March 1st, 2016

Trump Must Stand Trial on Fraud Claims Over Trump University

trump-universityThis post will be short (and periodically updated), but it is breaking news out of the Appellate Division, First Department, this morning:

Donald Trump must stand trial on fraud claims related to Trump University that were brought by Attorney General Eric Schneiderman, according to a unanimous holding by the court. The decision is here:People of the State of N.Y.v Trump Entrepreneur Initiative LLC

The decision gives a history of Trump operating his so-called University without proper authority (violating the New York Education Law by using the word “University” when it was not actually chartered as one), refusing to move it out of state after he said he would, claiming to have hand-picked professors when he did not, and other items of fraud.

There is a long discussion on what the statute of limitations is, and the short version is, Trump lost. Trump also can not appeal this ruling “as of right.”  If he wants to go to New York’s high court, he needs permission to do so from either the court that dumped him today or the Court of Appeals itself.

Part of the allegations against Trump by the Attorney General, that seem to be at the heart to the suit, involve Executive Law § 63(12), which states:

“Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York, to the supreme court of the state of New York, on notice of five days, for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts [and] directing restitution and damages . . . and the court may award the relief applied for or so much thereof as it may deem proper.” (emphasis added)

From the decision on the extent of the fraud the AG alleges:

In its supporting affirmation, the Attorney General alleged that between 2005 and 2011, respondents operated an unlicensed, illegal educational institution. Further, the Attorney General stated, through various fraudulent practices, respondents intentionally misled more than 5,000 students nationwide, including over 600 New York residents, into paying as much as $35,000 each to participate in live seminars and mentor programs that the students thought were part of a licensed university.

The decision quotes Trump’s assertions and promises to the students of his failed “University”:

In just 90 minutes, my hand-picked instructors will share my techniques, which took my entire career to develop” and went on to state, “Then just copy exactly what I’ve done and get rich.” The Attorney General noted that at the free seminars, instructors played a video featuring Donald Trump telling prospective students, “We’re going to have professors that are absolutely terrific — terrific people, terrific brains, successful, the best” and noted that they were “all people that are handpicked by me.”

The AG’s charges include a bait-and-switch scam operated by Trump, as per the decision:

 the free seminars were merely an instrument through which instructors would induce students to enroll in increasingly expensive seminars, starting with a three-day $1,495 seminar. The Attorney General averred that although Trump University speakers represented that the three-day seminar would teach students all they needed to know to be successful real estate investors, the instructors at those three-day seminars then engaged in a “bait and switch,” telling students that they needed to attend yet another seminar for an additional $5,000 in order to learn more about particular lenders. Instructors at [*3]the three-day seminars are also alleged to have engaged in a bait-and-switch by urging students to sign up for “Trump mentorship packages, which ranged anywhere from $10,000 to $35,000” and supposedly provided “the only way to succeed in real estate investment.”

As to whether Trump himself had any personal knowledge of the goings on, the AG states (as quoted in the opinion):

Trump, the Attorney General maintains, conceded that he had “significant involvement with both the operation and overall business strategy of Trump University,” including “attending frequent meetings” with [Michael] Sexton to “discuss Trump University operations.” Further, Trump’s photographs and signature appeared on all of Trump University’s advertising; according to testimony from Sexton, Trump personally reviewed and approved all the ads that were in the newspapers. Sexton oversaw all operations, including but not limited to Trump University’s finances, curriculum development, scheduling and execution of the seminars and mentorship programs, and reporting to the employees of The Trump Organization and Donald Trump.

This ought to be all over the news in about an hour.

Update: AG Schneiderman has now put out a statement regarding Trump’s “sham” college:

“Today’s decision is a clear victory in our effort to hold Donald Trump and Trump University accountable for defrauding thousands of students.  The state Supreme Court had already granted our request for summary judgment determining that Trump and his University are liable for operating illegally in New York as an unlicensed educational institution. Today’s decision means our entire fraud case can move forward, and confirms that the case is subject to a six year statute of limitations. As the state’s chief law enforcement officer, my job is to see that perpetrators of fraud are brought to justice. We look forward to demonstrating in a court of law that Donald Trump and his sham for-profit college defrauded more than 5,000 consumers out of millions of dollars.” 


December 17th, 2008

Madoff Fallout–Liablity of Third Party Money Managers

While investors who lost tons of money by directly investing in the Madoff Ponzi Scandal may be unable to recover any money from his firm, those whose funds were invested indirectly through money managers may be able to proceed under a negligence theory.

While money management isn’t the focus of this blog, negligence is. And in today’s New York Times there is a story (European Banks Tally Losses Linked to Fraud) of how “a team from Societe Generale’s investment bank here was sent to New York to perform some routine due diligence” and easily discovered that the numbers didn’t add up. That was in 2003.

And here is the money quote from the article, and the reason other money managers who blindly dumped tons of money on Madoff, may be facing significant lawsuits:

The red flags at Mr. Madoff‘s firm were so obvious, said one banker with direct knowledge of the case, that Societe Generale” didn‘t hesitate [to blacklist the firm]. It was very strange.”

If they were obvious to this bank, why weren’t they obvious to others? This would help to drive a stake through the heart of a defense that Madoff was so crafty that no reasonable investigator would have found the fraud.

A phrase comes to mine: due diligence. Or lack thereof.

See also: