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Trump’s $175 Million Fraud Bond Could Be Invalidated If Insurance Company Doesn’t Prove It Can Cover It
The
$175 million bond former President Donald Trump posted in his civil fraud case came under scrutiny Thursday as the New York attorney general’s office asked the insurance company that helped him secure it to show they’re financially sound enough to pay the bond—putting the bond at risk of being invalidated in 10 days if proof isn’t provided.
Trump and his business associates
posted bond on Monday for $175 million in his civil fraud case, after an appeals court
lowered the amount that Trump had to pay immediately while he appeals the case (down from the more than $464 million a judge ordered the defendants to pay after finding them liable for fraud).
That bond was underwritten by Knight Specialty Insurance Company—chaired by billionaire
Don Hankey, who told Forbes he approached Trump about the bond, which he said was collateralized through a combination of cash and investment-grade bonds.
The attorney general’s office, which brought the case against Trump, filed a
motion Thursday asking for Knight to provide more information about its financials and how the bond was collateralized, because the company is not admitted in New York.
For companies providing bonds that aren’t admitted in New York, they have to show they’re capable of covering the full amount of the bond, demonstrating the company is financially sound and that the person who owes money has put up enough collateral to cover the full bond.
Trump and his co-defendants filed an
updated bond with the court on Thursday—before the attorney general’s filing—that included more information about the company’s financials and certified their accuracy, but the attorney general’s office said that does not fully address what the company and defendants are required to provide.
Trump and his co-defendants now have 10 days to provide the court with additional information about the bond and Knight’s financials, the attorney general’s filing states—and if they don’t, the bond will be “without effect,” though Knight would still be on the hook to pay the $175 million until Trump secures a new bond.
Judge Arthur Engoron scheduled a hearing for the issues about the bond on April 22, suggesting any action invalidating the bond likely won’t be taken before then (Trump’s attorneys and Knight have not yet responded to requests for comment on the attorney general’s filing and whether they will file more proof).
WHAT TO WATCH FOR
The ex-president is appealing his loss in the civil fraud case, though it’s unclear how long that will take. While the appeals court has allowed him to only post the $175 million bond while he appeals the ruling, he and his co-defendants will still be liable for the full amount they owe should they lose their appeal. That amount is
growing by the day, as it accrues at a nine percent interest rate each year—amounting to more than $111,000 per day for Trump alone, who’s been ordered to pay more than $454.2 million in total. (The rest of the $464 million payment is based on $4 million fines for Eric Trump and Donald Trump, Jr., and $1 million owed by ex-CFO Allen Weisselberg.) Interest will keep accruing until the amount is fully paid off, despite the bond and Trump appealing the judgment.
SURPRISING FACT
In its updated bond, Knight reported a surplus to policyholders of $138 million—which is basically the company’s net worth, made up of its assets minus its liabilities. Since that’s less than the $175 million that Trump owes, that means if Trump’s bond wasn’t fully secured through collateral or he couldn’t pay the amount when it came time to do so, paying off the debt could wipe out the company’s cash.
KEY BACKGROUND
Trump and his co-defendants—made up of his business associates, including his sons, and companies within the Trump Organization—were
found liable in February of fraudulently misstating the value of their assets on financial statements, which New York Attorney General Letitia James argued was done in order to obtain more favorable business deals and reflect a higher net worth for Trump. Judge Arthur Engoron found there was “overwhelming evidence” suggesting Trump and his sons signed off on documents knowing the numbers in them were false, striking down their arguments that they were simply following the advice of the company’s accountants. In addition to the monetary penalties, Engoron also imposed other punishments, such as Trump and his sons being prohibited from running New York companies for three and two years, respectively. How Trump would pay the nine-figure judgment against him was a matter of widespread speculation before the appeals court lowered the amount, with Trump’s lawyers claiming in filings that it was impossible to secure a bond for the full amount and that the ex-president could be forced to hold a “fire sale” to sell off real estate properties for cash. The appeals court partially granted Trump’s request to delay the payment on March 25, the same day that James could have started seizing Trump’s assets if he didn’t pay.
Trump and Knight Specialty Insurance Company have 10 days to give the court more information before the bond could be invalidated.
www.forbes.com
