According to a 222-page civil complaint filed by New York Attorney General Letitia James after a three-year investigation, Donald Trump and the Trump Organization used false and misleading statements about financial condition to obtain favorable real estate loans and insurance coverage. .
The suit names the Trump Organization, Donald Trump, three of his children — Executive Vice Presidents Ivanka Trump, Eric Trump and Donald Trump Jr. – as well as Chief Financial Officer Allen H. Weisselberg and other Trump entities and individuals.
While most of the fraud charges are bank loans, the lawsuit also accuses the Trumps of insurance fraud under state laws that prohibit the submission of false information as part of an application for commercial insurance or to claim benefits under an insurance policy. claim.
James alleges that each defendant participated in a “continuous, integrated plan” to use false and misleading information to boost Donald Trump’s ability to obtain financial benefits of approximately $250 million.
The lawsuit alleges that former President Trump, with the help of his children and senior executives at the Trump Organization, “falsely inflated his assets by billions of dollars to get banks to lend money to the Trump Organization on more favorable terms than usual.” would have been the case. was available to the company, to comply with revolving loan covenants, to encourage insurers to offer insurance at higher limits and at lower premiums, and to obtain tax benefits, among other things.”
From 2011-2021, Trump and the Trump Organization “knowingly and intentionally created more than 200 false and misleading asset valuations on Trump’s financial statements to defraud financial institutions,” the lawsuit alleges.
Trump’s financial documents were key components in the insurance submissions
As punishment for the alleged misconduct, the AG wants to: Permanently ban the Trumps from serving as officers or directors in a New York corporation; Ban Trump and the Trump Organization from acquiring New York real estate for five years; grant of all financial benefits derived from the ongoing fraudulent practices estimated at a total of $250 million.
In connection with the lawsuit, James said she has also referred the case to the U.S. Attorney’s Office for the Southern District of New York and the Internal Revenue Service for possible criminal investigation.
Trump’s attorney Alina Habba told the New York Times that the charges are “without merit.”
The former president took to his Truth Social site to respond, calling the New York AG a “racist” for going after him and his family, calling the lawsuit a “witch hunt.” His sons, Donald Jr. and Eric, also called the suit a “witch hunt.”
The suit details two insurance scenarios where Aon Risk Solutions was the broker and the Trumps allegedly submitted false information: a surety bond program with Zurich North America and liability coverage for directors and officers of Everest National and Tokyo Marine HCC.
Trump’s financial documents were key components in the insurance submissions. They were used to back Trump’s personal guarantee in lieu of collateral and to misrepresent the valuations of Trump properties, according to the complaint, noting that the Trump organization only allowed insurers to personally view Trump’s financial statements. to be viewed at the offices of the Trump Organization.
The suit was filed in state court for New York County.
There are no allegations that any of the insurance parties have done anything illegal or fraudulent.
With regard to D&O coverage, the lawsuit also alleges that, in addition to filing false financial statements, Trump and his organization have disclosed no investigations into Trump and other employees that could affect their ability to obtain the coverage. The Trump firm later tried to seek defense coverage under the D&O policy for that investigation.
Insurance Journal has contacted the insurance companies named in the complaint but had been unable to contact them at press time. There are no allegations that any of the insurance parties have done anything illegal or fraudulent.
Trump Security Program
According to insurance excerpts from the AG’s lawsuit:
- From 2007 to 2021, Zurich North America underwritten a suretyship program for the Trump Organization through insurance broker Aon. Most bonds were required by law for the Trump Organization’s real estate business, such as bonds with liquor licenses for golf courses or release of liens for construction projects.
- Over the course of the program, based on the Trump Organization’s financial revelations, Zurich agreed to increasingly favorable terms: periodically increasing the limits and lowering the rate until the program was canceled in 2021.
- Over the course of the relationship, Zurich demanded compensation from the Trump Organization for any loss if Zurich were to pay under a bond. The Trump organization fulfilled this indemnity requirement through a General Indemnity Agreement (GIA) under which Donald J. Trump personally agreed to indemnify Zurich for claims.
- The Trump organization gained Zurich approval to extend the bailout program at least twice through deliberate misrepresentations of Trump’s statements. The Zurich insurer was presented with statements listing the Trump Organization’s real estate investments with valuations that Trump representatives said were determined each year by a professional valuation firm, which the insurer took as a sign that they were reliable. But the Trump Organization has not retained a professional rating agency; instead, the ratings were prepared by Trump Organization staff.
- Had Zurich’s insurer been told the truth, it would have negatively impacted its underwriting analysis, cast doubt on the veracity of the rest of the information disclosed by the Trump Organization, and left Zurich in doubt. drawn by continuing its insurance relationship with the Trump Organization.
- The Trump Organization has also not disclosed that the golf courses featured on Trump’s statements contain a substantial brand premium factored into the reported valuation. Zurich underwriting guidelines require intangible assets such as brand equity to be excluded. Had the Trump organization disclosed the brand premium, Zurich would have lowered that valuation.
Trump D&O Coverage
According to insurance excerpts from the AG’s lawsuit:
- As of December 2016, the Trump Organization had directors and officers’ liability coverage (D&O), consisting of a single primary policy that offered a limit of $5 million from Everest National Insurance Co. at a premium of $125,000. In view of that coverage, insurers were given no more than cursory access to Trump’s statements, through a controlled personal review at Trump Tower.
- On December 6, 2016, Aon contacted a D&O insurer at Tokyo Marine HCC to request a quote for additional $5 million limits to stay above Everest policy. The HCC underwriter has been authorized to issue a policy for the limits requested, subject to review of financial records upon renewal. But the Trump Organization wanted to rewrite the program on the day of Trump’s presidential inauguration with significantly higher limits of $50,000,000 — a tenfold increase in the D&O coverage that existed under the Everest policy. The insurers received little financial information, but did see the balance sheet for year-end 2015.
- In response to specific questions from the insurers at their January 10, 2017 meeting, Trump Organization personnel stated that there were no material lawsuits or questions from anyone that could potentially lead to a claim under D&O coverage. The HCC insurer relied on this statement to conclude that there were no investigations that could potentially lead to coverage under the D&O policies. On January 20, 2017, HCC offered terms for a $10,000,000 primary policy, effective dates January 30, 2017 through January 30, 2018.
- Despite the statements made by Trump’s staff to insurers, at the time of the meeting, there was an ongoing investigation by the Attorney General’s office into the Trump Foundation and Trump’s family members, all of whom were at the time directors and officials of the Trump organization. In October 2016, OAG had also issued subpoenas from third parties in connection with its investigation. No representative of the Trump Organization has disclosed to insurers the existence of the AG’s investigation, despite their understanding that the AG’s investigation could potentially lead to a claim, as evidenced by the claim they filed. with D&O insurers HCC, Starpoint, Swiss Re, Argo and Allianz through Aon on January 17, 2019 seeking coverage in connection with the AG’s enforcement action.
- Aon soon filed other claims in June 2017 and January 2018, causing problems for HCC’s insurer. After being asked, the Trump Organization gave the names of Michael Cohen, Donald Trump, Jr. and four other people who were or could reasonably be involved in ongoing investigations. No other individuals were identified in response, nor did the Trump Organization disclose the existence of other investigations or investigations during the renewal negotiations in early 2018 that could potentially lead to a claim under the D&O policy. HCC agreed to extend its $10,000,000 policy for another 12 months.
- Based on further correspondence, HCC determined that exposure to the risk was significantly higher than previously estimated. As a result, on January 24, 2019, HCC offered to renew the $10,000,000 policy for a significantly higher premium of $1,600,000, more than five times the expiring premium. The Trump organization refused.
- On February 8, 2019, two days prior to policy expiration, Aon notified D&O insurers of multiple “claims and/or circumstances that could reasonably be expected to give rise to” claims under the policies. These include several questions from congressmen and committees, including the House Intelligence Committee; an investigation by the US Attorney for the Southern District of New York; potential investigations by various federal agencies, including the IRS and attorneys general; the investigation into Russian interference in the 2016 presidential election by special counsel Robert Mueller and other circumstances.
- With the exception of the House Intelligence Committee and Mueller investigations, the Trump organization did not inform insurers during the renewal negotiations about the other investigations referenced in Aon’s February 2019 claims notice, or the circumstances that led to those investigations.
New York Fraud Lawsuits
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