Donald Trump is on the clock.
The US$454 million (NZ$726m) judgment that a New York judge imposed on Trump in his civil fraud case took effect on Friday (Saturday NZT), placing the former president in a precarious position.
Now he must either come up with the money quickly or persuade a company to post a bond on his behalf, essentially vouching for him to the court with an IOU.
The bond is likely to be his best bet: Trump, who also faces a US$83.3m judgment in an unrelated defamation case, does not have enough cash on hand to do it all himself, according to a recent New York Times analysis of his finances. If Trump can find a bond company willing to do a deal this big, it will require him to pay the firm a fee as high as 3 per cent of the judgment and to pledge collateral.
The bond would prevent the New York attorney general’s office, which brought the civil fraud case against Trump, from collecting the US$454m while Trump’s appeal is heard. Without it, the attorney general, Letitia James, is entitled to collect at any moment.
James is expected to allow Trump up to 30 days, but if he fails to secure a bond by March 25, and an appeals court denies him extra time, he has a lot to lose. The attorney general’s office could seek to seize some of Trump’s properties in New York, perhaps even a crown jewel like Trump Tower or 40 Wall St.
“The attorney general is in the catbird seat and can make this a very unpleasant experience for Trump,” said Mark Zauderer, a partner at the law firm Dorf Nelson & Zauderer who is a veteran New York business litigator and has secured many appeal bonds.
As Trump races to secure a bond, here is what we know about this perilous new phase.
Why does Trump owe US$454m?
James took Trump to trial last year, accusing him of orchestrating a conspiracy to inflate his net worth to receive favourable loans. This month, judge Arthur Engoron ruled that Trump had done so and meted out several punishments.
The most severe was a US$355m penalty — US$454,156,783.05 as of Friday afternoon, thanks to interest that continues to accrue. The judge said the sum accounted for Trump’s ill-gotten gains from the scheme.
Nearly half of the base penalty, US$168m, reflected the interest that Trump had saved by misleading lenders, while the remaining amount represented his purported profit on the recent sale of two properties. The judge’s penalty essentially clawed back that money, and it will go into New York state’s coffers if the ruling is upheld on appeal.
What is an appeal bond?
In theory, Trump has two options to prevent James from collecting while he appeals. He can either write a check for more than US$450m to New York state, which will then hold the money in escrow, or he can secure an appeal bond from a specialised company licensed to provide them.
In reality, unless Trump reaps a sudden and unexpected windfall, a bond is the only way to go.
Trump’s net worth, which he estimates to be in the billions, is largely derived from the value of his real estate, not cash. As of last year, he was sitting on more than US$350m in cash — as well as stocks and bonds he can sell in a hurry — but that stockpile is well short of what he needs, according to the Times’ review of his financial records. Engoron’s US$454m judgment and the US$83.3m judgment Trump is facing from the defamation trial involving writer E. Jean Carroll will collectively eclipse the former president’s cash reserves, forcing him to seek out a bond in both cases.
For now, he has not secured appeal bonds in either case. On Friday, Trump’s lawyers in the defamation case asked a judge to either grant him more time or reduce the size of the bond.
At its most basic, an appeal bond is a document filed with a court by a bonding company, a financial institution that promises a judgment will be paid. Under New York law, a defendant also owes 9 per cent interest to the plaintiff until the judgment is paid or the appeal is resolved, an amount that is reflected in the size of the bond.
As such, Trump’s bond might creep up to nearly US$500m.
But the company providing the bond will be on the hook if Trump loses his appeal and fails to pay — and so it will want the former president to have skin in the game.
To secure the bond, Trump will have to pledge collateral to the company, including cash, stocks and bonds. Although each deal is different, companies offering appeal bonds generally shy away from taking property as collateral, especially if a building already has a mortgage, experts said.
It won’t be cheap. Trump will have to pay the company a premium fee, typically anywhere from 1 per cent to 3 per cent of the bond.
What happens if he doesn’t secure a bond?
While there is no indication that Trump will fail to line up a bond, it is easier said than done.
Only about a dozen bonding companies licensed in New York have the ability to handle a judgment of this size, experts said. And while some might salivate at the possibility of collecting a huge premium, others might be spooked by the sheer size of Engoron’s penalty or by being associated with Trump’s polarising politics and his litigious nature.
Bonds this large are typically found in cases against big companies, not individual businesspeople, even wealthy ones like Trump.
“For an individual, this amount is unprecedented,” said Neil Pedersen, the owner of Pedersen & Sons, a surety bond agency in New York that is not involved in the Trump case.
Trump is also a unique defendant: he is the front-runner for the Republican presidential nomination, and if he reclaims the White House, it could be difficult for the bonding company to collect from a sitting president, particularly one who has stiffed lenders and lawyers in the past.
“I wouldn’t be surprised if he gets it, or if he doesn’t,” Pedersen added.
If he doesn’t, that is where things could get ugly for the former president. James has a number of tools to freeze his assets and ultimately recover the money.
With help from a sheriff, she can collect from any entity holding Trump’s assets, like a bank, as well as from anyone who owes Trump money, like a tenant in one of his buildings. Perhaps most importantly, she can file liens on his marquee New York properties, potentially setting in motion a seizure of the buildings.
In a recent interview with ABC News, James said as much, hinting that she had her eye on one of Trump’s buildings in lower Manhattan, a five-minute walk from her office.
“We will ask the judge to seize his assets,” James said in the interview, adding, “I look at 40 Wall St each and every day.”
Can Trump delay the bond?
He can try, but the decision is not in his hands.
In federal court, Trump would have 30 days to secure the bond, but this case is in New York State Court, where no grace period exists. James, though, is expected to allow him that time to line up a bond, a window that closes on March 25 — which happens to be the first day of his first criminal trial, to be held in Manhattan.
Trump can also ask an appeals court to pause the requirement that he post a bond — and to reduce the size of the bond to something more manageable.
Can Trump’s supporters bail him out?
It’s complicated.
The New York court system relies on trusted companies, regulated by the state, that have a lengthy track record of posting bonds.
In contrast, an IOU from a wealthy Trump supporter is unlikely to pass muster with the attorney general, Zauderer said, and the appeals court could refuse to accept it.
While there is nothing to stop one or several of Trump’s billionaire benefactors from paying off his entire US$450m debt, that seems somewhat far-fetched. Not only would it require laying out a huge sum, but it would also lead to a significant tax bill for the donor or donors.
Grassroots efforts are unlikely to make a significant dent in Trump’s debt. In the last eight days, a GoFundMe campaign has raised more than US$1m from over 20,000 supporters.
Unless a more substantial bailout emerges, Trump will have to pay most of the penalty out of his own pocket, assuming Engoron’s decision is upheld. To do that, Trump might have to sell or mortgage one of his properties.
And then there’s his run for the White House, which could constrain him further.
The former president has used a political action committee in his control to pay for lawyers and witnesses in his legal cases. But that committee does not have enough money to address the penalties he is facing. A super PAC coordinating with his candidacy is legally banned from coordinating with him and cannot pay the judgments.
This article originally appeared in The New York Times.
Written by: Ben Protess and Jonah E. Bromwich
Photography by: Doug Mills
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