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Fraud trial conviction could be “death knell” for Trump Organization


The conviction of two Trump Organization companies for tax fraud and other crimes could prove insurmountable for former President Donald Trump’s hotel and real estate businesses, which are likely to face challenges in lining up lenders, insurers and government contracts, according to legal experts following the ruling.

“It spells doom for the Trump Organization — I really see it as a death knell,” Bennett Gershman, a professor at Pace University’s law school and a former prosecutor in the New York State Anti-Corruption Office, told CBS MoneyWatch. “It would be implausible for any responsible lending institution, bank, insurance company or institutions that provide financial support for companies to have anything to do with the Trump Organization now.”

The verdict, handed down on Tuesday, found the two companies — the Trump Corporation and Trump Payroll Corporation — guilty on all 17 criminal counts. Although the Trump Organization could face up to $1.6 million in fines, legal experts said the penalty is negligible compared with the potential impact of collateral consequences, especially for a business that relies on banks and insurers to operate its hotels, golf courses and other properties.

“A criminal conviction will impact the ability to get licenses, to borrow money, to get insurance, to do business with anyone,” said Cornell University law professor Randy Zelin. “Who wants to lend money to or insure a convicted felon organization? There will be statutory disqualifications because of the convictions.”


New York jury finds Trump organization guilty on all counts in tax fraud case

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The Trump Organization didn’t immediately respond to a request for comment. 

By contrast, the immediate financial consequences of the criminal conviction are relatively minor, Zelin said. For instance, the $1.6 million fine is unlikely to make much of a dent to a business that booked $2.4 billion in revenue from 2017 to 2020, according to Forbes. 

“No longer Teflon Don”

While the Trump Organization was found guilty, former President Trump himself was not charged, and lawyers representing the company said he was not involved. But Zelin said the impact of the conviction on his companies could yet have long-standing repercussions.

“The parallel consequences are probably the worst,” he said. “With the conviction, the pending New York Attorney General’s case will go on a fast track – the AG now has set in stone proof of fraud.”

New York Attorney General Letitia James has indicated the verdict could have bearing on a civil case being pursued by her office. Her office conducted a parallel civil investigation and assigned two prosecutors to work on the Manhattan District Attorney’s probe. 

While the criminal case was tightly focused on executive compensation, the civil case — filed in September — accuses the company, Trump and three of his children of a widespread, years-long effort to commit fraud and manipulate property valuations.

Zelin noted, “It’s the NYAG who has the power to kill the company,” adding that the conviction may also signal that Trump is “no longer Teflon Don.”

When the civil case was first filed, an attorney for Donald Trump said the lawsuit “is neither focused on the facts nor the law — rather, it is solely focused on advancing the Attorney General’s political agenda.”


Impact of Trump Organization conviction

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To be sure, the Trump Organization could turn to nontraditional lenders if it encounters roadblocks with domestic banks and other lenders, legal experts said. For instance, the business could tap lenders in other countries, such as Saudi Arabia, which may have more flexibility or willingness to lend to a company tarnished by a criminal conviction.

In November, the Trump Organization signed a deal with Saudi real estate developer Dar Al Arkan to use the Trump brand for a $4 billion project in Oman that will include a golf course, hotel and villas, according to Reuters. 

Even prior to the conviction, the Trump Organization brand had grappled with challenges related to the polarizing reputation of Trump and his family. For example, some apartments in Trump buildings sold for discounts compared to prior years, the Guardian reported last year. 

Compared with Arthur Andersen

Meanwhile, other companies convicted of felonies have continued to operate without significant impact on their business. Among them are Tyson Foods, the meat producer, which in 2003 pleaded guilty to felonies related to the Clean Water Act; and Volkswagen, which pleaded guilty in 2017 to felony charges related to its emissions scandal.

But those businesses were dealing with different issues than the Trump Organization, Gershman said. “Here you are convicted of a financial crime where your existence depends on financing,” he noted.

A better comparison could be that of accounting firm Arthur Andersen, Gershman said. The company in 2002 was convicted by a jury of obstructing the government’s investigation into accounting irregularities at failed energy trading company Enron. Although the Supreme Court later overturned the conviction, the damage was done to the accounting firm, which collapsed in 2002. 

The Trump Organization “has been hurt very badly — how badly, we will have to wait and see,” Gershman said.