The Legal Issue That Could Sink the New York Trump Prosecution
The statute requires intent to defraud - and it's not there
Manhattan District Attorney Alvin Bragg reportedly is close to asking a New York grand jury to indict Donald Trump for violations of New York state law. We don’t know exactly what charges will be included, if there is indeed an indictment. But based on the witnesses who have been called and information from other sources, attention has focused on a potential violation of a New York law that makes it a crime to falsify business records. That charge would be based on the hush money payment Trump made to adult film star Stormy Daniels, which was falsely recorded in the Trump Organization books as legal fees.
Many commentators have noted that proving the business records charge would be challenging. Most analysis has focused on whether Bragg can find another crime that Trump was trying to facilitate or conceal (which would make the charge a felony) or whether the statute of limitations could be overcome.
But I believe the business records charge would suffer from a more serious legal flaw, one that has been largely overlooked. The statute requires proof of intent to defraud — and that proof is not there. Trump may have intended to conceal an affair or an improper campaign contribution, but that is not intent to defraud as defined in the law. And that would be fatal to any indictment.
Manhattan District Attorney Alvin Bragg (credit: AP News)
The Hush Money Payoff
The underlying facts are well-known by now. In the weeks leading up to the 2016 presidential election, Daniels was trying to sell her story about an affair she had with Trump ten years earlier. To keep her from going public, Trump agreed to pay her $130,000. The deal was orchestrated by Trump’s attorney Michael Cohen, who arranged to pay Daniels using a shell company. After the election, Trump repaid Cohen with a series of checks that were recorded in the Trump Organization books as legal fees.
In 2018 Cohen pleaded guilty to eight felony counts in federal court in New York. Most of the charges had nothing to do with Trump. But two counts were federal campaign finance violations, charging that the hush money payment to Daniels was an illegal contribution to the Trump campaign. During his guilty plea, Cohen said he made the payment at Trump’s direction.
Although they had about a year following President Biden’s election before the statute of limitations expired, federal prosecutors in the Southern District of New York never moved to charge Trump himself for that campaign finance violation. We don’t know exactly why, although I suspect it is some combination of concerns about Cohen’s credibility as the star witness and whether prosecutors could prove that Trump had the heightened level of intent (actual knowledge of illegality) required for this offense.
It's now clear that Trump is not going to face federal campaign finance charges based on the hush money payment. But off and on, for several years, New York prosecutors have been considering bringing state charges for the same conduct.
The New York Statute
Bragg can’t charge Trump with a federal campaign crime. As for possible violations of New York state law based on the hush money payoff, most attention has focused on a law that makes it a crime to falsify business records. The charge would be that Trump violated this law when he reimbursed Cohen and then caused those payments to be falsely entered in the records of the Trump Organization as legal fees.
New York Penal Law § 175.05 provides:
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. [emphasis mine]
This is a misdemeanor offense. Under § 175.10, the crime become a felony when the defendant’s intent to defraud includes an “intent to commit another crime or to aid or conceal the commission thereof.”
Both the misdemeanor and felony charges require that the defendant acted with “intent to defraud.” Most discussion of the statute as applied to Trump has simply ignored or glossed over this element. But it’s a critical requirement, and one that prosecutors likely could not prove.
The Definition of Fraud
Fraud has a particular meaning in criminal law. Not all deception or dishonesty amounts to fraud. In a string of cases dating back to McNally v. United States in 1987, the U.S. Supreme Court has repeatedly held that in order to constitute fraud, the object of a scheme must be to deprive a victim of money or property.
The most recent example was the 2020 “Bridgegate” case, Kelly v. United States. In Kelly the defendants were convicted of fraud for shutting down inbound lanes on the George Washington Bridge as political retribution and lying about the reason for the closures. The Supreme Court unanimously reversed their convictions. It held that, although the scheme involved deception and political misconduct, it was not fraud because the object of the lane-closing scheme was not to obtain money or property.
This distinction between fraud and mere deceit is a common issue in white collar criminal law. For example, in the “Varsity Blues” prosecution, parents are challenging their convictions for fraud by arguing that admissions slots at prestigious universities are not “property” and therefore can’t be the basis of a fraud charge. In the case of George Santos, the serially-lying Congressman from New York, I recently wrote how the lies on his resume, although deplorable, would not amount to fraud because they did not deprive anyone of money or property. In the prosecution of the first so-called “insider trading” case involving NFTs, the defendant is challenging his indictment for fraud by arguing that his employer’s internal plan about which NFT to feature on its website is not a property interest that can support a fraud charge.
These cases all involve deceptive conduct, but not all deception is fraud. If the defendant’s intent is not to deprive a victim of money or property, the conduct does not amount to fraud.
The Importance of the Intent to Defraud Requirement
The requirement of an intent to defraud in the New York business records statute is not mere legal window dressing. It’s the critical component that justifies the state asserting criminal jurisdiction over the offense.
To illustrate, suppose a man and his wife create a small, closely held LLC to hold a few rental properties that they own. For plumbing work the husband wants to use a friend of his who runs a plumbing company, but he knows his wife does not like the guy. On the books of the LLC the husband falsely enters the name of a different plumber as performing the work, to keep his wife from catching on.
Absent the “intent to defraud” requirement, prosecutors could charge the husband with the crime of falsifying business records, even though the private LLC records were never seen by anyone outside the family. He is certainly deceiving his wife, but that kind of private deception falls far short of conduct that generally would justify criminal intervention by the state.
The requirement of an intent to defraud serves to distinguish less serious falsehoods from those that are made with the intent and potential to tangibly injure another and therefore justify criminal sanctions.
So in this case the critical question becomes: how did Donald Trump intend to deprive anyone of money or property by causing false entries to be made in the books of his own private company? I don’t see how he did.
New York Cases on Fraud
The discussion above concerned the definition of fraud under federal law. But New York courts have adopted a similar definition of “intent to defraud” when interpreting the business records statute at issue here.
For example, in People v. Saporita, Stevenson, two police officers were involved in a collision with a bicycle where a young girl was slightly injured. The officers left the scene of the accident, did not report it, and later altered official police records to falsely indicate they had returned the police vehicle involved in the accident earlier in the day. They were charged with, among other things, falsifying business records in violation of § 175.10.
The appellate court noted that the crime required “intent to defraud,” and that the trial court had charged the jury: “The term defraud means to cheat or deprive another person of property or a thing of value or a right.” The court went on:
On the instant record, the jury could have found that the defendants tampered with, or falsified, public records with the intent to "cover up" the automobile accident and thereby shield Saporita from disciplinary action by the police department. That conduct, however, is insufficient to establish an "intent to defraud", as charged, since in the instant record, there is no evidence that "another person" was deprived of any property or right as a result of the defendants' conduct regarding the public records. [emphasis mine]
Because there was no evidence of intent to defraud, the court threw out the business records convictions. Evidence of the intent to cover up some other wrongdoing was not sufficient.
The case of People v. Hankin is even more squarely on point. The defendant was a lawyer who was caught up in a sting operation investigating unlawful conduct by attorneys. An undercover informant referred a supposed personal injury case to Hankin, who then met with an undercover police officer posing as an accident victim. Hankin agreed to pay the informant for the referral and instructed him to send Hankin a bill for “investigative services.” Hankin then paid the bill with a law firm check and falsely recorded it in his firm records as a payment to an investigator. Prosecutors charged him with misdemeanor falsification of business records under § 175.05.
Regarding the false business records count, the court ruled:
[T]here is not even a suggestion in the accusatory instrument that there was an intent on the part of the defendant to defraud any person, group or institution by the filing of the investigator's bill with the records of his own law firm. Granted, if defendant deliberately required the investigator/informant to submit a false bill as a condition of payment, as I must assume happened for purposes of this motion, an intent to deceive could easily be inferred, as well as intent to cover up an illegal or unethical payment. However, even an intent to deceive and conceal another crime does not eliminate the required element of intent to defraud, commonly understood to mean to cheat someone out of money, other property or something of value [citing Saporita]. It is apparent from the nature of this transaction, considered in the light most favorable to the People, that while there may well have been an intent to deceive, there was absolutely no intent to defraud anyone by the filing of the investigator's bill with his own law firm's records. [emphasis mine]\
Accordingly, the trial judge dismissed the business records counts.
Based on precedents like these, Trump would have a compelling argument that, although the false entries in the books of his own company were meant to cover up other misconduct (the affair and payoff to Daniels), there was no intent to cheat anyone of money or property as the statute requires.
When I first made this point on Twitter, one response was that perhaps Trump engaged in tax fraud by mischaracterizing the reimbursement as deductible legal expenses. I see several problems with that theory.
First, it’s not entirely clear whether Trump or the Trump Organization wrote off the payments as a tax deduction. I’ve seen conflicting reports. Recently on “Meet the Press,” Trump attorney Joe Tacopina claimed they were not taken as a tax deduction. But for sake of argument, let’s assume that they were.
The narrative of this case from day one has been that the purpose of the scheme was to conceal the payment to Daniels and the affair, not to avoid taxes. That’s the basis on which Cohen was convicted for orchestrating an illegal campaign contribution. If prosecutors now want to argue that the purpose was tax fraud, that will require quite a pivot. But it requires more than merely changing the story line. Prosecutors would have to produce actual evidence that at the time of the false entries Trump was thinking about tax evasion, not concealing the affair. It’s not clear that evidence exists.
Putting that aside, to argue the false entries were made to evade taxes, prosecutors would need to show that New York lost tax revenue because the payments otherwise would not have been deductible. I don’t believe that’s true. The payment to Daniels was not illegal, so there’s no inherent reason to hide it. If it were accurately reflected in the books as settlement of a legal dispute, or even as a public relations expense to protect the image of Trump and the company, presumably those would still be deductible business expenses. If the expense would have been deductible anyway, there is no financial loss and no fraud.
And of course, if the expense was deductible anyway, that negates cheating on taxes as a possible motive for the false entries.
Similarly, Cohen reportedly paid taxes on the reimbursement he received. Indeed, Trump reportedly paid Cohen more than the amount paid to Daniels so Cohen would have extra money to cover his taxes. Once again, there does not appear to be any financial loss to the state and no tax fraud.
Defrauding the Voters
Another response I’ve seen is, “The voters were defrauded. They were deprived of information about the payoff to Daniels. If they had known, it might have affected the election.” But once again, that kind of harm does not fit the legal definition of fraud. Voters may have been deceived, but they were not defrauded.
Even if the New York courts were to hold that the voters’ interest in true information about candidates could be the basis of a fraud case, remember that the charge here would be based on false entries in the books of the Trump Organization. Those false entries did not deprive voters of any information; voters had no right to see those entries at all.
The lack of accurate data on federal campaign finance forms is what deprived voters of relevant information. But then we are back to the federal campaign finance charge – over which Bragg does not have jurisdiction and which federal prosecutors in New York declined to pursue. There’s no way to argue that false entries on the books of the Trump Organization defrauded voters of anything.
The Wrong Case at the Wrong Time
If Trump is indicted for falsifying business records on these facts, he may well convince a judge to dismiss the case before it even gets to trial. That would make the prosecution ill-advised for any defendant. It makes it a particularly poor choice for the historic first indictment of Donald Trump.
A failed prosecution would only embolden Trump and make him seem even stronger in the eyes of his supporters. It would bolster his preposterous claims that all investigations into his conduct are simply political “witch hunts.” It would make it easier for Trump and his supporters to dismiss later, stronger prosecutions as unjustified Democratic piling on – “there they go again.”
I would like to see Trump indicted and held accountable for his actions related to January 6, 2021 and the efforts to overturn the election. But this New York case has nothing to do with that. The alleged actions took place before he was elected and do not involve the abuse of presidential power. And bringing an old, legally flawed, and relatively trivial case could make it more difficult to hold Trump accountable for those far more serious acts.
Bragg may be looking at other charges, including business fraud charges that were under investigation but then seemed to be put aside. Or he may have evidence supporting the business records charge that we have not yet seen. We will have to wait to see the indictment, if one is indeed coming.
But if Bragg does intend to indict Trump for the business records offense based on the facts as we know them, I hope he reconsiders. I don’t think that case would end well, for the prosecution or for the country.
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you said that "a series of checks that were recorded in the Trump Organization books as legal fees." Actually, cheques were written from the Donald J Trump Revocable Trust i.e. personal, not from Trump Organization. Is that relevant ?
Admittedly, it's with regard to a different statute (NYPL 175.35), but it appears that "intent to defraud" is not always defined so narrowly.
See People v. Taylor, 865 N.Y.S.2d 266, 268 (N.Y. App. Div. 2d Dept. 2008) ("And, while an intent to defraud is often for the purpose of gaining property or a pecuniary benefit, it need not be. See People v. Kase, 1981, 53 N.Y.2d 989, 441 N.Y.S.2d 671, 424 N.E.2d 558, aff'g for reasons stated at 76 A.D.2d 532, 431 N.Y.S.2d 531. In Kase, a prosecution for the filing of a false instrument, an intent to defraud was found where a person intentionally filed a false statement with a public office for the purpose of frustrating the State's power to fulfill its responsibility to carry out faithfully its own law."), rev'd, 926 N.E.2d 591 (N.Y. 2010) (reversing because "intent to defraud" does not require reliance, as required by appellate division); see also People v. Taylor, 919 N.Y.S.2d 62, 63 (N.Y. App. Div. 2d Dept. 2011) (affirming conviction after reversal by Court of Appeals)
"Frustrating the State's power to fulfill its responsibility to carry out faithfully its own law" appears to be another hook of "intent to defraud." See Kase (citing Hammerschmdit). (Perhaps importantly, Hankin, when it quoted the definition of "intent to defraud" from Saporita, appeared to have omitted the last possibility: depriving someone of a "right").
All of this is to say, I totally agree that such a prosecution of falsifying business records (if that is indeed what it will entail) is by no means a slam dunk and very possibly a reach beyond the meaning and interpretation of "intent to defraud." And even if the State's theory of "intent to defraud" is correct, the unsettled nature of the law may pose notice issues.
Nevertheless, I'm curious how you view this idea of "intent to defraud" including depriving someone/the State of a "right" or preventing the State from fulfilling its responsibility to carry out faithfully its own law.