The Trump fraud trial—from a forensic accountant’s POV

Bruce Dubinsky has testified in more than 80 trials over a 40-year career in forensic accounting, but he’s never seen anything like the civil case playing out against former President Donald Trump in New York.

In most of his trials, he said, he would look out from the witness stand to see a single spectator. But it’s obviously a very different story for the Trump trial, which has sparked a sudden interest in complex questions of valuation, fraud, and forensic accounting.

“The level of interest on the Trump trial is just never seen before,” said Dubinsky, who’s following along with interest but not involved in the trial.

It’s an unusual case because of the defendant, but also for the legal claims and strategies involved, according to Dubinsky and two other experts. At the same time, the argument hinges on classic finance and accounting questions about valuation, subjectivity, and how to fairly present information.

NY Attorney General Letitia James is asking for a $250 million fine and to permanently bar Trump and associates from doing business in New York. James has already won a significant part of that. Two weeks ago, the judge overseeing the case ordered Trump’s New York business licenses be stripped and the court case is now to determine the financial penalty.

Here’s what you need to know.

The claims at play. This is a civil fraud case brought by James, whose office claims that Trump and his associates “engaged in numerous acts of fraud and misrepresentation in the preparation of Mr. Trump’s annual statements of financial condition” and that those acts “grossly inflated” Trump’s personal net worth.

That information was used to “repeatedly and persistently” to convince banks and insurers to do business with, “and lend money to the Trump Organization on more favorable terms,” the attorney general argues.

Much of the case focuses on valuations of real estate, with James arguing that Trump overinflated the value of his properties in ways that “ignored or contradicted” the advice of professionals such as bank appraisers. The complaint also alleges that Trump violated GAAP rules in statements by, for example, incorrectly labeling certain funds that didn’t belong to him as available cash.

Despite the outsized attention and controversy of the case, the core questions are familiar ones for forensic accountants.

“It’s interesting because the issues here are somewhat similar and somewhat different from other valuation discrepancies, or issues that you commonly see in a court in a court case,” said Mark Gottlieb, another longtime forensic accountant, who’s been watching the trial but is not involved with it.

Differing opinions. Differences of opinion on value are commonplace, Gottlieb said. But when valuations diverge by more than 15%—and the differences in the Trump case are far larger than that—there is almost always a deeper reason, he said.

“It’s reasonable that two qualified professionals with good intentions, and who are transparent and credible, may have different valuation opinions. But again, it’s all a matter of how large that difference may be,” Gottlieb said.

Dubinsky agrees that the extent of the overstatement will be important. Fraud cases often hinge on “reliance,” or the question of whether banks and insurers really did depend on the alleged misstatements.

“Even if he overinflated the assets, if they didn’t really rely on those, is there any harm?” he said. In fact, the idea of puffery is a legal defense used in some federal finance cases. (Yes, they really call it “puffery.”)

Just as importantly, James will try to prove Trump had benefited from “ill-gotten gains,” Dubinsky said. “I think that’s going to be a heavy lift for the AG. But, you know, I don’t know what this judge will do.”

Unusual setup. However, there are signs that this case, again, won’t go like other fraud cases.

“I’ve never seen this before,” said Thomas Buckhoff, a forensic accountant and associate professor of accounting at Georgia Southern University.

The attorney general is pursuing the case under New York’s Executive Law, which Buckhoff said is unusually broad and vague in defining fraud. Unlike for many other fraud cases, there’s no need to prove intent to defraud under the New York law.

“All it requires is that the perpetrator provide a false statement. They don’t have to prove that he knew the statement was false or that there was an intent to deceive, they don’t have to prove that the victims relied upon it. And they don’t have to prove that they suffered damages as a result,” he said.

The AG is seeing success so far, with the judge granting partial summary judgment and finding already that the documents “clearly contain fraudulent valuations,” which established “liability as a matter of law against the defendants.”

What CFOs should know. Your typical CFO may likely never land in a civil fraud trial that captures global attention.

However, CFOs have to have a grasp of the facts and enough confidence to push back on puffery, Dubinsky said. Often, they can do so in alliance with the general counsel.

“I think it’s all about credibility in the CFO’s office,” he said. “Make a solid presentation when you’re arguing your points. And I think most CEOs, and most C-suite executives, will respect the CFO.”

That kind of oversight can lead to friction in the moment, but it just might keep you out of the courtroom.