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Trump World’s New York Legal Problems Finally Hit Home This Week

Bloomberg logo Bloomberg 3/14/2019 Erik Larson and Andrew Harris
President Trump Receives Briefing On Drug Trafficking On The Southern Border © Bloomberg President Trump Receives Briefing On Drug Trafficking On The Southern Border

(Bloomberg) -- President Donald Trump’s legal woes are hitting closer to home.

This week New York affirmed what’s been speculation until now: Law enforcement in the state, where Trump has long based his business, is starting civil and criminal investigations that are beyond the president’s federal control. Those may lead to charges against people in his orbit, including his children, with crimes that he can’t pardon. They may also bog down his business operations.

"These are things he can’t exert control over," said Mimi Rocah, a former federal prosecutor in the U.S. attorney’s office in Manhattan. "It’s got to be frightening to him."

For almost two years the spotlight’s been on Special Counsel Robert Mueller’s Washington-centered investigation of an alleged conspiracy between the Trump campaign and Russia to tilt the results of the 2016 election in the president’s favor.

New York’s new attorney general kicked off a busy week Monday by issuing subpoenas to Trump’s lenders, including Deutsche Bank AG as part of a wide-ranging probe into the president’s business dealings. And on Wednesday, the Manhattan district attorney charged Paul Manafort with a litany of state crimes, minutes after Trump’s former campaign chairman learned his sentence was raised to 7 1/2 years in related federal cases.

Manafort’s lawyer Kevin Downing didn’t address the state charges during a brief statement to reporters following the sentencing. Downing’s statement that the sentence was “callous” and “totally unnecessary” renewed speculation about a possible pardon for Manafort, which Trump has the authority to do under the Constitution.

Trump told reporters on Wednesday that he hadn’t given a Manafort pardon any thought. White House spokeswoman Sarah Sanders said Monday that the president would decide whether to pardon Manafort "when he’s ready."

Trump also has the power to steer federal probes, but the developments in New York expose the limits of that power. Presidents can’t issue pardons for state crimes or fire state officials who happen to be investigating them.

"A state is a separate sovereign," said former Florida federal prosecutor David Weinstein, now a white-collar criminal defense lawyer. “That is the beauty of our system of federalism here, and that’s what the founding fathers set up.”

The biggest New York threat so far to Trump and his children is the civil probe of the Manhattan-based Trump Organization, where they all held senior roles. New York Attorney General Letitia James, an outspoken critic of Trump who called him an "illegitimate president" during her campaign last year, subpoenaed Deutsche Bank and Investors Bank over loans for Trump real-estate projects and a failed bid to buy the National Football League’s Buffalo Bills, according to a person familiar with the matter.

Trump Organization spokeswoman Amanda Miller didn’t respond to a request for comment on the subpoenas.

The subpoenas were prompted by congressional testimony last month by Trump’s former lawyer and fixer, Michael Cohen, who claimed that the Trump Organization had sometimes inflated the value of its assets on financial statements to get loans, or better rates on insurance.

"I do not see anything that the a president can do to stop that process," Stephen Braga, a white collar criminal defense lawyer in Washington, said of the new probe by James’s office.

James also has a lawsuit pending against Trump’s personal charitable foundation, which she claims broke state law repeatedly by spending donated funds on legal expenses for his business and political contributions. Trump, who grew up in Queens, New York, has called James biased and claims both her earlier lawsuit and her new investigation are politically motivated.

As for other people in Trump’s orbit, the new charges against Manafort by the Manhattan District Attorney, Cyrus Vance Jr., show what may await others caught up in Mueller’s probe.

The Mueller investigation has focused on Russian efforts to interfere in the 2016 election and connections to Trump’s campaign. But related lines of inquiry have pulled in Trump’s company, and violations of state law could potentially be exposed, as Cohen’s testimony revealed.

"This is the justice system working together to address the very unique problem we have, which is a president who seems to act in some ways like he’s possibly above the law," said Rocah. "They’re sending a signal to Trump."

Braga said Manafort could still benefit from a presidential pardon, even with the new state charges filed, because he would no longer be jailed while he defends himself in New York, where he’d presumably get bail.

"That is all that the president might be able to do for Manafort now -- buy him some time of freedom," Braga said.

The state charges may run afoul of New York’s double jeopardy law, which says an individual can’t be prosecuted for two offenses that are "based upon the same act or criminal transaction," Braga said. But there are exceptions, and Vance will likely argue that those exceptions apply in Manafort’s case.

Several so-called overt acts that surfaced as evidence in Manafort’s bank and tax-fraud trial in federal court in Virginia are referenced in Vance’s indictment. They relate to new mortgage-fraud charges and could pose a problem for the state case, said John Moscow, who worked for Vance’s predecessor Robert Morgenthau.

"If there is a case which says there is an overt act that could have been charged, then New York is barred from prosecuting," Moscow said. Moscow, who said he isn’t familiar with the details of Manafort’s legal history or Vance’s indictment, wrestled with the double-jeopardy issue frequently during his time as a state prosecutor.

New York lawmakers are reportedly moving to close a loophole in the double-jeopardy law that bars state prosecutors from bringing the same charges against an individual who’s received a presidential pardon for federal crimes, according to the New York Law Journal. James has pushed for the law to be passed.

"Double jeopardy protections were created to prevent someone from being charged twice for the same crime, not to prevent someone from being charged ever," James’s spokeswoman, Delaney Kempner, said in a statement. "Closing this loophole will ensure no one can evade justice in New York.”

Trump also faces a lawsuit in New York state court that isn’t related to his business or his presidency. A New York appellate panel on Thursday rejected Trump’s claim that, as president, he’s immune from the suit filed by Summer Zervos, a former “Apprentice” contestant who says he defamed here when he called her a liar after she accused him of sexual assault.

Zervos’s lawyers want to question Trump under oath. At a hearing in October, Trump’s lawyer argued the Supremacy Clause of the Constitution shields Trump. Trump’s lawyers may still appeal Thursday’s decision.

Trump Fails Again in Effort to Duck ‘Apprentice’ Defamation Suit

And even federal prosecutors based in New York pose a threat to Trump, notwithstanding oversight of the office from Washington by the president’s ally, U.S. Attorney General William Barr. The office, known for its independence, secured the guilty plea from Cohen and is continuing to investigate.

(Updates with AG statement and Zervos ruling.)

--With assistance from Greg Farrell.

To contact the reporters on this story: Erik Larson in New York at elarson4@bloomberg.net;Andrew Harris in Washington at aharris16@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, ;Jeffrey D Grocott at jgrocott2@bloomberg.net, Joe Schneider

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