Appeal court throws out massive civil fraud penalty against Donald Trump

An appeal court has thrown out a massive civil fraud penalty against Donald Trump in a New York state lawsuit accusing him of exaggerating his wealth.

The decision came seven months after the Republican returned to the White House. A panel of five judges in New York’s mid-level Appellate Division said the verdict, which stood to cost the president more than 515 million dollars (£382 million) and rock his property empire, was “excessive”.

The president, in a social media post, claimed “total victory”, adding: “I greatly respect the fact that the Court had the Courage to throw out this unlawful and disgraceful Decision that was hurting Business all throughout New York State.”

After finding that Mr Trump engaged in fraud by flagrantly padding financial statements that went to lenders and insurers, Judge Arthur Engoron ordered him last year to pay 355 million dollars (£263 million) in penalties. With interest, the sum has topped 515 million dollars.

The total — combined with penalties levied on some other Trump Organisation executives including Mr Trump’s sons Eric and Donald Jr — now exceeds 527 million dollars (£391 million), with interest.

“While the injunctive relief ordered by the court is well crafted to curb defendants’ business culture, the court’s disgorgement order, which directs that defendants pay nearly half a billion dollars to the State of New York, is an excessive fine that violates the Eighth Amendment of the United States Constitution,” Judges Dianne T Renwick and Peter H Moulton wrote in one of several opinions shaping the appeals court’s ruling.

Judge Engoron had also imposed other punishments, such as banning Mr Trump and his two eldest sons from serving in corporate leadership for a few years. Those provisions have been on pause during the appeal, and Mr Trump was able to hold off collection of the money by posting a 175 million dollar (£130 million) bond.

The court, which was split on the merits of the lawsuit and the lower court’s fraud finding, dismissed the penalty Judge Engoron imposed in its entirety while leaving a pathway for further appeals to the state’s highest court, the Court of Appeals.

The appeals court, the Appellate Division of the state’s trial court, took an unusually long time to rule, weighing Mr Trump’s appeal for nearly 11 months after oral arguments last autumn. Normally, appeals are decided in a matter of weeks or a few months.

New York attorney general Letitia James, who brought the suit on the state’s behalf, had said the businessman-turned-politician engaged in “lying, cheating and staggering fraud”.

In a statement on Thursday, she focused on the part of the case that went her way, saying the court had “affirmed the well-supported finding of the trial court: Donald Trump, his company and two of his children are liable for fraud”.

“It should not be lost to history: yet another court has ruled that the president violated the law, and that our case has merit,” she added.

The president and his co-defendants denied wrongdoing. In a six-minute summation of sorts after a months-long trial, Mr Trump said in January last year that he was “an innocent man” and the case was a “fraud on me”. He has repeatedly maintained that the case and verdict were political moves by Ms James and Judge Engoron, who are both Democrats.

The Justice Department has subpoenaed Ms James for records related to the lawsuit, among other documents, as part of an investigation into whether she violated the president’s civil rights.

Her lawyer Abbe D Lowell has said that investigating the fraud case is “the most blatant and desperate example of this administration carrying out the president’s political retribution campaign”.

Mr Trump and his lawyers said his financial statements were not deceptive because they came with disclaimers noting they had not been audited. The defence also noted that bankers and insurers independently evaluated the numbers and the loans were repaid.

Despite such discrepancies as tripling the size of his Trump Tower penthouse, he said the financial statements were, if anything, low estimates of his fortune.

During an appellate court hearing in September, the president’s lawyers said many of the case’s allegations were too old, a claim they made unsuccessfully before trial.

The defence also says Ms James misused a consumer protection law to sue Mr Trump and improperly policed private business transactions that were satisfactory to those involved.

State attorneys said the law in question applies to fraudulent or illegal business conduct, whether it targets everyday consumers or big corporations. Though Mr Trump insists no one was harmed by the financial statements, the state says the numbers led lenders to make riskier loans than they knew, and that honest borrowers lose out when others boost their net-worth numbers.

The state has argued that the verdict rested on ample evidence and that the scale of the penalty comported with Mr Trump’s gains, including his profits on properties financed with the loans and the interest he saved by getting favourable terms offered to wealthy borrowers.

The civil fraud case was one of several legal obstacles for Mr Trump as he campaigned, won and started a second term as president.