Though Donald Trump’s criminal prosecutions have gotten most of the attention—and rightly so, given their unprecedented effect on an election campaign—it’s the civil investigation of the former president, his associates (including children), and his companies that may have longer-lasting effects. Indeed, New York’s status as America’s business capital is tottering after a suspect, and excessive, judgment against the Trump Organization.
Back in September of last year, after a four-year investigation by New York State attorney general Letitia James into financial fraud allegations that boiled down to presenting inflated property values to potential lenders, presiding judge Arthur Engoron ordered the termination of the defendants’ business licenses and the dissolution of various limited liability companies. Then, in February, Engoron concluded that the defendants “failed to accept responsibility or to impose internal controls to prevent future recurrences” of having “submitted blatantly false financial data” to “borrow more and at lower rates” and assessed Trump and his companies $354 million of disgorgement of ill-gotten gains (plus interest).
These were odd developments because the law, giving the AG authority to investigate civil fraud, had never been applied to so-called victimless crimes, where no banks had complained because they knew to price in the puffery that is normal business practice in New York’s sophisticated real-estate industry.
In any event, People of the State of New York v. Donald J. Trump is now on appeal to the First Department of the Appellate Division, the state intermediate appeals court that handles cases arising in Manhattan. We filed an amicus brief for the Manhattan Institute, arguing that Engoron’s rulings are troubling exemplars of the kind of lawfare that discourages investment in the United States and undercuts job creators’ confidence. The appeal, to be argued in the teeth of a presidential election, will set global perceptions of New York’s business climate for decades.
Putting aside the dubious origins of James’s crusade—she ran for office on a platform of “get Trump”—the heart of this case relies on a fundamental error in basic civil procedure. Her case relies on a “preponderance of the evidence” standard—a “more likely than not” burden of proof typically reserved for ordinary civil disputes—even as she accuses Trump and the Trump Organization of quasi-criminal fraud rather than garden-variety civil infractions. And the penalties sought are severe, including hundreds of millions of dollars in fines and a “business death penalty” akin to the kind of punitive sanctions one would expect in a criminal case.
Traditionally, when the state seeks to impose such draconian remedies, it has to prove its case by “clear and convincing evidence”—a higher standard that appropriately reflects the seriousness of the charges and potential consequences. By accepting James’s lower standard of proof, Engoron set a dangerous precedent that undermines the principle of equal justice under law. If his decisions are allowed to stand, it will open the door for future cases where individuals and businesses are subjected to severe penalties based on insufficiently rigorous evidence.
The implications extend beyond this case—and beyond Donald Trump, whatever you might think of him and his business practices. New York, once the center of America’s commercial and financial might, is at risk of becoming a pariah for entrepreneurs and established firms who fear that they could be targeted by politically motivated prosecutions. When the rules of the game are manipulated to achieve political ends, the investor confidence necessary for economic growth quickly erodes. We’re already seeing that James’s actions have hurt the city and state, with businesses reconsidering their operations and some choosing to leave entirely.
In our brief, we demonstrate that James’s use of a “preponderance of the evidence” standard to pursue quasi-criminal fraud allegations is a dangerous deviation from traditional legal principles. The Manhattan Institute’s unique status as New York’s preeminent think tank allows us credibly to emphasize the broader implications for the rule of law and regional economic stability, warning that this precedent will undermine confidence in the judiciary and deter investment. And we show that those harms are already occurring in the context of a broader business-unfriendly agenda by the state’s executive officers—with sales-tax receipts shrinking, global businesses departing, and commercial properties showing record vacancy rates.
Indeed, New York’s actions here appear to be the tip of the spear of an onslaught of legal abuse. James’s sketchy multimillion-dollar scalp-hunting is emblematic of a broader trend where the rule of law gets compromised in favor of political expediency. As Jeb Bush and Joe Lonsdale argued earlier this year, the erosion of legal standards in high-profile cases not only undermines confidence in the judiciary but also creates an unpredictable business environment. Courts must remain impartial and uphold consistent legal standards that protect all citizens, regardless of their political affiliation or public profile.
New Yorkers—and all Americans—should be deeply concerned about the precedent this case sets. A business can be slapped with a multimillion-dollar judgment for a seemingly victimless course of action, any impropriety of which need not be definitively proven. If James can sacrifice the rule of law on the altar of her political ambition, New York is no longer a functioning democratic society or a suitable place to do business.
The ball is in the Appellate Division’s court.
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