Organization structure

Trump Organization faces criminal trial – why it might be hard to punish

On Monday, Donald Trump will enter a new phase in his financial and legal challenges when jury selection begins in the Manhattan prosecutor’s tax evasion trial against his company.

The Trump Organization could face an uphill battle over the legal merits of the case, as its former chief financial officer, Allen Weisselberg, has already pleaded guilty and is set to implicate his former employer. But the structure of the Trump Organization and its status as a holding company could make it difficult to punish the company, especially since Trump himself is not a target in the case. After all, you can’t put a company in jail; rather, the government must address the complex financial arrangements of the company and potentially restrict its behavior.

The establishment of the Trump Corporation and its maneuverings recently made headlines with the revelation that Trump incorporated a new corporation called Trump Organization II, the same day the New York Attorney General filed separate civil lawsuits against Trump, his company, and three of Trump’s adult children.

“It can be very difficult for litigation to figure out who is who and where the money is and who is speaking on behalf of which company,” Gregory Gilchrist, a corporate law expert at the University of Toledo, told Yahoo. Finance. “It’s just one more step for prosecutors to take, but they will – they’re qualified to do it.”

New York State Attorney General Letitia James (left) and Manhattan District Attorney Alvin Bragg (right) are conducting parallel investigations into former President Donald Trump and his company. (David Dee Delgado/Getty Images)

Trump’s “black box”

A relatively small organization itself, the Trump Organization manages a group of entities ranging from a hotel in Hawaii to a golf course in Scotland and other assets that operate largely independently – connected only by their ownership. common by Donald Trump. During his presidency, Trump revealed that he had around 500 different entities in total, structured in mind-boggling layers of complexity.

The Trump Organization has long been private and outside the prying rules that govern public companies, frustrating generations of investigators trying to see what lies under the hood. Yahoo Finance recently spoke with prominent Trump biographers, who reflected on the organization’s lack of transparency.

“For decades, journalists and prosecutors have tried to dig into this opaque black box called the Trump Organization, but they never got very far,” said Gwenda Blair, a Columbia University professor and biographer of the Trump family, at Yahoo Finance.

The public will never get a real sense of Trump’s business and net worth behind all the “smoke and mirrors,” said another former biographer, Harry Hurt III.

The company took on its current form in 1973 when, two years after taking over from his father Fred, Donald Trump renamed it The Trump Organization. Since 2017, the company has been run by Trump’s sons, Eric and Don Jr., although their father has retained ownership of a large majority of the assets.

A picture of U.S. President Donald Trump's late father, Fred Trump, sits behind him as he gives an interview to Reuters in the Oval Office of the White House in Washington, U.S., February 23, 2017. REUTERS/Jonathan Ernst

A photo of President Donald Trump’s late father, Fred, sits behind him in the Oval Office in 2017. The younger Trump took over his father’s business in 1971 and renamed it “The Trump Organization.” (REUTERS/Jonathan Ernst)

Even Donald Trump Jr. has distanced himself from the company’s accounting setup, according to recently released excerpts of his deposition to Letitia James and her team. “I wasn’t really involved in the preparation of the statement of financial position and I don’t really remember working on it with anyone,” he said, noting that it was rather the responsibility of the former chief financial officer who subsequently pleaded guilty.

“I’m not an accountant,” he said. added under prosecutors’ questioning. Still, he maintained that he believed most of the Trump Organization’s practices were consistent with generally accepted practices.

In their own depositions, Eric Trump and the elder Donald Trump himself both took the 5th Amendment and refused to answer questions.

The possible “benefit” of Trump Organization II

As for what’s next, Gilchrist said he doubts Trump will transfer his assets into Trump Organization II and continue as before. “I don’t think it can work because frankly it seems too transparent,” he says.

But a second holding company at his disposal could still benefit Trump, Gilchrist pointed out. The main Trump organization could soon be barred from doing business if convicted. But, Gilchrist said, “the new organization, if not included in the indictment, will not have felony status at the end of the day.” That means he could take on future projects for Trump without the stigma of a criminal conviction.

A worker drives a Zamboni at Wollman Rink in Central Park, after the city broke multiple contracts with the Trump Organization, in New York, U.S., January 14, 2021. REUTERS/Brendan McDermid

The Trump Organization operated Wollman Rink in Central Park until 2021, when the city broke several contracts with the company. (REUTERS/Brendan McDermid)

Trump’s financial challenges add to a whirlwind of other investigations into his conduct. These include the Justice Department’s investigation into the Jan. 6 riot on Capitol Hill, as well as an investigation into the securities of its social media platform, Truth Social. The former president was also recently filed in a defamation suit brought by a writer accusing him of rape.

As for the criminal case against his company, the Trump Organization could face hefty fines. It is also possible that a judge will order the government to oversee the internal workings of the company. Also on the table is a punishment of essentially banning a business from continuing to operate, colloquially known as the death penalty for businesses.

On Friday, representatives of the Trump Organization did not respond to multiple questions from Yahoo Finance, including whether settlement talks might be in sight.

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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