How Trump’s alleged fraud worked at the Dutchess County club
HOPEWELL JUNCTION — Among a litany of fraud allegations laid out in the lawsuit filed Wednesday in New York State Supreme Court by New York Attorney General Letitia James against former President Donald J. Trump, his children and several Family businesses list five long-running schemes designed to inflate the value of Trump’s clubs in an effort to secure favorable loan rates and pay less tax.
Four of these alleged schemes — referred to throughout the trial as the “Capital Asset Plan,” the “Unsold Membership Plan,” the “Member Deposit Plan” and the “Mark Bonus Plan” — took place at the Trump National Golf Club Hudson Valley, located in the Dutchess County hamlet of Hopewell Junction.
Here’s how the Attorney General’s office claims they worked.
The fixed assets regime
In 2009, Trump spent $3 million through a limited liability company to purchase what is called a ground lease interest in Trump National Golf Club Hudson Valley.
Under a land lease, the lessee — in this case, the Trump Organization — can make and own improvements on the property, but is not the owner of the land. But in the financial statements tied to the property, Trump and his associates are accused of not disclosing the leasehold interest and of “falsely suggesting” that the organization owned the property, which allowed it to profit from the fixed assets scheme.
According to the lawsuit, the fixed assets plan was an incorrect valuation of Trump businesses based on assets purchased for long-term use — such as land, buildings and equipment — that cannot be quickly converted into cash. In the case of TNGC Hudson Valley, that meant not considering ground lease expenses, such as rent, when determining the value of the property between 2011 and 2021.
Because TNGC Hudson Valley had negative cash flow, valuing the club based on its fixed assets, as opposed to its revenue, made the business more valuable on paper – thus opening up more favorable treatment from investors. banks and insurance companies, according to the attorney general’s office. . In contrast, the lawsuit notes that the Trump Organization consistently valued its golf courses by income when valuing them for property tax purposes, where the incentives worked in the opposite direction: lower land value means taxes. inferior land.
The lawsuit further alleges that from 2011 to 2013, Trump and his associates further inflated the value of TNGC Hudson Valley based “on an assessment of the cash flows expected to arise from club operations.” James called it “false and misleading for a number of reasons,” including because Trump and his associates used the capital approach when valuing TNGC Hudson Valley during those years, and flows cash are not fixed assets.
An example in the lawsuit highlights just how overvalued TNGC Hudson Valley may have been: In 2021, the club was valued using a combination of fixed assets and income, and its valuation fell 25% – nearly $4 million – over the previous year. .
The unsold regime
This one is easier to explain. The lawsuit alleges that at many Trump clubs, the former president and his associates inflated the value of unsold memberships, often by tens of thousands of dollars each. Higher membership fees would theoretically lead to higher future revenue for each of the clubs where the attorney general said the scheme was being rolled out.
At TNGC Hudson Valley, the initiation fee listed for 2011 and 2012 was $10,000. But in financial documents from those years, the Trump Organization inflated those values by up to 300%, according to the attorney general’s lawsuit. In 2011, the company appraised 93% of 161 unsold memberships at prices between $15,000 and $25,000, and in 2012 the company appraised 78% of 254 unsold memberships at prices between $15,000 and $30,000 , according to the file.
During those years, most membership fees were waived for new members, according to Trump Organization records.
Member Deposit System
When the Trump Organization purchased TNGC Hudson Valley, the purchase price shown on financial documents included more than $1.2 million in refundable membership deposits. This despite the statement in separate documents that the liability for the deposits was zero dollars, according to the lawsuit.
This allowed Trump to inflate the purchase price of the club, according to the lawsuit. Generally accepted accounting principles require the use of the “present value of liabilities,” which the Trump Organization’s internal analysis found was a fraction of the “real” or nominal dollar value.
The brand bonus scheme
From 2013 to 2020, according to the lawsuit, Trump and his associates added a “brand bounty” based on the Trump brand to artificially inflate the value of TNGC Hudson Valley. This is despite the fact that the inclusion of internally developed immaterial brand bonuses is prohibited by generally accepted accounting principles.
A pattern of alleged misconduct
TNGC Hudson Valley is one of 11 clubs and related facilities named in the attorney general’s sweeping complaint, which follows a three-year investigation that Trump tried to block in federal court with a lawsuit that was dismissed in May. . A notice of appeal is pending.
The civil action adds to Trump’s legal woes, which also include the Justice Department’s investigation into his withholding of classified documents at Mar-a-Lago, and investigations by the Justice Department, Congress, and a Georgia district attorney on Trump’s efforts to overturn the results of the 2020 election based on false allegations of voter fraud.
“This investigation revealed that Donald Trump engaged in years of unlawful conduct to inflate his net worth, to deceive banks and the people of the great state of New York,” James said at a press conference on Wednesday. . “Pretending you have money you don’t have is not the art of the market. It is the art of theft.”
