdivisions, a public authority or public benefit corporation.” § 17:10. Offering a false instrument for filing—Elements of offense, 6 N.Y. Prac., Criminal Law § 17:10 (4th ed.).

The statute has been used many times to successfully prosecute those who file false tax returns or related documents. See e.g., People v. Lacay, 115 A.D.2d 450, 496 N.Y.S.2d 337 (N.Y. App. Div., 1st Dept. 1985) (Prosecutors had discretion to prosecute the defendant’s filing of false sales tax returns under broader statute of offering false instrument for filing, rather than N.Y. Tax Law § 1145(b), which provides for criminal penalties for filing false sales and use tax returns.); People v. DeRue, 179 A.D.2d 1027, 579 N.Y.S.2d 799 (N.Y. App. Div., 4th Dept. 1992) (Invoices were capable of being used to defendant’s advantage, to avoid paying sales tax, to show tax exemption or that sales tax ​​has been paid, thus “written instruments” for the purposes of the statute.). See also, 6 N.Y. Prac., Criminal Law § 17:12 (4th ed.), § 17:12. Offering a false instrument for filing—Tax returns as “written instruments” under false filing statute.

Conclusion

We have argued that DA Bragg has strengthened his case against Trump by bumping up the charges to a felony based on Trump’s intent to commit (or aid or conceal) crimes involving false statements to tax authorities. Whatever the effectiveness of such a bump-up based on the alleged primary campaign finance violations, pursuing an approach based upon state tax violations is wise and well grounded. The strongest case involves statements to tax authorities falsely characterizing the payments to Michael Cohen as “legal fees,” rather than their true nature (reimbursements for a hush money payment). A strong case could also involve other variations on state criminal tax violations, as well as possible federal ones. The DA has not precluded asserting additional tax or other bases for the bump up. His response to the defendant’s request for a bill of particulars notably includes (but is not limited to) a set of specified offenses. We hope the additional analysis we have offered here is useful to the press, the public and all other stakeholders in understanding the strength of the DA’s position.

Photo credit: Manhattan District Attorney Alvin Bragg speaks during a press conference to discuss his indictment of former President Donald Trump, outside the Manhattan Federal Court in New York, April 4, 2023 (Angela Weiss/AFP via Getty Images)

The post The Untold Strength of Tax Crimes in Manhattan DA’s Case Against Former President Trump appeared first on Just Security.

Now the Delaware state court has decisively ruled that the statements at issue in the case are false. Here’s what the judge wrote on the falsity question (in the only italicized and all-caps sentence in the entire 81-page opinion): “The evidence developed in this civil proceeding demonstrates that is CRYSTAL clear that none of the Statements relating to Dominion about the 2020 election are true.”

That ruling was part of an extraordinary order partially granting summary judgment in favor of Dominion, and completely denying the summary judgment motion brought by Fox News. Summary judgment is when a party argues that a trial is unnecessary because there are no factual disputes for the judge or a jury to decide and because the law can lead only to one outcome (a win for that party and a loss for the other side). In this case, both parties moved for summary judgment, and the judge mostly sided with Dominion and against Fox News.

This outcome is remarkable for those of us with experience litigating defamation cases. Given the high burden in these lawsuits on plaintiffs such as Dominion, judges are typically inclined either to rule for the defendant, or at least to send the case to the jury. It’s far rarer for a court to rule – even partially – for the plaintiff, as the judge did here for Dominion, especially on the central issue of demonstrable falsehood. At trial, that means the jury will not need to determine if the statements are false because the judge has already ruled as much. The jury need only decide whether Fox News spread the false claims about Dominion while knowing that they were untrue or being reckless as to their falsity, and to determine what, if any, damages Dominion should receive to compensate it for the harm from Fox News’ actions.

Despite the rarity of such a result, extraordinary facts can lead to extraordinary outcomes. Here, the extraordinary background included dozens of lawsuits failing to establish any evidence whatsoever of irregularities in the 2020 presidential election. That track record would have made it difficult for any court to find any question of fact regarding the falsity of statements accusing Dominion of having faked the election’s results.

Nor should anyone have been surprised by some of Dominion’s other victories on lesser issues. As part of the ruling, Dominion won the right to prevent Fox News from raising defenses that it was just voicing opinions for which it couldn’t be held liable, or just fairly reporting the news. Dominion also won its argument that it does not need to prove that what Fox News broadcasted about it was harmful. Given the facts and the applicable law, the court’s decision was entirely reasonable.

Fox News further argued in its court filings that its broadcasts were constitutionally protected under the First Amendment. We strongly disagree, as did the judge in this case. There is little doubt that Dominion’s suit for damages met and indeed exceeded the standard the Supreme Court established in 1964 in New York Times Co. v. Sullivan for deciding when the First Amendment shields whoever disseminates material damaging to the reputation of a public official or public figure from liability. The standard set by that case and respected thousands of times since has been that the publisher of such material can be found liable if it knew the statement was false or acted with reckless disregardfor its truth or falsity. The law is clear that reckless disregard – that is, indifference to truth – is enough to establish liability for resulting reputational harm. In Dominion’s case, there appears to be overwhelming evidence that Fox News, its producers, and its hosts were more than just reckless. Dominion’s pinpointing of actual quotations from those individuals, including Fox News owner Rupert Murdoch, is breathtaking.

Although former Attorney General William Barr has argued that applying this longstanding rule in the Fox News lawsuit would deal a “major blow to media freedoms generally,” nothing could be further from the truth. Applying Sullivan to this case would curtail no freedom – beyond the spurious “freedom” to broadcast knowing falsehoods that damage the reputations of those they defame without having to be held accountable. Far from “paring back” the First Amendment’s protections, Dominion went the extra mile of conceding the applicability of the Sullivan standard even though the Supreme Court has not yet held that corporations like Dominion must show anything beyond negligent falsehood to prevail when suing for defamatory material dealing with matters of public concern.

Nor is Barr correct when he argues that the First Amendment has previously shielded media outlets from liability based on damaging falsehoods that originate from third parties and that defendants then air on their platforms, at least if the platforms do not expressly endorse those falsehoods. On the contrary, if that had been the rule, then the Supreme Court would have had no need to create the high standard it announced over half a century ago in Sullivan. The allegedly defamatory material in that case took the form of false statements about Sherriff Sullivan which appeared in a fundraising ad in the paper placed by civil rights organizations and was not “endorsed” by the publisher. Rather than holding The Times immunized from liability by the fact that the falsehood was attributable to a third party and not endorsed by the paper, the Supreme Court left no doubt that The Times could have been held liable if it ran the ad knowing it contained false statements of fact or with reckless disregard of that falsity.

Indeed, the recent debates over repealing or modifying Section 230 of the Telecom Act of 1996 would be incomprehensible if Barr’s position correctly stated First Amendment law. That statute provides immunity for online media platforms hosting third party content. No lawmakers, lawyers, or academics of whom we are aware have seriously argued that the First Amendment itself provides that immunity, which would of course make Section 230 altogether redundant and the heated debate over that statute pointless.

In any event, even if it were the case that a media outlet cannot be held liable for third-party material that it disseminates unless it endorses that material – which it emphatically is not – the recently unredacted evidenceDominion plans to introduce easily meets that requirement: its expected proof at trial shows a high likelihood that Fox News hosts did much more than neutrally report the “Big Lie” that the 2020 election had been stolen from then-president Trump by a conspiracy of which Dominion was a part; instead, they deliberately created the strong impression that they believed that lie themselves while saying offscreen that they did not. (Consider just one text chain between Tucker Carlson and one of his staffers. The staffer texted him, “Have you seen last night’s numbers?” and, “It’s a stupid story but this is all the viewers are into right now.” Carlson responded, “I noticed.”)

Nor is it the case, as Barr argues, that media outlets would be prevented from ever broadcasting interviews with blatant liars like Rudy Giuliani or Sidney Powell if Dominion were to prevail at trial. Applying Sullivan in this context simply asks whether the media company published the lies those guests spread with knowledge or reckless disregard of their falsity and deliberately refrained from fact-checking and correcting them.

Barr also suggests that many if not all the statements at issue in Dominion’s case are non-actionable statements of opinion. That would perhaps be a fitting consequence of the “post-truth” era ushered in by Trump, but some of the statements Fox News and Barr brush off as mere expressions of opinion are in fact capable of being proven true or false. The relevant statements in this case fall roughly into four silos: that Dominion rigged the election; that its software and algorithms manipulated vote counts; that the company is owned by a Venezuelan enterprise founded to rig elections for Hugo Chavez; and that Dominion paid kickbacks to government officials. Nothing in the case law supports treating those flagrant misstatements as mere matters of opinion: their factual falsity is demonstrable in all but the “alternative facts” universe that Fox News appears to have promoted.

For the press to function – and to serve its absolutely crucial role of reinforcing democracy by nurturing an educated public and helping the nation’s citizens make informed decisions when they vote or make their views known to those serving in government positions – it cannot be hamstrung by the fear of a lawsuit any time good-faith reporting turns out to have been inaccurate. Nor can the relaxed standard of mere negligence suffice to encourage the robust reporting and wide-open public debate democracy demands when the targets of critique are public figures like the sheriff in Sullivan or even public companies like Dominion.

But that does not mean the media must be given free rein to spew whatever falsehoods those who profit from it believe will drive up their numbers. Such falsehoods do as much to discredit the media and undercut its vital democratic function as would too relaxed a standard of liability. Sullivan’s standard – requiring proof of deliberate or reckless factual falsehood – achieves those goals admirably: good-faith reporters are protected, while those who knowingly air baseless and dangerous conspiracy theories are liable when those lies cause real-world harm. And where that harm is substantial, it is only reasonable that monetary damages must be paid to compensate for the resulting injury. In this case, those damages are potentially astronomical, perhaps starting at Dominion’s claimed $1.6 billion in compensatory damages, which can be multiplied several times over in punitive damages.

A jury will now have to decide these issues – whether Fox News acted with the requisite knowledge of falsity or disregard for truth and how much harm it potentially inflicted. A jury finding that Fox News is on the hook for 10-figure sum in this case would be both a fair outcome and a victory for democracy – and for the continued vitality of the appropriately balanced approach to the First Amendment set forth in Sullivan.

IMAGE: A political display is posted on the outside of the Fox News headquarters on 6th Avenue in New York, NY on July 21, 2020. (Photo by Timothy A. Clary / AFP via Getty Images)

The post Fox News’ Recent Setback Against Dominion Is a Major Victory for the First Amendment appeared first on Just Security.

As many greet the Manhattan District Attorney’s indictment of a former president as a step toward accountability and the equal application of the rule of law, that thesis will be tested by the strength of the case itself. It is accordingly proper, indeed necessary, to evaluate whether the criminal statute at issue is a close match for the alleged conduct in the case. In that regard, an important question is whether maintaining false business records to conceal hush money payments in a political campaign meets the “intent to defraud” element of the Falsifying Business Records statute, New York Penal Law § 175.05 and 175.10. 

As we explain in this essay, the law is firmly on the side of the DA, and we do not think this question will give the DA’s office or Justice Juan Merchan much pause. Indeed, the jurisdiction in which this case will be brought – the First Department of New York – has settled law on the issue that defines “intent to defraud” in broad terms that cover the allegations in the Trump case. The most important expression of a contrary view was issued by a lower court in a different jurisdiction and on a basis that is demonstrably flawed. 

We should note at the outset that some legal experts might assume “intent to defraud” has a narrow construction – limited to deprivation of money or property, or other pecuniary loss – given U.S. Supreme Court decisions to that effect in recent years. But that is a category mistake. The U.S. Supreme Court was interpreting federal fraud statutes, and this case is about New York courts interpreting New York state statutes. 

What’s more, the U.S. Supreme Court has not only expressly noted the distinction between the federal and state level, but also recognized states’ prerogative to fill in the gap. In a 2020 opinion, the Justices explained that due to their narrow construction of the federal criminal statutes, “federal fraud law leaves much public corruption to the States (or their electorates) to rectify.” Kelly v. United States, 140 S. Ct. 1565, 1571-73 (2020). 

So, how does New York State law define the “intent to defraud” for the criminal offense of falsifying business records? A long line of New York state court cases supports an expansive conception with respect to § 175.00 crimes – namely, that intent can be established when a defendant acts “for the purpose of frustrating the State’s power” to “faithfully carry out its own law.” People v. Kase, 76 A.D.2d 532, 537–538, 431 N.Y.S.2d 531, 534 (N.Y. App. Div., 1st Dept. 1980), aff’d, 53 N.Y.2d 989, 441 N.Y.S.2d 671, 424 N.E.2d 558 (1981). 

On this standard, the law does not require prosecutors to show “pecuniary or potential pecuniary loss” to the government or otherwise. Id. Indeed, New York Jurisprudence (Second Edition 2023) in a section titled, “Indictment or information charging falsification of business records,” states: “In an indictment for first degree falsification of business records, the grand jury presentation is not required to establish commercial or property loss.”

Applying this broad concept of “intent to defraud” in false business records cases, New York state courts have found such intent in a wide range of cases including when a defendant: made covert contributions to a political campaign, covered up an alleged rape, misled the relatives of a patient about the individual’s treatment, operated a motor vehicle without a license, obtained credit cards through false documents but with no proof of intention to miss payments, frustrated the regulatory authorities of the New York City Transit Authority, and much more. We detail all these judicial opinions below. 

If as expected the DA charges former President Donald Trump with falsifying business records to conceal hush money payments as campaign finance or election law violations, that will fit the test, with government authorities being frustrated in their ability to regulate elections. Nor is the harm limited to them. 

Falsifying hush money payments as legal services frustrated New York State authorities’ more broadly. New York firms are required to “keep correct and complete books and records of account” for the purposes of state regulators and tax authorities, N.Y. Bus. Corp. Law § 624 (McKinney). Indeed, New York Tax Law allows for tax commissioners “to examine or to cause to have examined…any books, papers, records or memoranda” of a corporation “bearing upon the matters to be required in the return.” N.Y. Tax Law § 1096(b)(1) (McKinney). Thus any book or record kept by a private corporation is subject to public exposure, and New York law requires these books to be accurate. 

In short, the Manhattan DA’s case rests on firm legal footing.

I. “Intent to Defraud”

“Intent to defraud” is an element of both the misdemeanor (second degree) and felony (first degree) violations of Falsifying Business Records in New York. 

Under New York Penal Law § 175.05 (the misdemeanor offense), 

“A person is guilty of falsifying business records in the second degree when, with intent to defraud, he: 

1. 1. Makes or causes a false entry in the business records of an enterprise; or 

1. 2. Alters, erases, obliterates, deletes, removes or destroys a true entry in the business records of an enterprise; or

1. 3. Omits to make a true entry in the business records of an enterprise in violation of a duty to do so which he knows to be imposed upon him by law or by the nature of his position; or

1. 4. Prevents the making of a true entry or causes the omission thereof in the business records of an enterprise.

New York Penal Law § 175.10 (the felony offense), adds to the language of an “intent to defraud” the following requirement:

A person is guilty of falsifying business records in the first degree when he commits the crime of falsifying business records in the second degree, and when his intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof.

As noted by McKinney’s Penal Law §175.05, “there is no Penal Law definition of ‘intent to defraud.’” Instead, McKinney’s refers to McKinney’s Penal Law § 15.00 for further practice commentary on “intent to defraud,” which, in so far is relevant, states:

Although a significant number of penal statutes require an “intent to defraud,” there is no Penal Law definition of that culpable mental state. It has been suggested that an intent to defraud should be “for the purpose of leading another into error or to disadvantage.” People v. Briggins, 50 N.Y.2d 302, 309, 428 N.Y.S.2d 909, 406 N.E.2d 766 (1980) (concurring opinion) (Jones, J.). See also Black’s Law Dictionary (6th ed. 1990) (“Intent to defraud means an intention to deceive another person, and to induce such other person, in reliance upon such deception, to assume, create, transfer, alter or terminate a right, obligation or power …”); Carpenter v. United States, 484 U.S. 19, 27, 108 S.Ct. 316, 321, 98 L.Ed.2d 275 (1987) (finding that the words “to defraud” meant “wronging one in his property rights by dishonest methods or schemes, and usually signifying the deprivation of something of value by trick, deceit, chicane or overreacting”).

While an “intent to defraud” is often directed at gaining property or a pecuniary benefit, it need not be so limited. See People v. Kase, 53 N.Y.2d 989, 441 N.Y.S.2d 671, 424 N.E.2d 558 (1981), affirming for reasons stated at 76 A.D.2d 532. In Kase, a prosecution for the filing of a false instrument, an intent to defraud was found where a person intentionally filed a false statement with a public office for the purpose of frustrating the State’s power to fulfill its responsibility to faithfully carry out its own law.

(emphasis added; unless otherwise indicated, bolded text throughout this essay signifies the same). 

Absent a definition of “intent to defraud” in the New York penal code, case law has developed to define its parameters.

II. The Case Law

The First Department decision in Kase established the broad conception of “intent to defraud” – that it does not require an intent to deprive another person of money, property rights or a pecuniary interest – in a matter concerning the crime of Offering a False Instrument for Filing in the First Degree (§ 175.35). The defendant was charged with filing a false statement in an application for a liquor license. According to the court, an intent to “frustrat[e] the State’s power to fulfill [its obligation to carry out the law] violates the statute.” 76 A.D.2d at 537–538, 431 N.Y.S.2d at 534. The decision was affirmed by the highest New York court, the New York Court of Appeals.

There is no need to guess how Justice Merchan would rule as to whether that standard applies in the falsification of business records statutes. The First Department has long said the Kase test applies to §§ 175.05 and 175.10, most recently in 2018 in People v. Sosa-Campana, 167 A.D.3d 464, 89 N.Y.S.3d 75, (N.Y. App. Div., 1st Dept. 2018), leave to appeal denied, 2019 N.Y. Slip Op. 97967, 33 N.Y.3d 981, 101 N.Y.S.3d 257, 124 N.E.3d 746 (N.Y. 2019); see also Morgenthau v. Khalil, 73 A.D.3d 509, 902 N.Y.S.2d 501 (N.Y. App. Div., 1st Dept. 2010). 

In Sosa-Campana, the First Department reaffirmed that “intent to defraud” under §175.05-10 is much broader than deprivation of money or property — or indeed causing any financial harm. The defendant in the case had provided a fraudulent driver’s license, in the name of another real person, when stopped for a traffic violation. His intent was to deceive the state authorities to escape government sanctions. He was charged with falsifying business records in the first and second degree, identity theft in the second degree, and aggravated unlicensed operation of a motor vehicle in the third degree. The court found: 

The evidence was legally sufficient to establish the element of intent to defraud, as required for the convictions of identity theft and falsifying business records. When defendant was stopped for a traffic violation and presented a fraudulent driver’s license in the name of another actual person, defendant acted with at least two forms of fraudulent intent, each falling within the plain meaning of “defraud.” Defendant intended to escape responsibility for the violation by causing the officer to issue a summons to the wrong person, and also intended to conceal his additional offense of unlicensed driving. In order to prove intent to defraud, the People did not need to make a showing of an intent to cause financial harm (see People v. Kase, 76 A.D.2d 532, 537–38, 431 N.Y.S.2d 531 [1st Dept. 1980] (construing intent-to-defraud element of analogous statute), affd 53 N.Y.2d 989, 991, 441 N.Y.S.2d 671, 424 N.E.2d 558[1981]; see also Morgenthau v. Khalil, 73 A.D.3d 509, 510, 902 N.Y.S.2d 501 [1st Dept. 2010]).

The First Department in another decision, People v. Reyes, demonstrated that an intent to conceal a crime could be a sufficient basis to establish the requisite “generalized ‘intent to defraud.’” Reyes involved a corrections officer charged with first- and second-degree falsifying business records, both based on the same conduct. The court held that, given the “exclusive theory” of prosecutors that the defendant had “falsely indicated in the logbook that he was off-post during the inmates’ mealtime, in order to hide the fact that he had raped the complainant during that time frame,” 

[T]here would be no way for the jury to acquit defendant of first-degree falsifying business records—entailing a rejection of an intent to conceal a rape—but still convict him of the second-degree count. The People simply did not afford the jury any basis, other than intent to conceal the alleged rape, to support any finding of the generalized “intent to defraud.” 

Under the facts, either defendant’s intent was to conceal the alleged rape, or he had no fraudulent intent at all. As such, only the higher count of first-degree falsifying business records should have been submitted to the jury. 

69 A.D.3d 537, 538–539, 894 N.Y.S.2d 43, 44–45 (N.Y. App. Div., 1st Dept. 2010). 

In a similar case also decided by the First Department, a nurse was charged with falsifying business records by omitting information in her nursing notes recording mistreatment which preceded the death of her patient. People v. Coe, 131 Misc.2d 807, 812, 501 N.Y.S.2d 997 (N.Y. Sup. Ct. 1986). The court explained that the target of the intent to defraud need not be the geriatric center, but “might just as well have been [the patient’s] relatives, defendant’s supervisors or others. Intent to defraud anyone is sufficient.” The opinion was affirmed on appeal, with the the Court of Appeals simply stating that the “remaining contention pertaining to her conviction for falsifying business records (see, Penal Law § 175.05) is without merit.” 126 A.D.2d 436, 510 N.Y.S.2d 470 (N.Y. App. Div., 1st Dept. 1987), aff’d, 71 N.Y.2d 852, 522 N.E.2d 1039 (1988).

The 2010 First Department decision in Morgenthau v. Khalil, 73 A.D.3d at 510, 902 N.Y.S.2d at 502, is also consistent with this line of cases. In that instance, the defendant challenged a civil forfeiture action in an underlying criminal action arising out of an illegal check scheme, arguing that the prosecutors could not prove there was a substantial likelihood of securing a conviction for falsifying business records in the first degree because the indictment did not allege the intent to defraud a particular person or business entity out of money, property, or pecuniary value. The First Department rejected the defendant’s claim. Citing Ramirez (from the Fourth Department) and Elliassen (a lower court in the Second Department), the court in Morgenthau v. Khalil ruled:

Defendant argues that because the underlying indictment does not allege, and the People cannot prove, that he acted with intent to defraud a particular person or business entity—as opposed to the government or the public at large—out of money, property, or something of pecuniary value, plaintiff fails to demonstrate the requisite substantial likelihood of securing a conviction for falsifying business records in the first degree (see Morgenthau v. Citisource, Inc., 68 N.Y.2d 211, 222, 508 N.Y.S.2d 152, 500 N.E.2d 850 [1986] ). We do not view the meaning of “intent to defraud” in Penal Law § 175.10 to be so limited (see People v. Ramirez, 168 A.D.2d 908, 909, 565 N.Y.S.2d 659 [1990], lv. denied 77 N.Y.2d 965, 570 N.Y.S.2d 499, 573 N.E.2d 587 [1991]; People v. Elliassen, 20 Misc.3d 1143[A], 2008 N.Y. Slip Op. 51841[U], *2–3, 2008 WL 4193166 [2008]).

Morgenthau v. Khalil dismissed the argument that intent under §175.10 required either (1) a person or business as the intended victim, or (2) that the intent must be to defraud someone or something out of money or something else of pecuniary value. 

This understanding of the law – from Kase through to false business records jurisprudence – has also been adopted elsewhere throughout the state in cases arising under §§ 175.05 and 175.10. People v. Ramirez, 168 A.D.2d 908, 909, 565 N.Y.S.2d 659, 660 (N.Y. Sup. Ct., 4th Dept. 1990), leave to appeal denied, 77 N.Y.2d 965, 573 N.E.2d 587 (N.Y. Ct. App. 1991); People v. Schrag, 147 Misc.2d 517, 558 N.Y.S.2d 451 (Rockland County Ct. 1990); People v. Elliassen, 20 Misc.3d 1143(A), 873 N.Y.S.2d 236 (N.Y. Sup. Ct., Richmond County 2008); People v. Headley, 37 Misc. 3d 815, 951 N.Y.S.2d 317 (N.Y. Sup. Ct., Kings County 2012), opinion adhered to on reargument, 36 Misc. 3d 1240(A), 960 N.Y.S.2d 51 (N.Y. Sup. Ct., Kings County 2012). See also, McKinney’s on §175.05; N.Y. Penal Law § 15.00 (McKinney). 

The 1990 Fourth Department case of People v. Ramirez, for example, also approved the trial court’s jury direction on this definition of “intent to defraud.” The defendant allegedly used false information to apply for credit cards to purchase store merchandise. The court held that the defendant could not be prosecuted for petit larceny because there was no proof that she did not intend to pay. Despite there being no proof that the defendant caused or intended to cause any financial loss, the court upheld her conviction for falsifying business records. The Fourth Department held:

We reject defendant’s argument that the evidence was insufficient to convict her of the crimes of falsifying business records and issuing a false financial statement. Citing People v. Saporita (132 A.D.2d 713, 715, lv. denied 70 N.Y.2d 937), defendant contends that an element of those crimes, “intent to defraud”, requires that a person “be deprived of property or a thing of value or a right” and no person was deprived of property or a thing of value or right. In People v. Saporita (supra), the court charged a definition of “intent to defraud” which was not met by the evidence offered by the People. Here, however, the court, in its charge, gave a different definition of intent to defraud, which was met by the evidence produced. The evidence shows that defendant intended to defraud various store owners by applying for and obtaining credit cards in the name of another person when she could not get credit in her own name and that she intended to deceive those stores and induce them to extend credit to her, which, but for her misrepresentation, they would not have done. That evidence proved defendant’s “intent to defraud” as defined by the court’s charge. 

168 A.D.2d at 909, 565 N.Y.S.2d at 660 (NY. App. Div., 4th Dept. 1990). The defendant tried to appeal the Fourth Department decision, but leave to appeal was denied by the Court of Appeals.

In the 2008 decision People v Elliassen, the Richmond County Supreme Court (within the Second Department) held that the intent to defraud required no pecuniary loss, and that interference with the legitimate public administration of the NYPD sufficed. The court stated:

Counts Two through Thirteen, Falsifying Business Records in the First and Second Degrees, charge the defendants with not preparing and filing the juvenile log report or the UF 250 stop and frisk report relating to their interaction with Rayshawn Moreno. These statutes require defendants to have an “intent to defraud”. It is not necessary to show a property or pecuniary loss from the fraud, and, in this case, it is sufficient to show that the NYPD’s legitimate official actions and purposes were impeded. See, People v Schrag, 147 Misc 2d 517 (County Court, Rockland County, 1990); People v Coe, 131 Misc 2d 807, 812 (Supreme Court, New York County, 1986) (“…. the target of the intent to defraud could have been defendant’s supervisors, defendant’s employer or the victim ….”).
…
Defendants contend that Counts Fourteen through Twenty-Five, Falsifying Business Records in the First and Second Degrees (involving defendants’ failure to properly follow NYPD Communications Division radio procedures), likewise are legally insufficient because there is no evidence of defendants’ “intent to defraud”.
…
The inaccuracy of the records has ramifications beyond general business practices. Likewise, the failure of police personnel to promptly notify the Communications Division dispatcher of their whereabouts and current status vis a vis handcuffed prisoners, adversely affects the agency’s ability to carry out its mission. It meets the standard of “intent to defraud”, since defendants’ actions “intentionally defrauded” or deprived the Police Department of valuable information and knowledge that were critical to its public safety mission. 

20 Misc. 3d 1143(A), 873 N.Y.S.2d 236 (N.Y. Sup. Ct., Richmond County 2008). The Kings County Supreme Court’s 2012 decision in People v. Headley provides a useful account of the broad intent to defraud standard under the falsifying business records statute. 37 Misc. 3d 815, 951 N.Y.S.2d 317 (N.Y. Sup. Ct., Kings County 2012). Headley was a case about ambulance chasing. The defendant, who served as outside counsel for the New York City Transit Authority [NYCTA] in pursuit of personal injury lawsuits, used a fictitious name for his company in order to fraudulently obtain paid assignments from NYCTA to procure independent medical examinations of personal injury claimants who had sued NYCTA. He was charged with first-degree falsifying business records and first-degree offering a false instrument for filing, among other crimes.

The court reviewed relevant precedent–including Kase, Schrag, and Elliassen–and held that “the term ‘intent to defraud’ does not require an intent to deprive the state of money or property, but rather intent to frustrate legitimate state interests and processes. Maintaining a fair vendor selection process free of any potential conflicts of interest is a legitimate function of the NYCTA.” Id. (internal citations omitted).  

The court in Headley usefully outlined the law in New York regarding the intent to defraud:

The lesser included charge of Falsifying Business Records in the Second Degree requires simply “intent to defraud.” The term “intent to defraud” in article 175.00 crimes has been held to be broader than an intent to deprive another of property or money. See Donnino, Practice Commentary, McKinney’s Cons. Laws of N.Y., Book 39, PL § 175.05, pp.408-409. In People v. Schrag, 147 Misc.2d 517, 558 N.Y.S.2d 451 (Rockland Co.1990), defendant was a police officer charged with Falsifying Business Records in the First Degree for filing a false police report. He argued that no intent to defraud was proved before the grand jury. The court found that Penal Law article 175 did not limit the term “intent to defraud” to property or pecuniary loss, and noted that the interests of an entity in keeping accurate business records goes beyond economic concerns and extends to rights of others which may be infringed by false records. The court in Schrag cited People v. Kase, 76 A.D.2d 532, 431 N.Y.S.2d 531 (1st Dept. 1980), in which the defendant was charged with Offering a False Instrument in the First Degree, in support of its conclusion that it was sufficient to show that the Government’s legitimate official action and purpose were impeded.

In Kase, the defendant argued that there was no intent to defraud because the instrument in question, an application to transfer a liquor license in connection with the sale of a tavern, did not have the potential to cause pecuniary loss to the State or political subdivisions thereof. The Appellate Division disagreed. “Whoever intentionally files a false statement with a public offense or public servant for the purpose of frustrating the State’s power to fulfill [its obligation to carry out the law] violates the statute.” Kase at 537-538, 431 N.Y.S.2d 531.

In People v. Elliassen, 20 Misc.3d 1143(A), 2008 WL 4193166 (Sup. Ct. Richmond Co. 2008), the defendants, police officers, were charged with falsifying business records in the first and second degrees for failing to prepare and fill required reports and for failing to follow NYPD procedures. The defendants argued that the evidence was insufficient to establish an “intent to defraud.” The court held that, “[I]t is not necessary to show a property or pecuniary loss from the fraud, and, in this case, it is sufficient to show that the NYPD’s legitimate official actions and purposes were impeded.” The defendants’ conduct inhibited the Police Department’s ability to perform its duties and carry out its mission. The court noted that the inaccuracy of the records had ramifications beyond general business practices.

Given this precedent, this court does not agree with the view that defendant was not proved to have an “intent to defraud” sufficient to justify trial on the lesser second degree offense under Counts 13 and 14. 

37 Misc. 3d at 829–830, 951 N.Y.S.2d at 329. The 1990 Rockland County Court decision in Schrag also noted, “When the Legislature intended to limit the scope of a fraud statute it has done so (i.e., Penal Law §§ 195.20, 190.60). While several Penal Law fraud statutes are directed specifically to preventing property or pecuniary loss, the fraud crimes in article 175 of the Penal Law are not so delimited and therefore the ‘intent to defraud’ terminology must be interpreted so as to effectuate their object, spirit and intent.” 147 Misc. 2d 517, 518, 558 N.Y.S.2d 451 (Rockland County Ct. 1990).

A case of election law violations and false business records is also instructive here. In People v. Norman, 6 Misc. 3d 1035(A), 800 N.Y.S.2d 353 (N.Y. Sup. Ct., Kings County 2004), the  Supreme Court of Kings County held that a defendant causing false information to be entered by a campaign committee and the Board of elections was sufficient to satisfy intent for falsifying business records. The court explained: 

Since it is a crime indeed a felony for a person ‘acting on behalf of a candidate or political committee [to] knowingly and willfully … solicit any person to make [expenditures in connection with the nomination for election or election of any candidate] for the purpose of evading the contribution limitations of [article 14 of the Election Law],’ Election Law § 14-126(4), this evidence is also sufficient to establish that the defendant concealed these solicitations and contributions from the treasurer and thus prevented the making of a true entry, and caused the omission of a true entry in the records of both the [campaign] Committee and the Board of elections with ‘intent to defraud includ[ing] an intent to commit another crime or to aid or conceal the commission thereof.’ Penal Law § 175.10.

Our discussion here focuses on the jurisprudence interpreting the scope of the falsification of business records statute. We should note the practice of district attorneys prosecuting cases under these statutes may also be instructive. See, for example, the 2017 indictment of Richard Brega for falsification of business records in creating a scheme of covert payments to benefit a political campaign. 

Of course, the intent to defraud must involve an intent to deceive that is material to another’s interest. In People v. Keller, the trial court held that the creation of false documentation did not amount to deception because it was immaterial. Defendants who ran an escort service did not intend to defraud a credit card company by falsely billing clients for “limousine service” instead of escort services on charge slips. 176 Misc. 2d 466, 673 N.Y.S.2d 563 (N.Y. Sup. Ct. 1998). The judge explained: “The defendants did not intend for American Express to be deceived by the writing. They knew and expected that the particular falsity of this writing would be of no moment to American Express.” Id. at 469; see also id. at 469 (“Their intention was for American Express to obtain their usual remuneration for a credit card transaction, and there is no evidence that they did not.”). While the recipient of the false document suffered no financial loss, that fact was incidental. 

Contrary cases

Two cases have been cited for the proposition that the intent to defraud is limited to depriving a person of money or property, but there are significant flaws in relying on these cases. The two cases are: a Second Department decision in People v. Saporita (1987) and a Kings County Criminal Court one in People v. Hankin (1997). In Saporita, the court explained that the prosecutors had not objected to a jury instruction on this element of the crime and – whether that instruction was flawed or not – the government was stuck with it on appeal. 132 A.D.2d 713, 715, 518 N.Y.S.2d 625, 627 (N.Y. App. Div., 2nd Dept. 1987) (“No objection was taken by the People to this part of the court’s charge and they became bound by it.”). Notably, Saporita was focused on the element of depriving “another person,” not necessarily on the issue of deprivation of money or property. Indeed, the jury instruction read: “The term defraud means to cheat or deprive another person of property or a thing of value or a right.” 132 A.D.2d at 715; id. (“in the instant record, there is no evidence that ‘another person’ was deprived of any property or right as a result of the defendants’ conduct regarding the public records”). 

The Hankin trial court misconstrued Saporita, citing it for the proposition of law described in the jury instruction, thus failing to recognize the highly limited reason for the Second Department’s decision. 

Other courts in the Second Department have not misconstrued Saporita. For example, in the 1990 decision of People v. Schrag, the Rockland County Court emphasized the peculiarity of the Saporita decision having been predicated on the government’s failure to oppose the jury instructions and explained that those jury instructions were, in fact, erroneous. The Schrag court emphasized the broad definition of “intent to defraud” set forth by Kase and others. It is worth quoting the Schrag court’s analysis at length:

The court found that conduct [in Saporita] to be insufficient to establish an “intent to defraud” as charged since there was no evidence that “another person” was deprived of any property or right as a result of the defendant’s actions. A review of the Article 175 crimes illustrates that the use of the term “intent to defraud” is not qualified by any language which limits their applicability to property or pecuniary loss.
…
Although CJI [Criminal Jury Instructions] refers to the object of the intent to defraud as being “another person,” there seems to be no basis in law to require the defrauded entity to be a person. In fact, because the crime involves the false entry or omission of information from business records, the defrauded party is most likely to be a business entity rather than a person. (See, Penal Law § 175.00 [1].) The decision in People v Saporita (supra) appears to rely heavily upon the fact that the trial court gave the CJI instruction without objective by the People, so that the People were then limited to showing that another person was intended to be defrauded. Since the instant matter has not yet proceeded to trial, and this court does not believe the CJI instruction at issue correctly defines the statutory language, a dismissal of count 1 on this ground is not warranted.

Similarly, the language in the CJI instruction which refers to depriving another of “property or a thing of value or a right” is language which should be given more than just a commercial meaning. The enterprises which can be the victims of the falsification of business records include “any entity of one or more persons, corporate or otherwise, public or private, engaged in business, commercial, professional, industrial, eleemosynary, social, political or governmental activity.” Penal Law § 175.00(1). The interest of these various entities in keeping accurate business records goes far beyond their economic concerns and certainly extends to the rights of the entities and others which may be infringed by false records. In People v. Kase, 76 A.D.2d532, 537, 431 N.Y.S.2d 531 (1st Dept., 198); aff’d 53 N.Y.2d 989, 441 N.Y.S.2d 671, 424 N.E.2d 558, the Court favorably cited the federal rule that, in a prosecution for filing a false instrument, it is not necessary to show that the government suffered a property or pecuniary loss from the fraud citing Hammerschmidt v. United States, 265 U.S. 182, 188, 44 S.Ct. 511, 512, 68 L.Ed. 968. It was sufficient to show that the government’s legitimate official action and purpose were impeded. Accordingly, this Court will impose no requirement that the Grand Jury presentation establish a commercial or property loss. 

147 Misc. 2d at 518–519, 558 N.Y.S.2d at 452–453 (Rockland County Ct. 1990). Subsequent case law in the Second Department has adopted the broad definition of intent to defraud in line with the Kase test and Schrag. See People v. Elliassen (Richmond County Sup. Ct. 2008), which we discussed at length above. See also People v. D. H. Blair & Co., Inc. (New York County Sup. Ct. 2002) (rejecting Hankin and stating that “prior cases which have defined the statutory scope of a falsifying business records charge have not limited the statute to encompass only the intention to defraud the entity, whose business records were falsified. Rather, the reach of the statute includes the falsification of records, which are designed to thwart possible regulatory scrutiny”). 

Conclusion

In sum, the New York case law offers clear guidance on the broad scope of the “intent to defraud” for the offense of falsifying business records. While there are other legal hurdles for the Manhattan DA to cross in the indictment of the former president, this element of the relevant offenses poses no obstacle based on the known facts in the case.

IMAGE: Manhattan Criminal Courthouse with increased presence of NYPD officers and media crew on March 31, 2023, the day after former President Donald Trump was indicted. Photo credit: Melissa Bender

The post The Broad Scope of “Intent to Defraud” in the New York Crime of Falsifying Business Records appeared first on Just Security.

Falsifying Business Records

Falsifying business records under New York law can be charged either as a misdemeanor or a felony. The misdemeanor requires proof of one of several potential acts. Relevant to Trump is the statute’s prohibition of making “a false entry in the business records of an enterprise.” The evidence indicates he personally signed checks to Michael Cohen as reimbursement for the hush money payment. If DA Bragg can prove that Trump signed those checks—and it appears he can—and that Trump knew the payment for hush money was being falsely recorded as “legal expenses,” then Trump committed a misdemeanor (or likely a number of misdemeanors, if each false entry is charged separately).

To establish a felony (i.e. falsifying business records in the first degree), prosecutors would need to prove, in addition to the elements of the misdemeanor, that Trump’s “intent to defraud include[d] an intent to commit another crime.” There are a number of candidate crimes—and we offer below an assessment of just some of the more likely options.

Potential Predicate Crimes for a Felony Charge

Despite the numerous possible violations that could theoretically be charged, we focus our analysis on three possibilities based on publicly available information and our collective decades of experience prosecuting and defending criminal cases: (1) federal campaign finance crimes; (2) state campaign finance crimes; and (3) conspiracy to promote or prevent an election.

1. Federal Campaign Finance Crimes

There is strong evidence that Trump’s conduct in the hush money payments involved federal campaign finance violations. —After all, Cohen was convicted for just such offenses, and the Justice Department’s sentencing memorandum stated that he “acted in coordination with and at the direction of Individual-1,” who was easily identified as Trump. There are two potential problems with federal campaign finance violations serving as the basis for a felony charge in New York. As we noted in our last article on the subject, there are nuances in the definition of the word “crime” under New York state law. The New York Penal Law defines “crime” as “a misdemeanor or a felony.” Both “misdemeanor” and “felony” are separately defined as an “offense” for which a term of imprisonment can be imposed (the distinction between the two being the length of incarceration allowed). 

Finally, “offense” is further defined as:

“conduct for which a sentence to a term of imprisonment or to a fine is provided [1] by any law of this state or [2] by any law, local law or ordinance of a political subdivision of this state, or [3] by any order, rule or regulation of any governmental instrumentality authorized by law to adopt the same.”

Clearly, a federal law is not a “law of this state” or “any law, local law or ordinance of political subdivision of this state” – the first and second option. The third option in the statute, “any order, rule or regulation of any governmental instrumentality authorized by law to adopt the same,” could include federal law. In contrast to the other two clauses, the third does not explicitly limit “governmental instrumentality” to be “of this state.” And of course Congress is “authorized by law” to adopt laws imposing sentences of incarceration. Further, the “same” in this context could mean “any order, rule or regulation,” which could potentially include federal law. The text of the statute therefore could include federal crimes. Moreover, if the New York state legislature wished to limit the third option to New York state law, they certainly could have said so clearly. There also appear to have been cases in New York brought with a federal crime as a predicate offense, as we noted in our first essay in this series. 

Nevertheless, the only appellate court in New York to have considered the meaning of “offense”—albeit in a very different context, and without parsing the third clause listed above—found that it applied only to New York crimes. That appellate court will not bind a Manhattan court because it is out of another district and because its context is so distinguishable. But it will undoubtedly be pressed by Trump as persuasive authority if the federal crimes are relied upon to elevate the misdemeanor books and records charge into a felony. It remains to be seen how a judge would rule on this point if it is put to the challenge. If we were charging the case we would charge both federal crimes and state ones as alternative bases for elevating the misdemeanor to a felony, and we further discuss the scope of the federal case in subsection 4 of the legal defenses section below. 

According to press reports, however, it appears state campaign finance crimes may be the primary or exclusive basis for the felony upgrade. Indeed, we pointed out their potential applicability in the first essay in this series. We turn to them next.

2. State Campaign Finance Crimes

New York has a robust set of laws regulating elections that purport to apply broadly, including explicitly to “federal” contests. New York’s campaign finance laws also apply broadly to candidates who seek election “to any public office” (emphasis added). As a result, crimes outlined in New York’s state campaign finance laws might appear on their face to apply to candidates equally whether running for federal or state office—including for the presidency.

But the reality is more complex. To see why, take one such crime: N.Y. Elec. Law § 14-126(6). It states that any person who, “acting on behalf of a candidate … make[s] expenditures in connection with the … election of any candidate … for the purpose of evading the contribution limitations of this article, shall be guilty of a class E felony.” That the hush money payments were campaign expenditures seems relatively clear (as demonstrated, in good part, by Cohen’s conviction of those offenses at the federal level). They transgressed applicable state (and federal) limits and/or reporting rules. Moreover, the evidence supports the proposition that Trump was aware of that. For example, one of Cohen’s audio recordings of Trump indicates that Trump knew about the payments that would violate campaign finance laws. The audio recording also supports the contention that Trump knew the hush money payments were being made through a shell company that Cohen would be setting up. 

In the recording, Cohen says, “I need to open up a company for the transfer of all of that info regarding our friend David.” (David apparently refers to David Pecker, who was involved in the hush money scheme and appears to have testified in front of the Manhattan grand jury investigating Trump.) In proceedings with the federal government, Pecker’s company admitted that the scheme was set up “to ensure that a woman did not publicize damaging allegations about that candidate before the 2016 presidential election and thereby influence that election” (AMI non-prosecution agreement). So, section 14-126(6) appears to apply to Trump’s conduct.

Nevertheless, a potential problem for prosecutors is found in a separate New York state campaign finance law that states that the “filing requirements and the expenditure, contribution and receipt limits” under state law “shall not apply to any candidate” when that candidate is required to file statements at the federal level, “provided a copy of each such statement or report is filed in the office of the state board of elections.” (The provision is a reflection of the federal preemption issues which we shall cover in more detail in the next subsection.) Perhaps DA Bragg could argue that the appropriate statement or report was not really filed in the office of the state board of elections because it omitted any reference to the hush money payment. Essentially, the argument would be that if you lie to the federal authorities, then you are no longer subject to the exception under state law. We have found no case law assessing such an argument in New York—we will have to see what a judge decides.

3. Conspiracy to promote or prevent an election

A more likely candidate for the crime that may convert the books and records charge to a felony is N.Y. Elec. Law § 17-152: Conspiracy to promote or prevent election. Under that statute, “Any two or more persons who conspire to promote or prevent the election of any person to a public office by unlawful means and which conspiracy is acted upon by one or more of the parties thereto, shall be guilty of a misdemeanor.” Trump appears to have conspired with Cohen (and others) to promote his own election by making the hush money payments. The key questions are whether “unlawful means” were used and whether this statute is preempted by federal law.

Under New York law, “unlawful means” appears to be construed broadly—and is not limited to crimes (which would therefore require yet another predicate crime). In a 100-year-old opinion, the state appellate court with authority over Manhattan ruled that “unlawful means” as written in another statute does not necessitate “the commission of a crime.” Instead, the court held that “unlawful means” simply refers to conduct “unauthorized by law.”

That case, although vintage, is consistent with what we would expect to find when construing the meaning of section 17-152. New York’s highest court has noted that when language in a statute is not defined, words are generally to be given their “usual and commonly understood meaning” and that dictionaries are “useful guideposts” in ascertaining that meaning. Merriam Webster defines “unlawful” as “not lawful : ILLEGAL.” “Illegal” is further defined as “not according to or authorized by law : UNLAWFUL, ILLICIT.” Unlike with the definitions of “a crime” in the books and records statute, there appears to be no issue about the definition precluding the application of federal law. Indeed, these definitions appear to include any conduct that is inconsistent with the law, rather than just criminal conduct. And we would expect a judge ruling on the meaning of the statute to find as much.

Thus the potential “unlawful means” here are legion. There are the violations of federal campaign finance laws to which Cohen pleaded, as well as violations of state campaign finance laws, and potentially even the bank fraud for which Cohen was convicted in connection to the scheme. Some commentators have suggested that bank fraud is an option for a state law predicate, as it avoids the preemption problems of state campaign finance violations (more on that below). The biggest challenge to that theory is that New York generally requires some mental culpability as to each element of an offense. That would mean the prosecution would have to prove that Trump knew about Cohen’s bank fraud, and it had a sufficient nexus to the election interference. No publicly available information indicates there is any evidence of that, but perhaps DA Bragg has something up his sleeve. If so, then bank fraud could be a viable option.

4. A catch-all alternative

Either in addition to or instead of any of the offenses outlined above, DA Bragg may also consider the catch-all offense within New York state’s election code as the predicate crime for the books and records charge. That statute, N.Y. Elec. Law § 17-168, criminalizes any knowing and willful violation of any New York election law (to the extent the “violation is not specifically covered by” some other provision). There are many New York election laws Trump may have violated in the hush money scheme. As just one example, when Cohen made the payment to keep Stephanie Clifford silent, he was required to account for the expenditure consistent with New York campaign finance laws (so long as state campaign finance law applied to Trump’s candidacy, as addressed above). To the extent Trump directed Cohen’s conduct, he could himself be criminally liable under the catch-all provision for this violation.

Trump’s Possible Counterpoints and Legal Defenses

In our first piece in this series, we addressed several legal hurdles that Trump may try to put in front of DA Bragg—including arguments that any charges would be barred by applicable statutes of limitations or that Trump could raise a defense based on the advice of counsel. We explained that those can be overcome. 

Three  more arguments that Trump may advance are: federal law preempts and thus blocks the campaign and election related state offenses at the state level; the funds used were not campaign money, and that the payment would have been made “irrespective” of the election. The federal preemption issue is a tricky one that requires unpacking but that appears to us to be ultimately unavailing.  As for the other two hurdles we discuss below that Trump might advance, neither of them is persuasive either.

1. Federal Preemption

Using state  campaign finance law violations as the “unlawful means” under  N.Y. Elec. Law § 17-152 presents a federal preemption question. 

Federal preemption refers to the circumstance where federal law renders a state law unenforceable. The Supremacy Clause of the United States Constitution makes federal law “the supreme Law of the Land.” As a result, when there’s some irreconcilable conflict between state and federal law (conflict preemption), when Congress’ legislation of an area of law is sufficiently pervasive (field preemption), or even when Congress just says so (express preemption), the federal law wins and the state law is unenforceable.

The Federal Election Campaign Act of 1971 (FECA), as later amended in 1974, includes an express preemption statute that states, with certain exceptions not relevant here (e.g., involving voter fraud) the following: 

“[T]he provisions of this Act, and of rules prescribed under this Act, supersede and preempt any provision of State law with respect to election to Federal office.” 

The Federal Election Commission (FEC) rule interpreting that statute further states that “Federal law supersedes State law concerning the … [d]isclosure of receipts and expenditures by Federal candidates and political committees” and “[l]imitation on contributions and expenditures regarding Federal candidates and political committees.”

Although the FEC has taken the position that FECA “occupies the field with respect to Federal election campaign contributions,” some courts interpreting the Act have instead found that FECA’s preemptive effect is narrow. Those courts have allowed state statutes to stand that clearly “relate to” or “concern” federal campaign contributions in a variety of circumstances, including: a limitation on corporate contributions to federal campaigns; a violation of consumer protection laws related to recurring donations to a political action committee (PAC) that exclusively funded federal campaigns; and fraudulent transfers of donations from PACs ostensibly founded to support presidential campaigns. One federal appellate court explained that courts appear to allow such laws to stand when they are “tangential” to the regulation of federal campaign financing.

How does that apply to the crimes we have outlined above?

First,  a falsifying books and records charge itself would not be preempted, whether or not the predicate offense were a campaign finance violation—so long as the underlying violation itself were not a preempted state law—as it is analogous to the kinds of laws that courts have consistently found permissible under a narrow reading of FECA’s preemption statute. If consumer protection laws related to political donations are okay, as another federal appellate court has held, then surely laws promoting accurate corporate record-keeping are as well.

Second are the state campaign finance crimes, where the issue of federal preemption looms large. Indeed, Trump may argue preemption applies to any New York campaign finance crime used as the basis to charge a felony false records offense against Trump. New York’s highest court has stated that FECA “occupies the field with respect to reporting and disclosure of political contributions to and expenditures by Federal candidates and political committees.” The court further indicated that the preemptive scope of FECA may cover all regulation of the “financing of campaigns for Federal elective office.”

DA Bragg could still argue that section 14-126(6) is tangential to FECA, in that it really regulates expenditures made to violate campaign finance laws, rather than regulating the financing itself of a campaign for federal office. Even so, it appears Trump would have had to have been subject to New York’s campaign spending limits in the first place, which themselves are arguably preempted.

The issue is fairly novel, and we will have to wait and see what a judge decides if DA Bragg takes this route.

Third is the offense of conspiracy to prevent an election by “unlawful means.” Here the specific question is  whether section 17-152 would be preempted if the “unlawful means” used to achieve the conspiracy to promote a candidate is a violation of federal campaign finance laws. As a preliminary matter, a state statute that directly criminalized any violation of federal campaign finance laws could be preempted. Section 17-152 with a federal campaign finance law violation as the “unlawful means” in effect criminalizes a conspiracy to violate a federal campaign finance law, and is arguably subject to preemption for the same reason. 

DA Bragg could however reply that the FEC regulation, which a federal court of appeals has said is “definitive evidence of the scope of FECA’s preemption clause,” does not cover such a crime. That regulation, in relevant part, supersedes state laws concerning the “[d]isclosure of receipts and expenditures by Federal candidates and political committees” and any “[l]imitation on contributions and expenditures regarding Federal candidates and political committees.” By its express terms, the regulation does not explicitly say that criminalizing violations of federal campaign finance laws—or conspiracies to do the same—are preempted. As a result, DA Bragg could plausibly argue that 17-152 under this theory is not preempted. And he could point to the substantial number of cases we cite above for the proposition that courts have refused to preempt state statutes touching on federal campaign contributions in a variety of circumstances that are arguably comparable. 

Here, the question is whether a state criminal law that effectively criminalizes federal campaign finance violations would be deemed to be “with respect to” or “concern” the areas covered by the preemption provisions. This is another novel situation, and again we will see what a judge decides if Bragg pursues this path.

2. Campaign funds versus personal funds

Trump and his attorneys have noted that the hush money payments and repayments were not made with campaign money, as if that exonerated him. But as a starting point, that offers no defense to whether misdemeanors of falsifying business records were committed. The question of whether it helps the other crime needed to convert that charge to a felony depends on the other crime. It certainly offers Trump no assistance as to any of the three crimes discussed above. 

For state campaign finance violations, the payment counts as a qualifying “contribution” even if it comes from non-campaign funds. New York Election Law § 14-100(9)(3) defines “contribution,” in part, as “any payment, by any person other than a candidate or a political committee authorized by the candidate, made in connection with the nomination for election or election of any candidate.” Cohen made the payment to Clifford, and not candidate Trump; a corporation (American Media Inc.) made the initial payment to Karen McDougal. 

Likewise under FECA, a campaign “expenditure” includes any payment “made by any person for the purpose of influencing any election for Federal office.” The money not being campaign money therefore does not help Trump with federal campaign finance violations either. And a prosecution under the election conspiracy statute suffers from the same problems for Trump, as those are the likely “unlawful means.” (And if something other than campaign finance serves as the “unlawful means,” it would seem not to matter if it came from the campaign coffers or not.)

Trump’s counsel has asserted that Trump would have made the payment “irrespective of the campaign”  which “ends this case,” but that line of argument does not hold up legally or factually. Legally, an expenditure is personal and not campaign-related if it is an expense “that would exist irrespective of the candidate’s election campaign.” But here the payment and entire scheme with American Media Inc.appeared calculated for campaign purposes rather than personal reasons. As we discuss below, Trump did not make the payment because he was hiding it from his wife—public evidence suggests that Melania already knew—and there is other evidence in the public record showing the payments were made to suppress the stories coming out before the election.  And even if the payment were made both for campaign and personal reasons, Trump would have been required to document that expense, which he apparently did not.

3. Statute of Limitations

The misdemeanor/felony distinction also bears upon the statute of limitations issues we addressed in our last article. As we noted in our prior piece, it appears more or less certain that prosecutors have a great deal of time left on the clock to charge Trump with a felony for his role in the hush money scheme before the statute of limitations runs. However, it is closer in the event that only a misdemeanor is charged, or if a court ultimately buys Trump’s legal arguments and rules all the felony charges against him must be dismissed (leaving only misdemeanor offenses standing). Misdemeanors in New York are subject to a two-year statute of limitations. As we also noted in our first piece, however, statutes of limitations can be paused for every day Trump spent outside New York after the last criminal act he committed. The last known check Trump signed to reimburse Cohen—which Trump reportedly knew was to be falsely recorded as a legal expense—was apparently signed on December 5, 2017.

The question is therefore how many days Trump has spent outside New York since December 5, 2017. Apparently, the answer is a lot. According to a report by the Washington Post, Trump spent at most 81 days in New York during the rest of his presidency (and very possibly fewer). That left approximately 21 months on the clock at that point to charge him with a misdemeanor. And although it has been approximately 26 months since the end of his presidency and he could theoretically have run out the clock, it seems clear he has not spent approximately 80% of his days in New York (as would have been required for the clock to run by now). That means that so long as the Court of Appeals does not overturn any existing law on the issue, even a misdemeanor is not time-barred.

4. What About the John Edwards Case?

Some commentators, and Trump’s defense attorney, appear to be trying to equate the hush money payments in this case to the contributions at issue in the unsuccessful prosecution of former Senator and presidential candidate John Edwards. Let us state clearly—whereas the Edwards case was borderline as to whether it should have been brought, both legally and factually, the Trump case is relatively straightforward. 

The Case Against John Edwards

Edwards was charged in a North Carolina federal court with five counts of campaign finance violations and one count of conspiracy (essentially, to commit the scheme contained within the other five counts). Many of the facts in the case were uncontested. From early 2006 through approximately August 2008, Edwards had an extramarital affair with Rielle Hunter, a former campaign videographer. The National Enquirer published allegations of the affair in October 2007, and a subsequent article in December 2007 alleging Hunter was pregnant. Edwards initially denied the affair, and his campaign aide Andrew Young claimed paternity over the baby. Over months, Edwards used payments from donors, some of which Young had collected, to pay for travel and accommodations for Young and Hunter to escape media attention. In the background of the affair, its coverup, and Edwards’ presidential campaign was his wife Elizabeth, who had stage-IV breast cancer. In an April 2007 interview, she acknowledged the cancer was likely terminal. She passed away in December 2007, survived by three children.

To secure a conviction, federal prosecutors had to prove that each of the six offenses were done willfully, which required a jury to find that Edwards knew his conduct was unlawful. That appears to have been one of their major challenges. The Government relied almost entirely on the testimony of Young—who was granted immunity for cooperating in the prosecution—and that of his wife, Cheri. Both had motivation to fabricate testimony. Young had the threat of criminal prosecution hanging over his head if he failed to implicate Edwards. And Young had significant exposure were he convicted: he testified that he kept approximately $1 million in payments for his own personal use. Cheri’s motivation to fabricate was not as strong, but a desire to support her husband and perhaps to seek revenge against the man she believed had wronged them likely played a role in the jury’s minds. Additionally, the proof as to whether the donors knew where their payments were going or that the campaign solicited the payments for that purpose was less than ironclad, in part because the donors themselves were unavailable as witnesses.

Among Edwards’ defense team’s many arguments were (1) that the money was personal and not election-related for the purpose of FECA because he used the money solely to hide the affair from his dying wife, and subsequently from their surviving children; and (2) in any event, he did not know that he could be violating of federal campaign finance laws. He mounted a robust defense, calling a number of witnesses, including both a former FEC chairman (who testified as to how complicated campaign finance law is) and one of Edwards’ former lawyers (who testified in support of Edwards’ contention that he did not know the payments were illegal).

Ultimately, the jury deadlocked on five counts and acquitted Edwards of one count. Any prosecutor who tries these types of cases (or defense lawyer who defends them) will tell you that without a proverbial smoking gun, proving a willful violation of a complex statute is challenging. Nevertheless, the fact that the Government came close in this case with a deadlocked jury suggests that when the proof is substantially more compelling, conviction is a real possibility. (In that case, the government decided against re-trying the charges on which the jury hung).

Contrast With the Case Against Trump

Trump’s defense will lack many of the attributes that helped Edwards avoid conviction. Compare Cohen (an imperfect, yet credible witness who already has served his time) with Young, whose motivation to stay out of prison clearly had an impact on his credibility. Trump also lacks the personal motivation that Edwards was able to argue—whereas Edwards’ wife was unaware of the affair, public evidence suggests that Melania already knew about Trump’s affair with Clifford. Edwards therefore could credibly argue he had a strong motive to keep the affair secret from his wife and their children. The fact that Edwards even made a payment after he dropped out of the election further buttresses that point. Moreover, whereas both McDougal and Clifford were in negotiations to go public about their affairs, there is no indication that Edwards’ mistress had any similar inclination. 

What’s more, the Trump payment was made only weeks before the election. And there is likely to be testimony from Cohen, Pecker, and perhaps others that the purpose of the payment was related to the election (the non-prosecution agreement with Pecker’s AMI is one piece of evidence, and the audio recording of Trump and Cohen referring to the arrangement with Pecker is another). The Justice Department’s sentencing memorandum in Cohen’s federal criminal case is also replete with references to how the arrangement was designed—starting two months after Trump announced his presidential run—to suppress stories being published before the election. And whereas Edwards’ former lawyer testified in his defense as to his good faith, Trump’s former lawyer (Cohen) will testify as to his bad faith. The proof as to the facts of a falsified business record and whichever likely predicate crime is alleged against Trump are also much stronger than were the facts of the campaign finance violations alleged against Edwards.

In short, although the two cases share some overlaps involving presidential campaigns and secret affairs, the outcome of the cases is likely to be very different.

Conclusion

The hush money payments were a significant matter for our democracy. The election of 2016 was a close one, in which Donald Trump was already coping with a sex scandal because of the Access Hollywood tape. Had the Clifford allegations emerged, they might have changed the outcome of the election. And the payments certainly seem to run afoul of the New York books and records statute. While bringing a felony case presents complexities, DA Bragg is to be applauded for taking the matter seriously. 

Trump for his part recognizes the peril he faces and is responding in a familiar fashion. His call to “PROTEST, PROTEST, PROTEST!!” is reminiscent of his “will be wild!” tweet summoning the mob to January 6. Bragg has said his office does not tolerate attempts to intimidate—rightly so. Trump’s incitement failed last time and will here as well. 

We await the DA’s next move.

IMAGE: (L) Manhattan District Attorney Alvin Bragg speaks at a press conference after the sentencing hearing of the Trump Organization at the New York Supreme Court on January 13, 2023 in New York City (Michael M. Santiago/Getty Images); (R) Former U.S. President Donald Trump speaks to reporters before his speech at the annual Conservative Political Action Conference (CPAC) at Gaylord National Resort & Convention Center on March 4, 2023 in National Harbor, Maryland. (Anna Moneymaker/Getty Images)

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Even critics of Garland’s decision should recognize that the optics would be less than ideal if he proceeded without a special counsel. Trump just this week formally announced that he will be running to return to the Oval Office. And President Joe Biden has said that his intention is to run for reelection. It was therefore a prudent decision, and within the DOJ’s regulations, for Garland to take this course of action, even if a special counsel appointment is typically used when investigating a political figure within the executive branch.

Those rules provide that if there is either “a conflict of interest for the Department or other extraordinary circumstances” and “it would be in the public interest,” the Attorney General will appoint a special counsel. For the political appointee of the president to investigate and perhaps prosecute Biden’s leading political opponent is, as Garland rightly noted, an “extraordinary circumstance.” And removing any risk of potential taint serves the public interest.

If the facts demonstrate Trump violated the law, we have no doubt that the Special Counsel will pursue indictment. As a veteran former federal prosecutor with more than 16 years of experience at the Department of Justice, Smith is well aware of the Department’s policy that suggests prosecution when, among other things, “the person’s conduct constitutes a federal offense,” and “the admissible evidence will probably be sufficient to obtain and sustain a conviction.”

Our pros memo supports the conclusion that Trump has committed a number of felonies, and that the facts will be sufficient to obtain and sustain a conviction. The pros memo outlines the strong case that could be brought against Trump in connection with his mishandling of classified and other government documents at Mar-a-Lago, as well as obstruction of the investigation by the National Archives and the Justice Department. Some of us have also been involved in carefully tracking the evidence against Trump related to the events of January 6, and the facts, while far more complicated, may well support prosecution in that case as well.

Of course, we surely do not have all the facts. There may or may not be additional exculpatory evidence out there—or proof of the inculpatory variety. In either event, Smith’s reputation for prosecutorial tenacity suggests he will fill those gaps.

An important question, however, is how long it will take to do so. Garland, in his statement appointing the Special Counsel, said, “I am confident that this appointment will not slow the completion of these investigations.” Smith also committed to acting with dispatch. It is badly needed.

Nearly two years have elapsed since January 2021, when the potentially criminal pattern of conduct under the Special Counsel’s purview culminated. For our pros memo, we reviewed every prior prosecution for mishandling classified information in the United States. Those precedents show that the DOJ usually brings charges within one to two years after the offense was committed, and sooner when discovery of the unlawful taking of the documents follows on the heels of the crime.

As our model pros memo details in its compilation of prior DOJ precedent, literally any other American who had concealed classified documents would likely have already been subject to prosecution—and where the former president concealed hundreds including some of the nation’s most sensitive secrets—the rule of law demands expeditious action.

Some are understandably skeptical whether justice will be timely obtained, or obtained at all, given Trump’s record of evading legal consequences. History elevates that concern. Of the many lawyers appointed as special counsel, dating back to Archibald Cox as “special prosecutor” related to Watergate, no indictment against a sitting or former president has ever been filed. But each of those cases had serious impediments to prosecution that simply do not appear to be present here.

Some of those cases involved a sitting president, preventing—at least according to DOJ policy—criminal prosecution. We know this policy motivated the lack of affirmative conclusions of criminal conduct in Special Counsel Robert Mueller’s 2019 report. Mueller said so. That hands-off approach to a sitting president also explains why Richard Nixon was not prosecuted prior to his resignation (though, but for President Ford’s pardon, he may well have been subject to a post-presidential indictment).

Importantly, there is simply not that much precedent for the times we are in (which is a fortunate thing). And none of the previous cases involved evidence of criminal conduct after leaving office. Whatever constitutional or prudential considerations might militate against pursuing criminal charges against a sitting president for conduct during their tenure, none apply once that person has returned to life as a private citizen.

On the contrary, ex-presidents should not be treated any differently than other Americans. Being elected president is not a lifelong grant of criminal immunity. That protection is something that applies only in monarchies and tyrannical regimes. The rule of law requires that its operation applies to each of us equally. Indeed, having been the leader of the free world, and the head of our law enforcement and intelligence communities, should mean a greater, not lesser, obligation to adhere to the law by a former president.

The ultimate responsibility for that accountability lies not only with Smith but also with the Attorney General. Under DOJ regulations, the Special Counsel will ultimately need to notify Garland if he determines to charge Trump. That gives the Attorney General the authority to stop the action (triggering reporting requirements to Congress) or to allow it to proceed.

Just as the voters of this country resoundingly pushed back in the 2022 election against candidates attempting to nudge our nation toward autocracy, we expect Smith will do his duty, and ensure the promise of equal justice under law. The analysis in our pros memo points to his recommending charges and Garland accepting that recommendation. We hope that will come sooner rather than later.

The post Our Prosecution Memo Points the Way for the Special Counsel appeared first on Just Security.

This model prosecution memorandum (or “pros memo”) assesses the potential charges against former President Donald Trump emanating from his handling of classified documents and other government records since leaving office on January 20, 2021. It includes crimes related to the removal and retention of national security information and obstruction of the investigation into his handling of these documents. The authors have decades of experience as federal prosecutors and defense lawyers, as well as other legal expertise. Based upon this experience and the analysis that follows, we conclude that there is a strong basis to charge Trump.

Before indicting a case, prosecutors prepare a pros memo that lays out admissible evidence, possible charges, and legal issues. This document provides a basis for prosecutors and their supervisors to assess whether the case meets the standard set forth in the Federal Principles of Prosecution, which permit prosecution only when there is sufficient evidence to obtain and sustain a prosecution. Before a decision is made about this matter, prosecutors will prepare such a memo.

But such a DOJ memo will be confidential, in part because it will contain information derived through the grand jury and attorney work product. Since that document will not be publicly available, we offer this analysis. Ours is likely more detailed than what DOJ may prepare internally. But, given the gravity of the issues here, our memo provides a sense of how prosecutors will assemble and evaluate the considerations that they must assess before making a prosecution decision.

Our memo analyzes six federal crimes:

Mishandling of Government Documents
1. Retention of National Defense Information (18 U.S.C. § 793(e))
2. Concealing Government Records (18 U.S.C. § 2071)
3. Conversion of Government Property (18 U.S.C. § 641)

Obstruction, False Information, Contempt
1. Obstruction of Justice (18 U.S.C. § 1519)
2. Criminal Contempt (18 U.S.C. § 402)
3. False Statements to Federal Investigators (18 U.S.C. § 1001)

Based on the publicly available information to date, a powerful case exists for charging Trump under several of these federal criminal statutes.

Methodology

In considering prosecution of a former president, we begin with the standard articulated by Attorney General Merrick Garland: “upholding the rule of law means applying the law evenly, without fear or favor.”^[1] In other words, this case must be evaluated for prosecution like any other case with similar evidence would be, without regard to the fact that the case is focused on the conduct of a former president of the United States. This memo accordingly includes a balanced assessment of this particular case, and a thorough review of past DOJ precedents for charging similar cases. Those past cases show that to decline to bring charges against Trump would be treating him far more favorably than other defendants, including those who were charged for less egregious conduct than his. “All Americans are entitled to the evenhanded application of the law,”^[2] Garland has stated, and we are guided by the values underlying those words as well.

This model prosecution memo is, however, limited in an important sense. Throughout the memo, we draw as much as possible on the unusual amount of factual information provided by the government in its court filings. We do not, however, have visibility into the full volume of information the Justice Department has assembled. That means we could be missing important facts, including exculpatory evidence, that may inform DOJ’s decision-making process. We may be unaware of admissibility issues with some of the evidence. And equally true, the evidence could be better or more extensive than what is available in the public record.

What’s more, by necessity, we at times rely on news reports from investigative journalists whereas the actual prosecution memo would instead rely on direct evidence the federal investigators have collected. For that reason, we do not reach an ultimate charging decision. Instead, we stop at noting that there is a strong basis to charge based upon the public record, and that charges would be called for by Department precedent in like cases.^[3] 

The model prosecution memorandum is available below as a SCRIBD file and also as a separate PDF.

Also, to hear more about the memo from some of its co-authors check out the Just Security podcast. A conversation with Andrew Weissmann, Joyce Vance, and Ryan Goodman.

Just Security Mar a Lago Model Prosecution Memorandum November 2022 by Just Security on Scribd

– – – – – – –

1. Department of Justice, Attorney General Merrick Garland Delivers Remarks (Aug. 11, 2022), https://www.justice.gov/opa/speech/attorney-general-merrick-garland-delivers-remarks. ↑
2. Department of Justice, Attorney General Merrick Garland Delivers Remarks (Aug. 11, 2022), https://www.justice.gov/opa/speech/attorney-general-merrick-garland-delivers-remarks. ↑
3. Two of the authors of this model prosecution memo, Norman Eisen and Fred Wertheimer, were among the counsel for amici supporting DOJ’s position in litigation before the U.S. District Court for the Southern District of Florida, and the U.S. Court of Appeals for the Eleventh Circuit, related to the criminal investigation mentioned in this report. For more information, please see (https://democracy21.org/category/news-press/press-releases). ↑

Photo credit: Coolcaesar from Wikimedia Commons

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In this latest edition of our January 6th Hearings Criminal Evidence Tracker, we add the evidence set forth in the eighth and ninth hearings to our prior inventory. The eighth hearing focused almost entirely on Trump’s failure to act to protect the Capitol in the hours following his rally. The ninth hearing was more broad ranging, providing key details about Trump’s intent and knowledge both before January 6 and on the day itself—as well as presenting some of the more damning evidence from a recently obtained cache of records from the United States Secret Service.

With this update of the tracker we have now cataloged the substantial new evidence all nine hearings have derived in support of the subpoena—and of possible criminal charges against Trump. The tracker is available below and as a PDF.

The Eighth Hearing

The committee’s eighth hearing featured a wide range of witnesses, both live and in recorded depositions and interviews. Those witnesses provided a striking account of Trump’s recalcitrance to make a public statement telling his supporters to leave the Capitol. That account is made all the more remarkable by evidence the committee presented that many close associates and others were imploring him to act. Many of those pleas were made to Trump’s Chief of Staff, Mark Meadows. Others were communicated to Trump directly.

Perhaps the most extraordinary communication of that kind concerned a reported conversation between House Minority Leader Kevin McCarthy (R-Calif.) and Trump. According to Rep. Jaime Herrera Beutler (R-Wash.), Rep. McCarthy told Trump, “You have got to get on TV, you’ve got to get on Twitter, you’ve got to call these people off.” Trump’s response was reportedly flippant. Trump allegedly told Rep. McCarthy that the rioters weren’t “his people”—saying instead they were Antifa. Rep. McCarthy doubled down on his plea, telling Trump he was wrong and describing the chaotic scene around him. Rioters “literally just came through my office windows and my staff are running for cover,” Rep. McCarthy reportedly told Trump. But Trump was apparently unmoved. According to Rep. Herrera Beutler, Trump changed his explanation, conceding the rioters were his supporters, but now actually justifying their actions: “Well, Kevin, I guess they’re just more upset about the election, you know, theft than you are.”

Others practically begging Trump to issue a statement reportedly included Donald Trump Jr. and Fox News personalities. Trump Jr. texted Meadows at 2:53 p.m., “He’s got to condemn this shit ASAP. The Capitol Police tweet is not enough. … This is one you go to the mattresses on. They will try to fuck his entire legacy if this—on this if it gets worse.” Laura Ingraham texted Meadows at 2:32 p.m., saying, “The president needs to tell people in the Capitol to go home.” Sean Hannity texted Meadows at 3:31 p.m. asking for Trump to make a statement “telling the rioters to leave the Capitol.” Brian Kilmeade texted at 3:58 p.m.: “Please get him on tv. Destroying every thing [sic] you guys have accomplished.”

The committee also presented evidence that there was no possible justification for Trump’s inaction. Testifying live, former Deputy White House Press Secretary Sarah Matthews said that “he could have been on camera almost instantly” and that, if he wanted to make an address from the Oval Office, the White House could have assembled the “press corps probably in a matter of minutes to get them into the Oval for him to do an on camera address.” In a recorded interview, former White House Counsel Pat Cippollone said it would have been possible “at any moment” after learning of the attack on the Capitol for Trump to “walk down to the podium in the briefing room” and issue a statement. Yet despite arriving in the Oval Office at 1:25 p.m., Trump remained in his private dining room until after 4:00 p.m. watching Fox News, according to Rep. Elaine Luria (D-Va.) and others.

The actions Trump reportedly took during that multi-hour period of time are further evidence of criminal intent. The committee provided evidence that Trump spent that time attempting to persuade legislators—who were at the time under attack—to further delay the electoral count. The committee played a television interview with Sen. Tommy Tuberville (R-AL), in which he stated he spoke to Trump during the siege. According to Tuberville, he told Trump that “we’re not doing much work here right now because they just took our Vice President out. And matter of fact I’m gonna have to hang up on you. I’ve got to leave.”

The Ninth Hearing

In its ninth and possibly final hearing, held on October 13, the committee’s new evidence focused on demonstrating that Trump knew he lost the election and that he knew of the risk of violence in advance of January 6, while also presenting newly obtained records from the U.S. Secret Service. Several witnesses in recorded interviews recounted statements by Trump in which he acknowledged he lost the election. Recalling a conversation with Trump after the election, Chairman of the Joint Chiefs of Staff Gen. Mark Milley said Trump told him “words to the effect of, ‘yeah, we lost. We need to let that issue go to the next guy,’ meaning President Biden.” Alyssa Farah, White House Director of Strategic Communications and Assistant to the President under Trump, testified in a recorded interview that a week after the election, Trump “was looking at the TV, and he said, ‘Can you believe I lost to this effing guy?’”

Recorded testimony from Cassidy Hutchinson—the star witness in the committee’s sixth hearing—was also played to provide evidence that Trump knew he lost. Hutchinson testified that she was present with Mark Meadows and Trump in December 2020. According to Hutchinson, Trump said to Meadows “something to the effect of, ‘I don’t want people to know we lost, Mark. This is embarrassing. Figure it out. We need to figure it out. I don’t want people to know that we lost.’” Hutchinson said that on another occasion, Meadows had told her, “You know, a lot of times he’ll tell me that he lost, but he wants to keep fighting it. He thinks that there might be enough to overturn the election, but you know, he pretty much has acknowledged that he lost.” Immediately after the Jan. 2 call with Georgia’s Secretary of State Brad Raffensperger, Meadows allegedly told Hutchinson, “Cass, you know, he knows it’s over. He knows he lost, but we’re going to keep trying. There’s some good options out there still.”

The committee also presented evidence that Trump took official actions that suggested he knew he had lost the election. Keith Kellogg (National Security Advisor to Pence), Douglas Macgregor (former Senior Advisor to the Acting Secretary of Defense), John McEntee (former Director of the Office of Presidential Personnel), and Milley all testified in recorded interviews that Trump signed a memo on November 11, 2020, ordering that troops be withdrawn from Afghanistan and Somalia. Rep. Adam Kinzinger (R-Ill.) summarized the import of the memo: “Keep in mind the order was for an immediate withdrawal. It would have been catastrophic. And yet, President Trump signed the order. These are the highly consequential actions of a President who knows his term will shortly end.”

Other evidence that Trump was aware of the risk of violence on January 6 was also presented.  According to Rep. Adam Schiff (D-Calif.), “Days before January 6, the President’s senior advisers at the Department of Justice and FBI, for example, received an intelligence summary that included material indicating that certain people traveling to Washington were making plans to attack the Capitol. This summary noted online calls to occupy federal buildings, rhetoric about invading the Capitol building, and plans to arm themselves and to engage in political violence at the event.”

The committee also presented a substantial amount of material from the Secret Service that had not previously been available as to their advance assessment of the risks that would be present on January 6. Although it is not clear how much of this was relayed to Trump, it seems likely he was briefed on at least some of the reports. In a Secret Service report dated December 26, 2020, the FBI had received a tip that the Proud Boys planned to march armed into D.C. with enough people to “outnumber the police so they can’t be stopped.” The source said that “their plan is to literally kill people.” On December 30, 2020, the Secret Service received reports about a spike of violent rhetoric on the social media platform Parler. A December 31, 2020, Secret Service intelligence briefing circulated reports that Trump’s supporters had proposed a movement to occupy Capitol Hill. On January 5, the Secret Service flagged a social media account that threatened to bring a sniper rifle to the January 6 rally, posting a picture of a handgun and rifle. Later that day, the Secret Service learned during an FBI briefing that “right-wing groups were establishing armed QRFs or quick reaction forces readying to deploy for January 6th.” Also on January 5, the Secret Service received alerts regarding threats to Pence, and to storm the Capitol “if he doesn’t do the right thing.”

Other evidence from the Secret Service concerned the agency’s knowledge of, and reaction to, the events on January 6. Beginning with Trump’s rally that morning, the Secret Service reportedly was aware of a number of threats. Rep. Schiff stated that the “documents we obtained from the Secret Service make clear that the crowd outside the magnetometers was armed and the agents knew it.” Early morning reports from the Secret Service documented “ballistic helmets, body armor, carrying radio equipment, military grade backpacks ,” as well as “pepper spray, and … plastic riot shields.” At 11:23 a.m., agents reported “possible armed individuals, one with a glock, one with a rifle.” In the following hour, the Secret Service reported two additional armed individuals in the area. “With so many weapons found so far, you wonder how many are unknown,” one agent wrote at 12:36 PM, “Could be sporty after dark.” At 12:47 PM, another agent responded, “No doubt. The people at the Ellipse said they are moving to the Capitol after the POTUS speech.”

Additional Secret Service records document Trump’s attempts to join his supporters at the Capitol, further supporting the testimony of Hutchinson and Sgt. Robinson in prior hearings. According to a 1:19 p.m. email from Secret Service leadership, they raised concern Trump would engage in an off the record movement to the Capitol. Rep. Pete Aguilar (D-Calif.) noted the Secret Service evidence “shows how frantic this hour must have been for the Secret Service, scrambling to get the president of the United States to back down from a dangerous and reckless decision that put people in harm’s way.”

Finally, the committee provided evidence that Trump made plans to question the integrity of the election before it took place. Specifically, that scheme apparently occurred in reference to mail-in ballots. Testimony from Jared Kushner and Bill Stepien noted that advisors had told Trump that mail-in votes would help him. Trump reportedly rebuffed this advice—perhaps strategizing that he could more easily claim mail-in ballots were fraudulent if he repudiated them. Rep. Zoe Lofgren (D-Calif.) noted at the hearing that because of this strategy, it was expected that votes cast on election day would “would be more heavily Republican and this would create the false perception of a lead for President Trump, a so-called red mirage” that Trump could then claim on election eve was dispositive, which is what he attempted.

What Happens Next?

Taken together, the evidence from the nine hearings is staggering in its moral indictment of Trump. Whether a criminal indictment of Trump is forthcoming is somewhat less clear. At this stage, the committee has gathered more than enough evidence to make a criminal referral for Trump and several of his top advisers. The Justice Department certainly can act even without such a referral. And that’s all based only on the publicly available information we have now. The committee reportedly obtained millions of documents and interviewed more than 1,000 witnesses as part of its investigation. It remains to be seen what will ultimately be included in the committee’s report and just how much evidence against Trump remains behind closed doors. The Committee has certainly substantiated its subpoena to Trump. It remains to be seen whether he will cooperate, defy it, or go to court to litigate. Because the permutations are so numerous it is difficult to predict what the outcomes will be. We will be watching closely and will update our analysis as needed.

We will continue to update our charts in the event of any future developments in relation to the subpoena or the hearings. In the meantime, the current editions are provided below and as a separate PDF.

Readers may also be interested in synopses that accompanied each of the earlier editions following those public hearings, including: the initial introduction as well as introductions to the second, third, fourth, fifth, sixth, and seventh updates.

The January 6th Hearings a … by Just Security

Photo: U.S. Rep. Bennie Thompson (D-MS) (L), Chair of the House Select Committee to Investigate the January 6th Attack on the U.S. Capitol, delivers remarks alongside Vice Chairwoman Rep. Liz Cheney (R-WY) during a hearing on the January 6th investigation in the Cannon House Office Building on October 13, 2022 (Drew Angerer/Getty Images)

The post The January 6th Hearings: Criminal Evidence Tracker – Trump Subpoena Edition appeared first on Just Security.

This is an important test case for American democracy in the newfound battles over voter suppression.

These misbegotten prosecutions first made headlines on August 18, when Governor Ron DeSantis announced the arrests of 20 people across the state by his new police force targeting alleged illegal voting. The arrestees were former felons who appear to have believed they could vote under Amendment 4, which restored voting rights to those convicted of a felony whose sentence had expired, with some narrow exceptions. It turns out that many were specifically told by government officials that they could register to vote—and that many if not all had received voter registration cards suggesting they could legally vote.

Legally Flawed Cases

Now it turns out that the office of the statewide prosecutor handling the charges likely does not have legal authority to bring the criminal cases. The statute used by the prosecutor, Fla. Stat. § 16.56, provides jurisdiction to prosecute election crimes that occurred in “two or more judicial circuits.” Where a person registers to vote in one circuit and then votes in that circuit, the terms of the statute are not met.

That was the infirmity that led a trial court in Miami to issue an order on October 21 throwing out the first of the cases. The court ruled in favor of Robert Lee Wood—one of those arrested in August—and dismissed the case. Given the success of that motion, we expect all other attorneys representing clients who registered and voted in a single circuit to file similar motions.

Of course, the judge’s ruling is subject to appeal, which will likely center on an argument that he rejected. Prosecutors claim that any alleged election crime outside of the capital necessarily happens in more than one judicial circuit because voter registration applications are sent there for processing. The Miami judge rebuffed that nonsensical argument in his ruling: “Even assuming that Mr. Wood’s passive role in the transmission of his voter application form and completed ballot to Tallahassee is ‘activity’ that can be ascribed to him, it is not his ‘criminal activity.’” We think the Florida appellate courts will look askance at this argument by the prosecutors for the same reason.

Understandable Voter Confusion

The jurisdictional problems are just the beginning of the flaws in these charges. We expect others to be tossed out because of the lack of criminal intent. Amendment 4 and its aftermath created widespread confusion over which “returning citizens” (former felons) are eligible to vote. In short, they should not be blamed—let alone criminally punished—for erring when Florida told them they could vote.

Some background is helpful here: Amendment 4 reformed Florida’s archaic constitutional provision disenfranchising all citizens “convicted of a felony.” By 2016, the constitutional provision was suppressing the vote of approximately 1.4 million people in Florida, including over 21% of otherwise eligible Black voters.

Amendment 4 restored voting rights to all people convicted of a felony—other than murder or a sex offense—whose sentence (including probation and parole) had expired. Florida voters overwhelmingly voted in favor of the amendment, passing the required 60% supermajority needed for the law to go into effect.

That’s when the confusion began. First, Florida legislators passed S.B. 7066, significantly curtailing the impact of Amendment 4 by requiring payment of all court fines, fees, and restitution in order to have voting rights restored. Because of a lack of any central repository of such information, it is effectively impossible for voters to discern whether necessary financial obligations have all been satisfied. Civil rights groups challenged S.B. 7066, arguing that it amounted to an unconstitutional poll tax. In May 2020, a federal district court agreed, imposing a permanent injunction against the law. Just six months later, the U.S. Court of Appeals for the 11th Circuit reversed that decision, and the law went into effect.

It is no wonder that, in light of the caveats and court battles following the enactment of Amendment 4, some returning citizens mistakenly believed they were entitled to register and vote.

Indeed, it appears state officials and the media were confused as well. Many of these voters were specifically told by government officials that they could register to vote—and many if not all received voter registration cards. Press reports reinforced that idea, indicating that receipt of a voter information card serves “as an acknowledgement that the state has backgrounded the registrant and they are indeed eligible to vote.”

Florida’s voter registration form does not do anything to clear up the confusion. It simply requires any registrant to check a box stating, “I affirm that I am not a convicted felon, or if I am, my right to vote has been restored.” This simple affirmation does nothing to help returning voters address any reasonable misunderstanding.

A Lack of Criminal Intent

Any returning citizen who, as a result of this situation created by the state and others, honestly believed they could register or vote, will have lacked the criminal intent necessary for prosecution. The two statutes prosecutors are charging are “False swearing” (Fla. Stat § 104.011) and “Unqualified electors willfully voting” (Fla. Stat. § 104.15). The former criminalizes “willfully swear[ing] or affirm[ing] falsely to any oath or affirmation … in connection with or arising out of voting or elections [emphasis added].” The latter criminalizes voting when a person “know[s] he or she is not a qualified” voter. Anyone convicted of either offense faces a maximum sentence of 5 years.

But these voters do not appear to have been acting willfully or knowingly. Under Florida law that is generally defined as actual awareness of their ineligibility to register or vote. It is hard to see how prosecutors can prove that beyond a reasonable doubt in many if not all of these cases.

It was for this reason that a Florida prosecutor recently declined to prosecute six people in Lake County, Florida, who had voted in the 2020 general election. According to the State’s Attorney’s Office, each person appeared “to have been encouraged to vote by various mailings and misinformation,” and each had been “given voter registration cards.” Consequently, the prosecutor found that the evidence “fails to show willful actions on a part of these individuals.”

In analogous circumstances, the United States Supreme Court has held that the Due Process Clause of the U.S. Constitution prohibits conviction where a person reasonably relies on the advice of a government official. The Supreme Court noted that to hold otherwise “would be to sanction an indefensible sort of entrapment by the State—convicting a citizen for exercising a privilege which the State had clearly told him was available to him.”

The Final Straw 

In the last week, news organizations have posted body-camera footage of some of the arrests. In each video, the person arrested cannot believe that they had done anything wrong. Romona Oliver told officers as she was arrested, “I voted, but I ain’t commit no fraud.” As he was arrested, Tony Patterson similarly said, “Voter fraud? Y’all said anybody with a felony could vote, man.” Nathan Hart’s arrest also suggested he had no idea that he was not authorized to vote. He told the officers that while at the DMV, he was informed that any person who had completed probation was eligible to vote.

These are acts of cruelty by the governor and his election police and his enforcement policies. The good faith of these returning citizens who thought they were doing their civic duty is evident. Indeed, the circumstances are so wrong (and so probative of innocence) that some of the arresting officers are apologetic. As well they should be.

The Charges Must Be Dismissed

Given the serious legal flaws that appear to be present based upon public reporting, one cannot help but wonder why these cases were brought at all, and particularly in proximity to an election. We must ask whether this is a calculated strategy designed to intimidate all returning citizen voters—not just those few who are ineligible.

Fortunately, the dismissal of the first case by the courts sends an important counter message: it is not only voters who must comply with the law, but also the state. Unless prosecutors are in possession of some additional evidence that the people arrested in Florida’s August sweep knew they were not qualified to vote, then the other cases should also be dismissed immediately.

The post Democracy at Risk: Are The Florida Election Police Violating the Law? appeared first on Just Security.

New York Attorney General Letitia James has announced the filing of a monumental civil enforcement action against Trump, Donald Trump Jr., Eric Trump, Ivanka Trump, the Trump Organization and many other Trump affiliates.

The sanctions sought by the New York Office of the Attorney General (the “OAG”) are sweeping and potentially devastating: disgorgement of $250 million in profits; the cancellation of business certificates for Trump’s corporate entities; appointment of an independent monitor at the Trump Organization; a 5-year ban on Trump and the Trump Organization entering into any New York commercial real estate transactions or from applying for any loans from any New York entity; permanently banning Trump and his adult children from serving as an officer or director of a New York corporation. In addition to the potential civil penalties associated with today’s complaint, AG James also announced criminal referrals to the Southern District of New York and to the IRS. Penalties resulting from those referrals could result in substantial fines, and potentially even imprisonment.

With today’s filing of this enforcement action, it is important to consider the factual and legal bases for the claims, and how it could serve as a tipping point in cases against Trump, especially in light of the many other existing federal and state investigations.

The History of the OAG Investigation

According to court filings, the OAG began investigating Trump in March 2019 when Michael Cohen—Trump’s former lawyer and a former executive at the Trump Organization—testified that the Trump Organization inflated the values of Trump’s assets to obtain favorable terms for loans and insurance coverage, while also deflating the value of other assets to reduce real estate taxes.

Ever since, the OAG has aggressively investigated whether Trump and the Trump Organization engaged in illegal activity. The OAG has asserted in court papers that it has unearthed sweeping fraudulent and unlawful conduct. That is despite the years-long fight by Trump, the Trump Organization, and numerous other witnesses to avoid compliance with the OAG’s lawfully issued subpoenas. Trump, and others involved in the investigation, sought to frustrate the OAG’s efforts at the New York trial state level, on appeal in New York, and in federal court. Although Trump continues his quixotic campaign to stymie the work of the OAG, he has been unsuccessful at every turn. Trump was held in contempt of the New York state court in April—ultimately paying a fine of $110,000 for his intransigence and the risk of further costs—and only then agreed to comply.

The OAG reviewed hundreds of thousands of documents and deposed numerous witnesses, including Allen Weisselberg and Eric Trump—both of whom invoked the Fifth (more than 500 times each)—and Donald Trump Jr. and Ivanka Trump—neither of whom did. It is hard to know why the latter two decided to testify rather than invoke the Fifth. Their decision may have been based on a calculation that criminal charges against them were unlikely, due to the civil nature of the OAG inquiry and the new Manhattan District Attorney’s reluctance to pursue further criminal charges. (Weisselberg and Eric Trump testified in late 2020, whereas Donald Jr. and Ivanka testified only recently).

Those who invoked their Fifth Amendment rights may have helped themselves in any criminal investigation, but did themselves no favor in the OAG’s civil enforcement action: in New York, the invocation of the privilege in a civil case allows the trier of fact to draw the “strongest” inference against them. That means the judge or jury can infer from a witness’ invocation that the answer they would have given would have been damaging to their case. In the civil context, those who invoked may therefore have caused themselves, and their company, grave harm. Don Jr. and Ivanka Trump perhaps testified in an attempt to avoid that kind of scenario.

The Factual Allegations

Although we are only beginning to digest the allegations contained in today’s filed complaint, much of the alleged factual basis for the action were articulated by the OAG in court filings in recent months. Ordinarily, the fruits of an investigation would not be made public until after an enforcement action is filed. However, because Trump, the Trump Organization, and other businesses implicated by the investigation fought compliance with lawfully issued subpoenas, some of the OAG’s evidence has come to light. Court documents submitted by the OAG in its efforts to secure enforcement of those subpoenas pointed to widespread malfeasance by Trump and the Trump Organization.

Today’s complaint, taken together with the vast additional information in OAG’s prior court filings, assert that, over a period of more than a decade, Trump and his organization prepared misleading financial statements that seriously misstated Trump’s finances. Although some of the allegedly fraudulent methodologies involved sophisticated accounting tricks, many of the misleading statements seem to involve blatant falsehoods—including apparently about the size of Trump’s penthouse in the Trump Tower. The court filings indicate that these allegedly misleading financial statements were used to achieve a variety of benefits—including those to which Michael Cohen testified before Congress—such as lower taxes and more favorable loans and insurance coverage.

Inflated value in Trump’s financial statements

Since at least 2004, Trump and the Trump Organization prepared an annual “Statement of Financial Condition of Donald J. Trump,” each of which ostensibly contained a report of Trump’s net worth (or of Trump’s revocable trust while he was in office). The complaint centers on those statements for “at least the years 2011 through 2021.” Those statements were based in part on the value of real estate assets from Los Angeles to Aberdeen, Scotland. The OAG’s investigation alleges that staggering misrepresentations were made in the valuation of Trump’s assets.

One notable example is Trump’s midtown Manhattan penthouse apartment. In 2015, Trump’s financial statement reported the value of the apartment at $327 million. That figure was calculated by taking the square footage of the apartment—listed at 30,000 square feet in the statement—and multiplying it by a fixed price per square foot. But there was a problem with that method. According to Trump Organization documents received by the OAG, which were personally signed by Trump, the actual size of the apartment was just over 10,000 square feet. As Allen Weisselberg later testified, that resulted in an overstatement of “give or take” $200 million.

Another example, according to the OAG, concerns Trump’s golf course in Scotland. The Trump Organization purchased the property in 2006 for $12.6 million. Trump’s 2014 financial statement valued the property at more than $435 million—a return of nearly 3500% in eight years. Given that no cache of oil was discovered on the property in the interim, it is unsurprising that the OAG alleges that some underhanded accounting was at work.

According to Trump’s financial statements, the Trump Organization had received planning permission in 2008 for “a residential village consisting of 950 holiday homes and 500 single family residences and 36 golf villas.” Only the 500 single-family residences would be available for individual purchase—the rest were to be short-term rental properties. According to a 2017 appraisal commissioned by the Trump Organization, 557 private homes would result in a net present value profit of £16–19 million ($18–21.5 million). Yet the undeveloped land was valued at more than ten times that amount in Trump’s financial statements.

The OAG’s investigation discovered a number of other instances of alleged improper inflation of Trump’s properties, including a more than $100 million overstatement of Trump’s Seven Springs property in Westchester County, New York; a similar over-valuation of Trump’s Westchester golf course; and a greater than $200 million over-valuation of residential units in Trump’s Park Avenue property.

Of additional note is the OAG’s allegation that the statements improperly reported the extent of Trump’s liquidity. In one year, nearly a third of the amount of assets Trump reported as “cash” were in fact held in partnership entities that he did not control.

The extent of the alleged fraud is on a level that is staggering. According to today’s complaint, the “acts of fraud and misrepresentation grossly inflated Mr. Trump’s personal net worth as reported in the Statements by billions of dollars.”

Misrepresentations to Banks and Insurers

According to the OAG, Trump used these exaggerated financial statements to secure more favorable terms from banks and insurers. When considering whether to offer a loan, and what terms will be included in any loan agreement, banks evaluate the risk of default (and concomitant loss) against the potential for profit should the debtor repay the loan with interest. The better the financial position of the applicant, the more likely they will be granted a loan, and the more favorable the terms are likely to be. Based on the allegations made by the OAG, Trump abused this process on multiple occasions with banks, specifically in his dealings with Deutsche Bank.

For example, Deutsche Bank issued a $125 million loan to the Trump Organization in 2012 relating to a property in Miami, Florida. According to the OAG, Deutsche Bank had reviewed the inflated financial statements in advance of issuing the loan, and ultimately decided to extend the loan in part based on its understanding of the “Financial Strength of the Guarantor” (referring to Trump) as well as Trump’s personal guarantee.

Deutsche Bank issued two subsequent loans to the Trump Organization—one for $107 million and another for up to $170 million. In both cases, according to the OAG, Trump’s financial profile—based on the fraudulent information contained in the financial statements—was a substantial factor in Deutsche Bank’s assessment of the loan deals it agreed to. The latter agreement was made with Trump Old Post Office LLC—a Trump organization subsidiary, whose officers and owners were Trump, Eric Trump, and Ivanka Trump.

The OAG also has alleged that the Trump Organization further used its inflated financial statements in its dealings with insurers. One such example concerned a surety bond agreement between the Trump Organization and Zurich North America, in which Zurich ultimately agreed to an aggregate bond limit of $20 million. Surety bonds provide a mechanism for parties involved in a contractual relationship to manage risk: for instance,some provide protection in the event of non-performance, which results in the underwriter paying the aggrieved party. The financial condition of the purchaser of a surety bond agreement therefore is a key factor in determining whether an insurance company will underwrite such bonds, as well as the price the insurer will charge. That is because the risk of non-performance is higher when an individual or business is less financially stable. According to the OAG, on at least two occasions, the Trump Organization intentionally misrepresented the reliability of the financial statements to persuade Zurich to continue the surety bond program.

Misleading Statements to the IRS

In addition to using the financial statements to obtain improper benefits from banks and insurers, the OAG alleges the Trump Organization used similar financial tricks to deceive the IRS. One example concerned the Trump National Golf Course in Los Angeles. The Trump Organization acquired the property in 2002 after the prior owner had declared bankruptcy. While the prior owners were constructing a golf course, a large chunk of the property dropped into the Pacific Ocean during a landslide, rendering the property unstable. Likely due to the engineering difficulties associated with building on the property, the Trump Organization decided to donate a conservation easement for tax benefits. An appraisement in 2012 determined the net value of the potential development of the property to be roughly $18 million. As set forth by the OAG in its papers, a series of subsequent appraisals calculated higher and higher values by failing to account for the most accurate engineering appraisals, and failing to discount future profits associated with lengthy development timelines. According to the OAG, Trump reported an inflated value of $25 million associated with his donation of a conservation easement on the property.

The OAG also alleges another scheme undertaken by the Trump Organization to receive an improper tax benefit associated with Trump’s Seven Springs property in Westchester County, New York. That scheme places Eric Trump as a central figure in providing inaccurate or incomplete information to project engineers and appraisers in order to inflate the value of a planned conservation easement on the property. According to the OAG, following the easement’s donation, the associated tax deduction resulted in a multi-million-dollar benefit to Trump.

The New York District Attorney Investigation

In order to understand the likely outcome in the OAG enforcement action, it is important to review the current status of the District Attorney of New York (the “DANY”) investigation. Last summer, the DANY indicted the Trump Organization and its longtime CFO Allen Weisselberg on an array of charges related to tax fraud. Although Trump was not named in the indictment, the DANY continued to investigate Trump, convening a grand jury last fall in furtherance of its investigation.

That investigation of Trump hit a roadblock, however, with the swearing in of District Attorney Alvin Bragg at the start of the year. Reports indicate Bragg stalled the DANY investigation of Trump, which led to the abrupt resignation of two prosecutors leading the office’s efforts.

Nevertheless, the office continued its prosecution of Weisselberg and the Trump Organization. On Aug. 18, Weisselberg entered into a plea agreement and admitted his guilt to all 15 felony counts. In addition to agreeing to serve a five-month sentence at Rikers Island and a subsequent five-year probation term, as well as to a payment of nearly $2 million, Weisselberg agreed to provide testimony in the office’s criminal trial against the Trump Organization scheduled for October.

Notably absent from the plea deal is any agreement to cooperate in any investigation against Trump or his family members—something Weisselberg has reportedly refused to do ever since he was indicted. Of course, for a number of reasons, criminal defendants frequently choose not to cooperate with authorities. In our experience, however, it is extremely unusual for a prosecutor to allow only partial cooperation. That is especially so when the possible severity of sentence facing the defendant is high—more than a decade, in this case—and the probability of conviction appears near certain.

This set of circumstances suggests that Weisselberg is a critical witness for the prosecution in the impending criminal trial against the Trump Organization, and that his testimony is likely to be particularly damning. Under New York law, with limited exceptions not applicable here, the actions of a corporate officer are imputed to the corporation for which they work. Even if Weisselberg ends up testifying only to his own illegal conduct on behalf of the Trump Organization—which is unlikely, given that he pleaded guilty to conspiracy—that evidence could be what is needed to convict the Trump Organization.

One open question from this investigation is what use, if any, the OAG can make of the testimony and material received by the grand juries convened by DANY. The answer is probably that OAG can use what will otherwise be made public in the DANY matter. That is despite the fact that OAG assigned two of its lawyers to assist with the DANY investigations. New York law provides for the secrecy of all “grand jury testimony, evidence, or any decision, result, or other matter attending a grand jury proceeding.” To avoid even an appearance of impropriety, the OAG will likely need to wall off its lawyers who were cross-designated to assist with the DANY investigation. Nevertheless, all materials that become public from these proceedings will be fair game—including all testimony and evidence that is introduced in the criminal trial against the Trump Organization this October. As the civil enforcement action proceeds, the material can be utilized in discovery and in any civil trial.

Finally, there is a possibility of further criminal prosecutions related to the DANY prosecution of Weisselberg and the Trump Organization. Paragraph 5 of the complaint very bluntly alleges violations of a long list of criminal statutes that some of the authors of this essay have also analyzed in a lengthy report. The DANY may alter course and decide to bring these related charges—potentially against Trump and others in his orbit, including Weisselberg himself. Regardless of what the DANY does, the criminal prosecutions may not yet be over for Weisselberg, the Trump Organization, and others. Under the “dual-sovereignty doctrine,” a defendant can be prosecuted in state and federal court for the same conduct. Indeed, it is curious, to say the least, that there has been no sign of a federal criminal investigation given the wealth of evidence, particularly Weisselberg’s plea to evading both federal and state tax laws.

The OAG Enforcement Action

In the complaint filed today, the OAG alleges seven causes of action against Trump and his co-defendants, all under New York Executive Law § 63(12).

This is the statute that the OAG has used to perform its investigation thus far, as it provides for the issuance of subpoenas to compel witness testimony even before filing a complaint. A violation of this statute requires proof of a pattern of fraudulent or illegal business actions, which can be shown through repeated tax fraud. Penalties include damages (covering any demonstrated losses of parties injured by the fraud) disgorgement (covering any net profits attributable to the fraudulent conduct), canceling of corporate certificates, and other equitable relief (including the various sanctions today’s action seeks, including prohibitions on certain business activities in New York State).

The OAG elected not to seek damages in this case, which is unsurprising given that proving damages would have been a difficult challenge to overcome. Courts generally do not award damages they deem to be speculative. It may be true that Deutsche Bank would have charged higher interest on its loans to the Trump Organization, and that Zurich North America would have demanded higher prices on its surety bonds—but the OAG likely decided that proof of exactly how much would have been too speculative for a court to award.

In contrast, seeking disgorgement of profits was a wise course of action for the OAG to take. New York courts have held in enforcement actions under § 63(12) that the remedy of disgorgement does not require a showing of a direct loss to any particular party. Moreover, the OAG has successfully secured disgorgement of profits under § 63(12) in a number of cases, including against Ernst & Young LLP for its actions assisting Lehman Brothers in the lead-up to the 2008 financial crisis, against J. Ezra Merkin in connection with the Madoff Ponzi scheme, and against Vyera Pharmaceuticals (the renamed firm of former CEO “pharma bro” Martin Shkreli). These actions alone resulted in disgorgement penalties of tens of millions of dollars.

Perhaps even more devastating, § 63(12) allows for a host of additional remedies that are tantamount to a “corporate death penalty” for the Trump enterprises named in the complaint and for the role of Trump and the other defendants in doing business at all. That includes canceling corporate certificates without which the businesses cannot operate, appointing an independent monitor, barring Trump and the Trump Organization from doing loan, real estate and other transactions relating to New York for five years, permanently barring Trump, his adult children and other defendants from serving as officers or directors of New York businesses, and much more. This potentially yields many of the same effects as judicial dissolution that we discuss below and may have led the OAG to determine that pursuing judicial dissolution simply was not worth the risk.

One potential caveat, however, is how far back any such case may go. Generally, these actions are subject to a six-year statute of limitations. Here relief is sought for conduct spanning 2011 through 2021. A statute of limitations may however be tolled due to fraudulent concealment—meaning when an alleged wrongdoer takes steps to hide their fraudulent activity, the statute of limitations does not begin to run until the misdeed is discovered. The United States District Court for the Southern District of New York has previously tolled an action under § 63(12) for just such a reason. It is possible the court could find fraudulent concealment here, allowing more years of activity to be covered by the suit and for greater penalties to be imposed.

Given the foregoing allegations, the OAG could also have brought claims under New York’s False Claims Act. It had also long been speculated that the OAG may file for the so called “corporate death penalty”—an option that the OAG appears to have decided against. We address these options below, and explain the likely reasons why the OAG elected to file only under § 63(12).

New York False Claims Act

The individual defendants named in today’s enforcement action, including Trump and his children, may have dodged a bullet by avoiding a potential action under the New York False Claims Act (the FCA). The FCA prohibits avoidance of payment owed to a state or local government. Those found liable for violating the FCA are subject to potentially devastating penalties—both for the entity that made a fraudulent filing, and for any individuals who conspired to make the filing. Penalties include three times the amount of all damages proven, as well as payment of the costs of litigation, including attorneys’ fees. Additionally, the statute of limitations is ten years, potentially allowing for enforcement related to a long period of fraudulent activity.

Although the FCA was only passed in 2007—and only amended to apply to tax fraud in 2010—the OAG has already won some sizable awards under the statute. In 2018, following years of litigation, the OAG settled a case of tax fraud under the FCA with wireless carrier Sprint for $330 million. Another application of the statute in 2013 resulted in a $138 million award in connection with illegal marketing of drugs in New York by Johnson & Johnson and Janssen Pharmaceuticals.

The FCA in New York is young, but it has teeth. As with so many other aspects of the case, it is difficult to project the size of a likely penalty under the statute. Weisselberg’s recent plea agreement admitted to evading payment of taxes due on $1.76 million. Should such tax evasion prove to be widespread throughout the Trump Organization—and with treble damages in the mix—a likely award could have been very substantial indeed.

It is possible the OAG elected not to pursue causes of action under this statute to narrow the focus of any potential trial to issues related to fraudulent business activity. And with the New York AG’s criminal referral to the IRS, it is possible that substantially more than mere financial penalties are on the horizon for Trump, his adult children, and other named individual defendants.

Judicial Dissolution

Often called the “corporate death penalty,” the OAG could in theory file have filed for judicial dissolution of the Trump Organization by alleging it has “transacted its business in a persistently fraudulent or illegal manner.” The more than decade-long pattern of misconduct uncovered by the OAG’s investigation might provide legal justification for dissolution. Such action, if successful, would have required the winding down of the Trump Organization and the sale of its assets. In this case, Trump would have stood to lose control not only of his businesses, but of many of his properties—including his most prized skyscrapers, hotels, and golf courses. However, Trump may have been able to retain those assets by purchasing the associated rights to the properties with corporate entities chartered outside New York.

Recent case law, however, may have dissuaded the OAG from filing for judicial dissolution, as it is far from clear whether such an effort would have been successful. The OAG’s action against the National Rifle Association provides a cautionary tale. As the New York trial court described earlier this year, the OAG had alleged:

a pattern of exorbitant spending and expense reimbursement for the personal benefit of senior management, along with conflicts of interest, related party transactions, cover-ups, negligence, and retaliation against dissidents and whistleblowers who dared to investigate or complain, which siphoned millions of dollars away from the NRA’s legitimate operations.

Nonetheless, the court dismissed the OAG’s request for judicial dissolution. Relying on a case written in 1890 from New York’s highest court, the trial judge found that in addition to persistent fraudulent activity, there must be serious injury to the public. Quoting a more recent case, the judge noted that “before the Attorney-General can obtain judicial dissolution of a corporation, there must be a grave, substantial and continuing abuse, involving a public rather than a private right, by the corporation.” Because the abuse alleged by the OAG involving the NRA primarily damaged the organization and its members—rather than the public at large—the trial judge found dissolution was not merited.

The types of cases where judicial dissolution in New York has been approved involved persistent harm to individuals or small businesses. Given this background, it is unclear that judicial dissolution would have been granted if the OAG were able to prove only that the Trump Organization defrauded a small handful of other large corporations and occasionally cheated on its taxes. On the other hand, given Allen Weisselberg’s plea and the substantial evidence that is likely to come out during the October DANY trial of the Trump Organization—in addition to whatever other evidence the OAG has yet to make public—it remains possible that sufficient evidence of widespread public harm could have been presented for judicial dissolution to be granted.

Even if the OAG has sufficient evidence such that a case for judicial dissolution might be winnable, it makes sense they chose not to pursue it. That is understandable in light of the OAG’s outcome this year in the case against the NRA. Nevertheless, the arguments in favor of actual public harm caused by the alleged fraudulent and illegal actions of the Trump Organization seem much stronger than the strictly internal harms described in the case against the NRA.

At any rate, as we note above, the remedies that were sought such as canceling corporate certificates to do business, appointing a monitor, and barring business activity potentially yields many of the same effects as judicial dissolution. That may have led the OAG to determine that pursuing judicial dissolution simply was not worth the risk.

Conclusion: The Tipping Point

Although Trump, his company, and most of those in his orbit have so far avoided the full force of the law, that run of good fortune may soon be over. The Trump Organization faces financial penalties in the DANY criminal trial scheduled for October. The Department of Justice investigation of Trump concerning his improper storage of sensitive government materials continues, with the appointed special master seeming ready to hurry the case along (and dubious about Trump’s arguments). Separate federal grand juries reportedly are investigating Trump’s alleged obstruction of Congress in and around January 6, his involvement in an alleged scheme to obtain fraudulent electoral slates, and looking at Super PAC, Save America, for fraud. Some 40 subpoenas recently were issued in the investigation reportedly focused on false slates. The House January 6 Committee is continuing its work, with hearings set to resume shortly. And a local grand jury in Fulton County, Georgia is accelerating its investigation into Trump’s efforts to overturn Georgia’s 2020 election results, with charges potentially coming as soon as the end of the year.

Nor does it stop there. Along with today’s announcement of the filing of the civil action, the New York Attorney General also stated that she had referred her office’s findings for criminal prosecution by federal authorities: to the Southern District of New York for possible charges of bank fraud and insurance fraud, and to the IRS for possible charges of tax fraud. Based on the allegations contained in today’s complaint, Trump and his children face a very real risk of indictment, criminal conviction, and imprisonment.

With sustained prosecutorial focus on a single individual from so many fronts, any additional straw may break the camel’s back. Because of the significant pressures on Trump already, we think this OAG civil case against his business and him could be that straw. He requires a substantial financial foundation to help sustain his many legal battles. Moreover, any sanctions in the civil case that result in the loss of prominent properties, where so much of Trump’s identity is tied up, would be a significant blow. The appointment of a monitor to replace him would be a devastating blow to his ego. Additionally, it has been our experience that, when family members are included in proceedings, it can take a devastating emotional toll. Here, as we have noted, the OAG has sued three of Donald Trump’s children who were involved in alleged wrongdoing at the Trump Organization.

At some point, the aggregate effect of all these investigations will reach a tipping point. We’ve often seen this in our collective over half-century of experience in white-collar criminal cases. The cumulative weight bearing down upon a possible defendant—whether corporate, individual, or both—at some point becomes unsustainable. To take another example of why that is the case, civil and criminal events can sometimes trigger default provisions in loan documents or other commercial contracts. While we’re not privy to all of the documentation here, that is a risk that we will look for (and, indeed, avoiding that outcome may be one of the reasons that the New York AG has expressed reservations about seeking the corporate death penalty). A criminal conviction in the October trial could also impact whether lenders or others choose to act based on any such provisions. Indeed, it has been reported that previous lenders have already cut ties with Trump, and that few firms remain are willing to do business with him. Trump faces a risk that the number of such willing business partners may dry up entirely.

Of course, this all is an assessment of future events based solely on currently available data. So far, Donald Trump has withstood years of legal pressures that would have felled a less shameless person. He has a genius for impunity the likes of which we have never seen. Still, we have never seen him, or any individual, come under this many fronts of sustained legal pressure. Today’s announcement may well serve as a tipping point signaling the beginning of the end.

Disclosure: Danya Perry is a co-founder and attorney at Perry Guha LLP in New York, as well as a former federal prosecutor in the Southern District of New York and New York State Deputy Attorney General. Danya represented Mr. Cohen in his successful habeas corpus complaint against William Barr and others after Mr. Cohen was unlawfully remanded to federal custody in violation of his First Amendment rights.

IMAGE: New York Attorney General Letitia James  (Photo by Michael M. Santiago/Getty Images).

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