A few weeks ago I wrote a column about the civil law suit brought by the Attorney General of New York State alleging fraud by the Trump Organization and some of his family members and others. I noted in the article that it was incomprehensible to many observers how anyone could rely on his financial statements and how any lender could give him money based on them.
The chickens are now coming home to roost in that Mazars, his accountants, have now directed him to withdraw their past statements and notify whoever had received them of their withdrawal and of the fact that Mazars will no longer represent him.
To put this in context, the accountants are terrified of the extent of their legal jeopardy which they incurred by putting their name on those statements.
Their mealy-mouthed comment (a clause in their letter to Trump), that they have not “as a whole” found discrepancies in the value of his properties and what was represented just won’t cut it. They are looking at litigation from Trump, possible lenders, the Accounting Board, and federal authorities. Apparently, they are also cooperating with the civil and criminal investigations and will be hard pressed to justify their gross negligence and possible complicity in any fraudulent representations or schemes. They had better have a really good malpractice policy and a good insurer who still may decline coverage if they determine that any of Mazars’ employees willfully participated in any fraud or were grossly negligent.
Most telling of Mazars’ reasons for immediately ceasing their representation is their assertion that there are conflicts of interest between the Trumps and themselves. In this case it is clear to me this means that they are aware of something that is different from the client’s representations to them and to others, and now that they are aware of that, they have a conflict between their interests and their client. I have been trying these types of cases for decades, and it is rare for an accounting firm to drop a client in this fashion. It is usually the death knell for the client’s business, especially in this case where the level of review by the accounting firm is the lowest of the three normal accounting retainers—a compilation.
Accountants can certify, review or compile information for an individual or entity. Without going too far into the weeds, a compilation says that the accountants make no representations about the information, since it was supplied by the client without any review by them or auditing pursuant to accepted accounting regulations or procedures. It seems that is where any potential conflict lies, and Mazars is effectively saying we were lied to and we are now aware of it.
While there were lots of disclaimers in the financial statements, they are not an excuse for knowing misrepresentations, and that is why the accountants are dropping out and testifying anywhere they can. The question for their lawyer is how does he prove they were not knowledgeable about the fraud. As I noted in my earlier article, it is pretty grossly negligent, at least, not to know that an apartment is not 30,000 square feet, but 10,000, as reported in various financial publications, such as Forbes.
Their letter is an important nail in the coffin. While Trump is sui generis, it is hard to imagine any reputable accounting firm, bank or business entity being involved with him in the future. That said, there are lots of rich grifters out there who are infatuated with our ex-commander in chief.
