Dive Brief:

• The order this week by New York Supreme Court Judge Arthur Engoron requiring Donald Trump and other defendants in the civil trial over his business practices to report any asset changes to a court-appointed monitor appeared to come out of the blue, but it didn’t.
• A year ago, on the day New York Attorney General Letitia James filed her lawsuit against Trump, the company created a new entity, Trump Organization II LLC, a foreign corporation incorporated in Delaware, which James in a motion for a preliminary injunction last year said could be used to hide his assets from seizure.
• “The Trump Organization appears to be taking steps to restructure its business to evade the reach of OAG’s lawsuit,” James said in the motion. “The Trump Organization has since refused to provide any assurance that it will not seek to move assets out of New York to evade legal accountability.”

Dive Insight:

In his order, Judge Engoron barred Trump and the other defendants from transferring any assets or creating a new entity to acquire them without disclosing that first to a court-appointed monitor. 

“Defendants shall provide the monitor with advance notice of any application for new business certificates, creation of a new entity to acquire or hold the assets, any anticipated transfer of assets or liabilities to any other entity,” the order said as part of a longer list of restrictions. 

Judge Engoron in a summary judgment last month found Trump and the other defendants guilty of fraud for inflating asset values to get better loan and insurance terms. The judge is now presiding over a separate bench trial to hear the remaining counts in James' complaint, and issued the order for advance notice of asset transfers while that trial is ongoing. Among the matters being weighed in the bench trial, which is expected to run through December, are any penalty and disgorgement amounts. 

In her motion for preliminary injunction last year, James said advance notice of any asset changes is necessary to prevent Trump from engaging in illegal activity while the lawsuit is pending.  

“There is every reason to believe that the Defendants will continue to engage in similar fraudulent conduct right up to trial unless checked by order of this Court,” James said. “The requested targeted relief is designed to mitigate further fraud and illegality during the pendency of this action.”

Should Trump be able to transfer assets to a new entity, James suggested, it would complicate the court’s effort to enforce disgorgement should the court apply that as one of the remedies. 

“An injunction prohibiting transfer of funds or assets without Court approval [could help ensure] the ability of OAG to obtain satisfaction of the large sum OAG will seek as disgorgement at the conclusion of this action,” she said. “The relief sought here is tailored directly to curbing the long history of persistent and repeated fraudulent conduct by the Trump Organization and is an appropriate exercise of the Court’s broad general equitable jurisdiction.”

Judge Engoron last year appointed retired judge Barbara Jones to be the Trump Organization’s monitor, and in his summary judgment last month, ordered her continuation in that role. 

Trump has filed a formal appeal of Judge Engoron’s ruling that he’s guilty of fraud.