by The $355 million fine that a New York judge ordered Donald J. Trump to pay in his civil fraud trial may seem high in a case in which no victim is seeking redress and no star witness points the finger at Trump. But a little-known state law from 70 years ago made the punishment possible.
The law, often referred to by its abbreviation, 63(12), which is derived from its place in New York’s rule book, is a regulatory bazooka for the state’s attorney general, Letitia James. Her office has used it to target a wide range of corporate giants: oil company Exxon Mobil, tobacco brand Juul and pharmaceutical executive Martin Shkreli.
On Friday, the law allowed James to win a huge victory against Trump. In addition to the financial penalty, the judge banned Trump from running a business in New York for three years. His adult children were excluded for two years.
The judge also ordered a supervisor, Barbara Jones, to assume more power over Trump’s company and asked her to name an independent executive to report to her from within the company.
A Trump lawyer, Christopher M. Kise, reacted with fury, saying that “the sobering future consequences of this tyrannical abuse of power will not only affect President Trump.”
“When a court voluntarily allows a reckless government official to meddle in the legal, private and profitable affairs of any citizen based on political bias, America’s economic prosperity and way of life are at extreme risk of extinction,” he said.
In the Trump case, James accused the former president of inflating his net worth to obtain favorable loans and other financial benefits. Trump, he argued, defrauded his lenders and, in doing so, undermined the integrity of New York’s business world.
Trump’s conduct “distorts the market,” Kevin Wallace, a lawyer in James’ office, said during closing arguments in the civil fraud trial.
“This puts a price on honest borrowers and can lead to more catastrophic outcomes,” Mr Wallace said, adding: “That is why it is important that the court takes action to protect the market and prevent this from happening again.”
However, the victims (the bankers who lent Trump money) testified that they were delighted to have him as a client. And while a parade of witnesses echoed James’ claim that the former president’s annual financial statements were works of fiction, none offered evidence showing that Trump explicitly intended to deceive the banks.
This may seem unusual, but under Article 63(12) such evidence was not necessary to find fraud.
The law did not require the attorney general to prove that Trump had intended to defraud anyone or that his actions resulted in financial loss.
“This law is a huge blow,” said Steven M. Cohen, a former federal prosecutor and senior official in the attorney general’s office, noting that it did not require the attorney general to prove that anyone had been harmed.
With that bar low, Judge Arthur F. Engoron, the judge presiding over the case, sided with Ms. James on her main claim before the trial began, finding that Mr. Trump had engaged in a pattern of fraud. by exaggerating the value of their assets in statements submitted to their lenders.
James’ burden of proof at trial was higher: To persuade the judge that Trump had violated other state laws, he had to convince him that the former president acted with intent. And some of the evidence helped his cause: two of Trump’s former employees testified that he had final approval of the financial statements, and Trump admitted on the witness stand that he had a role in writing them. .
Still, his ability to obtain additional punishments based on those other violations is also a product of Article 63(12), which gives the attorney general the right to pursue those who engage in “repeated fraudulent or illegal acts.”
In other fraud cases, authorities must persuade a judge or jury that someone was defrauded. But 63(12) required Ms James only to show that the conduct was deceptive or created “an atmosphere conducive to fraud”. Previous cases suggest that the word “fraud” itself is effectively synonymous with dishonest conduct, the attorney general argued in her lawsuit.
Once the attorney general has convinced a judge or jury that a defendant has acted deceptively, the punishment can be severe. The law allows Ms. James to seek confiscation of money obtained through fraud.
Of the approximately $355 million Trump was ordered to pay, $168 million represents the sum Trump saved on loans by inflating their value, he argued. In other words, the extra interest that lenders stopped earning.
The sentence was in the hands of the judge (there was no jury) and 63(12) gave him wide discretion.
The law also empowered Judge Engoron to impose new restrictions on Trump and his family business, all of which Trump is expected to appeal.
The judge also ordered a supervisor to assume more power over Trump’s company, who will appoint an independent executive who will report to the supervisor from within the company.
Even before filing her lawsuit against the Trumps in 2022, Ms. James used 63(12) as a cudgel to aid her investigation.
The law gives the attorney general’s office something resembling procedural investigative power. In most civil cases, a person or entity planning to sue cannot collect documents or conduct interviews until the lawsuit is filed. But Article 63(12) allows the attorney general to conduct a substantive investigation before deciding whether to sue, settle or drop a case. In the case against Trump, the investigation lasted nearly three years before a lawsuit was filed.
This is not Trump’s first encounter with the 63(12). James’ predecessors used him in actions against Trump University, his for-profit educational company, which paid millions of dollars to settle the case.
The law became so important to James’ civil fraud case that it caught the attention of Trump, who lamented the broad authority it gave the attorney general and falsely claimed his office rarely used it.
Last year he wrote on social media that 63(12) was “VERY UNFAIR.”
William K. Rashbaum contributed reports.
