One of the most recent and spoken about financial statement fraud
cases right now, especially in NYC, is that of the U.S.’s previous
president, Donald Trump. Mr. Trump is a renowned businessman,
because he has learned the inner workings of the business world.
Right now Mr. Trump, three of his kids and their family business is
being sued by NY’s attorney general Letitia James for overvaluing
assets and net worth throughout the decades. This civil case is
spanning back ten years from 2011 to last year 2021. This case
follows routine and repeated patterns in the financial statements.
Part of this looks into how Trump and his family has used their said
wealth to polish their images in society. His fame was based on name,
image and wealth... prior to his presidency. He is also in a case with
the federal government, but this NY case is just on his personal terms.
“Ms James, a Democrat, took a swipe at the former president by
alluding to his 1987 memoir. "Claiming that you have money that you
do not have does not amount to the 'art of the deal', it's the art of the
steal," she told reporters.” (The Independent) it was said that 23
assets had been inflated, and that James office has found over 200
examples or misleading asset valuations. She also mentions, “"The
statements of financial condition were greatly exaggerated, grossly
inflated, objectively false, and therefore fraudulent and illegal. And as
a result of that, we are seeking relief, and Mr Trump, the Trump
Organization, his family -- they should all be held accountable." (The
Independent) This attoerney general is hoping to dig as deep as she
can to see just how far this goes, but the actions taken has been over
a decade so far, and there are many violations. “This conduct was in
violation of New York Executive Law 63(12), which gives the Office
of the Attorney General (OAG) special and broad powers to go after
persistent and repeated fraud and illegality, which in this case
includes violating other state laws prohibiting the submission of false
financial statements, the falsification of business records, and the
commission of insurance fraud.” (Office of the AG, 2022)
There are many reasons as to why he may have done this. A big part
of it may just be that they wanted to keep their standing I society.
High society is a different world than the average, and they are more
than comfortable in their ‘tier’. James has mentioned that white collar
crime is not victimless, if they are stealing money, hiding money, etc.
then someone is getting hurt. Should he owe more on his taxes the
people and government is hurt. If they are missing money somehow
they are the victims. And if they are just making the numbers go up
for looks the company, any shareholders, business ventures, partners
would be hurt.
The idea of materiality is that some financial transactions are
insignificant where they are not worth reporting with precision.
(Mintz, 2019) Could they have expected to receive more rent, and the
people have been backed-up with payments? Possibly. But it is not
the case here. James is arguing that the wealthy is getting away with
unlawful behavior, like the rules do not apply to everyone.
The OAG is after multiple goals. “1) permanently bar Mr. Trump,
Donald Trump, Jr., Ivanka Trump, and Eric Trump from serving as an
officer or director in any New York corporation or similar business
entity registered and/or licensed in New York state;
2) bar Mr. Trump and the Trump Organization from entering into any
New York real estate acquisitions for five years;
3) award disgorgement of all financial benefits obtained through the
persistent fraudulent practices, estimated to total $250 million.”
(Office of the AG, 2022)
They used false numbers to calculate property values, overvalued
unsold residential units, over calculated the value of the leasehold
interest land and buildings more than double the amount, (much
more) and all at several locations owned by Mr. Trump. The idea of
income smoothing/ revenue recognition when the expense is
recorded before it incurs, or it does not record the profit after. He
marked up most of the assets value over double the amounts, and
wrote off some expenses. In this case I am not sure how to apply the
cookie jar reserves, as it seems they have reversed this. (Mintz, 2019)
Rather than reserving some of the profits for the next year, they
overstated by the bulks which would cause more harm the next year.
The problem with things like this is once it starts it is hard to get out
of it. He could have reported correctly in 2020 and 2021, but because
of all of the over stating from the prior years, they would take an
enormous hit, as it would be a large cause for an audit. Dramatic
changes like that do not happen right out of the blue. And with the
world watching him Mr. Trump would not want to look less then in
the public.
References:
Mintz, S. (2019). CPA Journal. A New Approach to Teaching Ethical
Decision Making to Accounting Students.
https://www.cpajournal.com/2019/10/14/a-new-approach-to-
teaching-ethical-decision-making-to-accounting-students/
Office of the Attorney General. -OAG. (2022). Attorney General
James Sues Donald Trump for Years of Financial Fraud.
https://ag.ny.gov/press-release/2022/attorney-general-james-sues-
donald-trump-years-financial-fraud
The Independent (London, England). (2022). a “Art of the steal”: Trump
sued for fraud by lawmaker.
