The Trump-sized hole in New York law

New York Law Journal (NYLJ)

PUBLISHED ON: June 23, 2021

Why has the Manhattan district attorney’s office not yet charged former President Trump with any crime? A hole in New York law may provide a clue.

The heart of the potential case against Trump (and/or the Trump Organization) appears to be that Trump inflated the value of certain real estate holdings when applying for a loan from Deutsche Bank (and other lenders). His property tax returns and ethics disclosure forms reportedly provide much lower estimated values for the same properties.

The delay in charging Trump may stem from the difficulty of identifying a state criminal charge that fits the misconduct alleged.

On the facts known in the public sphere, it would an easier task (though not necessarily easy) for a federal prosecutor to charge the former president or his executives with serious federal crimes such as bank fraud and wire fraud. But New York does not have a bank fraud statute or a wire fraud statute. Bank loan frauds are sometimes prosecuted in New York State courts — either under the grand larceny statute, or under falsifying business records statutes.

But these prosecutions almost always arise when the borrower has failed to repay the loan — and likely never intended to.

The default choice for a New York prosecutor in the Trump case might be grand larceny in the first degree, a class B felony punishable by up to 25 years in prison, and defined by New York law as the theft of property exceeding $1 million. This charge requires proving the defendant intended to “deprive another of property or to appropriate the same to himself or to a third person.”

So far, so good. But New York case law also makes clear that the state of mind, or intent, required for larceny is to bring about a “permanent or virtually permanent change in the control or benefit of the property.”

Assume the prosecutor can prove that Trump intentionally made material false statements in his loan application by exaggerating the value of his real estate holdings, enabling him to obtain a $1 million loan. Nevertheless, all evidence suggests that he sincerely intended to repay the loan together with the agreed-upon interest, and that he has in fact done so to date. It’s hard to argue that Trump intended to permanently deprive the bank of property.

What other state law charges might the Manhattan DA consider in connection with Trump’s bank loan?

One possibility is the crime of falsifying business records in the first degree. But that crime requires the intent to commit or conceal another crime -— which brings the prosecutor back to the original problem of whether a larceny is made out here. Moreover, falsifying business records is only a class E felony, for which penalties range from probation to a maximum of 1-1/3 to 4 years of imprisonment.

The crime of scheme to defraud in the first degree does not require that the defendant intend to permanently deprive the victim of property. This might be a New York prosecutor’s best bet. But this is also only a class E felony; moreover, the charge requires proof of an intent to obtain property from multiple victims through a systematic course of conduct.

There is a federal statute that directly addresses and expressly prohibits bank fraud. 18 U.S.C. §1344 makes it a federal crime, punishable by up to 30 years in prison and up to a million-dollar fine, to (1) defraud a federally chartered or insured bank, or (2) obtain by means of false or fraudulent pretenses, representations or promises any funds or money held by such a bank.

The federal bank fraud statute does not require that the defendant intend to permanently deprive the bank of property. Indeed, it is not even necessary to show that the bank suffered any financial injury; prosecutors need only show that the defendant intended to obtain by fraud funds held by the bank.

So, on the facts alleged here, it would seem a relatively simple matter for a federal prosecutor to charge Trump with bank fraud in violation of §1344 in connection with his application for a loan from Deutsche Bank, an FDIC-insured bank. And if, as seems likely, the president used the telephone, the internet or U.S. mail in connection with applying for loans, it would also be simple for a federal prosecutor to also charge Trump with wire fraud and mail fraud.

But it will be far more difficult for the Manhattan DA to find a state law charge that fits the misconduct alleged, and there is a real chance that any such charges might be dismissed for legal insufficiency.

Greenberg is a shareholder in Anderson Kill’s New York office and a member of the firm’s corporate and commercial litigation group. Prior to joining Anderson Kill, Greenberg was an Acting New York State Supreme Court Justice in New York City. Greenberg has had no connection with the Trump investigation, either as a judge or as an attorney.