The Ridiculousness of the Trump Indictment, Part Four: The Missing Fraud

D onald Trump lied to his checkbook. Where’s the fraud in that?

This is the fourth of my five-part review of Manhattan DA Alvin Bragg’s indictment of Trump. The indictment charges that Trump made false entries on the Trump Organization books regarding his hush-money payments, made through attorney Michael Cohen, to porn actress Stormy Daniels to cover up Trump’s alleged affair with her.

The payments themselves were legal and made with Trump’s own resources. Cohen appears to have overpaid taxes on them, and Bragg never alleges that anybody else cheated the taxman. The false records — checks, invoices, entries on the Trump Organization general ledger — were all exchanged among people in on the hush-money scheme. These were all documents nobody intended to see the light of day, either to display them to the public or file them with the government. So, why is this a crime?

Part One of this series dealt with the statute of limitations. Part Two addressed how Bragg must stretch the law to transform misdemeanor false entries into felonies by claiming that they covered up another as-yet-unidentified crime — without which his whole case fails the statute of limitations. Part Three looked at more specific problems with Bragg’s trying to enforce federal campaign-finance rules.

Today, we get to the meat of the indictment: Bragg’s theory that Trump committed the crime of falsifying business records. There are two big honking problems with that theory, and they are related: Bragg has serious problems showing either intent to defraud or materiality. In short, Bragg never identifies who he thinks was supposed to be defrauded by the false but private descriptions of the hush-money payments as legal fees. I’ll start with an overview of the problem, then get into the nitty-gritty of the New York cases in this area for readers who are interested in a deeper dive into the law.

The Problem: Intent to Defraud and Materiality

Misdemeanor falsifying business records (Section 175.05) requires proof that the defendant “makes or causes a false entry in the business records of an enterprise” and does so “with intent to defraud.” In order to convict Trump of a felony under Section 175.10 of the Penal Law, the government must also prove that the defendant’s “intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof.” (Emphasis added).

Defenders of Bragg’s theory, most prominently Norman Eisen and his co-authors at Just Security, seem to assume that, if Bragg can show that Trump was committing another crime while using falsified documents, or hoped to conceal another crime and falsified documents to assist in that concealment, proof of “intent to defraud” is automatically satisfied. Writing at Just Security with NYU law professor and Just Security co–editor-in-chief Ryan Goodman and three other lawyers, Eisen asserts that the intent-to-defraud requirement “poses no obstacle based on the known facts in the case.” In a New York Times op-ed, Eisen and former Manhattan chief assistant DA Karen Friedman Agnifilo write:

New York appellate courts have held in a long series of cases that intent to defraud includes circumstances in which a defendant acts “for the purpose of frustrating the state’s power” to “faithfully carry out its own law.” To the extent Mr. Trump was covering up campaign contributions that violated New York law, that seems to be exactly what he did.

But the New York courts, even when taking a fairly broad view of what “intent to defraud” means, have never gone so far as to eliminate entirely the distinction between “intent to defraud” and “intent to commit another crime or to aid or conceal the commission thereof.” Doing so would torture the language of Section 175.10, which makes it a felony when the planned fraud includes an intent to cover up a crime. In fact, McKinney’s Practice Commentary, the standard treatise on New York laws, notes that “for the first-degree crime there must be two separate intents in that the ‘intent to defraud’ must include ‘an intent to commit another crime or to aid or conceal the commission thereof.’ The first degree, for example, is not committed when there is an ‘intent to . . . conceal the commission’ of a crime but no ‘intend to defraud.’”

New York courts have not eliminated the need to prove who was defrauded; they have simply expanded the definition of what the intended victim was defrauded of. Traditional fraud involved cheating somebody out of money or property, and even today, the main use of the falsifying-business-records statutes is in cases where the defendant did just that: insurance fraud, government-benefits fraud, tax evasion, business swindles, etc.

But the New York false-records laws, like the federal fraud statutes, have also been expanded to combat efforts to hoodwink or corrupt the government. Sometimes, that has involved fraudulently obtaining concrete permissions such as liquor licenses. Sometimes, it has been cops and nurses making false entries in official records to cover up negligence or crime. Sometimes, it has been failure to report illegal campaign contributions (a theory conspicuously not charged in this indictment).

There still has to be fraud. That means that Bragg needs to prove some sort of plan to use the false documents to deceive the reader of them out of something. New York cases have rejected theories of prosecution where the falsehoods were sent only to people who would not care about them, or where they were sent only after all the important decisions had been made. A number of these cases have been decided on the basis of the materiality requirement, which is another traditional element of fraud imported into the statute from the common law — the rule that falsehoods aren’t fraud unless they have the capacity to change somebody’s mind about something important that they don’t already know. Eisen and Agnifilo don’t mention the materiality requirement in their New York Times op-ed trumpeting the supposed strength of the indictment, and the Just Security essay gives it only cursory treatment without attempting to explain how Bragg can satisfy it.

What’s crucially missing from both the indictment and the Statement of Facts is any sign that Trump and Cohen planned to use the checks, invoices, and entries on the internal ledger of the Trump Organization to deceive anybody. Of the 34 felony counts, eleven are invoices from Cohen to Trump, and ten are checks from Trump to Cohen. Among the 13 counts that involve general-ledger entries, nine are for “the Detail General Ledger for Donald J. Trump,” and four are for “the Detail General Ledger for the Donald J. Trump Revocable Trust” — in other words, records of the portions of the Trump Organization that held the money Trump made from the business, rather than the operating arms of the business.

Presumably, Trump and Cohen lied in their checkbooks and invoices because they were involved in a dirty and embarrassing business they wanted to hide from the voters, the press, and, probably, from Melania Trump. But just because you conceal the truth in a private record out of an excess of secrecy does not mean you plan to use those private records to persuade anybody of anything.

Let me offer an example from my own experience: When I was a practicing lawyer, I occasionally worked on mergers that hadn’t been announced to the public. When writing legal memos and drafting potential court filings, we used code names for the acquirer and the target. This is common practice among corporate lawyers and investment bankers. This isn’t done because your private legal memo (which is typically marked PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT COMMUNICATION) is designed to be shown to someone to fool them. It’s because you don’t want the names of the companies leaking, so even private documents are written to obscure the truth. It’s the same reason that soldiers and spies write in codes.

In theory, if Bragg intended to argue that the hush-money payments were illegal campaign contributions or expenditures that should have been reported to the FEC, he could have tried to charge Trump with failing to make a required report. Section 175.05 offers four different ways to make a false entry:

A person is guilty of falsifying business records in the second degree when, with intent to defraud, he

1. Makes or causes a false entry in the business records of an enterprise; or

2. Alters, erases, obliterates, deletes, removes or destroys a true entry in the business records of an enterprise; or

3. Omits to make a true entry in the business records of an enterprise in violation of a duty to do so which he knows to be imposed upon him by law or by the nature of his position; or

4. Prevents the making of a true entry or causes the omission thereof in the business records of an enterprise.

Bragg charged Trump only under the first prong of the statute. Every count recites that Trump “made and caused a false entry in the business records of an enterprise.” None state that he omitted, prevented, or destroyed a true entry. So, his entire case depends upon showing that the documents Trump and Cohen created were designed to defraud somebody in a material way. But nothing Bragg has said in the Statement of Facts suggests that Trump ever wanted any of these checks, invoices, or general-ledger entries to be seen by anyone, or that he ever expected them to be audited or reviewed by anyone in government whose decision-making would be affected by whether these were legal fees or hush-money payments.

That’s why there’s no crime. Progressive law professor Jed Shugerman, writing in the Times, agrees:

Even based on the half-felony that we do know — the false business filing with “intent to defraud” — it remains unclear whether a court has ever allowed a false-filing conviction based on an entirely internal business record that no other party, like a bank, insurance company or customer, would have relied on. I am yet to see any legal experts who have argued for this statute as a basis for the case against Mr. Trump who has identified a New York case along these lines.

In my own research, I have not yet found one. That hole in the case should have given prosecutors pause: What, in practice, is the meaning of “intent to defraud”? If a business record is internal, it is not obvious how a false filing could play a role in defrauding if other entities likely would not rely upon it and be deceived by it. Even if one can argue that the statute should apply to internal records, this is not the ideal time to test a seemingly novel (or even a very rare) application.

Readers who aren’t lawyers or interested in the granular legal arguments can stop here. For the rest of you, I’ll show my work — and you can find it here. You can compare my analysis of the cases with the Just Security post or this from Shugerman. In short: There’s no sign I can see in New York law that a private business record, never presented to anyone, never filed where it might be expected to be reviewed by anyone, and in fact actively buried as far from public view as possible, can be the basis for a false-records charge that required intent to defraud by means of a material falsehood.

In Part Five, I will address the abusive nature of the indictment itself.