04 July 21
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rump’s “eyes and ears” took a pounding in court on Thursday with a 15-count indictment that spanned tax fraud, grand larceny, conspiracy, and more. The 73-year-old accountant who, it has been said, knows essentially where every penny goes regarding the Trump Organization, took a beating and will now have some big decisions to make that will impact how he chooses to live the rest of his life and how other members of his family may live theirs. And then there is the matter of Allen Weisselberg’s loyalty to the head of the Trump Organization, the entity that was also indicted yesterday, and the potential impact the chief financial officer’s full cooperation may have on the public life of former President Donald Trump.
Undoubtedly, after seeing the indictment filed by the Manhattan district attorney and New York state attorney general, Weisselberg’s first question to his legal defense team was: How much jail time am I looking at? It is that question that may shape the future of all of the associated individuals and organizations. It requires peering not only into the current charges and the language of the indictment, however. It also requires knowing what the indictment may signal about prosecutors’ next steps in ratcheting up their pressure.
While the number of counts in the indictment (15) sounds menacing, the only real numbers that count are those that drive the sentencing guidelines calculations. And that is why there are a surplus of numbers referenced in the indictment. The amounts of income that Weisselberg received and evaded reporting to the taxing authorities and included in the indictment charges are one thing. The cumulative totals of income received and unreported plus the total taxes evaded on the federal, state, and New York City level will be counted and then referenced in the sentencing guidelines to arrive at a baseline sentencing exposure level, usually calculated in months to serve in prison for discussion at the sentencing hearing.
Whatever the baseline figure is will then be adjusted upward and downward and therein lies the rub and why Weisselberg has a difficult hand. He has three options:
(1) fight the charges and risk conviction after trial (most likely two to six years or higher in state prison),
(2) plead guilty but do not cooperate with the prosecutors (likely as much as a year in state prison),
(3) plead guilty and cooperate (likely probation and payment of civil fines).
Under option 2, Weisselberg can obtain a pretty significant reduction if he falls on his sword and makes a full admission—acceptance of responsibility. But that still likely leaves him with some jail time to serve, which is why the prosecutors charged him with what they did.
The only other substantive reduction to sentence left Weisselberg would then be through door No. 3: full cooperation with the ongoing investigation and prosecution of all crimes associated with the Trump Organization and by those officials associated with it. Should the erstwhile CFO choose this option and in fact fully and truthfully testify as to where all the bodies are located, then the accountant might skate in terms of jail time. He would still likely be on probation and would also be looking at significant back taxes and penalties, but he and his family would have avoided any risk of Rikers—something that other Trump executives may well have to endure.
A leading expert and former federal and New York state prosecutor, Daniel R. Alonso, told us:
These are the kinds of dollar amounts that ordinarily carry jail time in Manhattan courts. If he pleads guilty and cooperates, he has an excellent chance of a probationary sentence. If he goes to trial and is convicted, it is very likely that he would be sentenced to state prison time—at least a term of 1–3 but more likely 2–6 years or higher. And if he pleads guilty without cooperating, it will depend on the judge, but I would think any judge would be hard-pressed not to mete out at least some incarceration on a case involving $900,000 in fraud. If he’s able to persuade the judge that the amount really shouldn’t be that high, then perhaps he has a better chance. The DA’s decision to charge fraud against the IRS was brilliant in that it made the case about much higher dollar figures, and therefore, much higher likelihood of incarceration.
What are other factors that Weisselberg must now consider?
Strength of Case Going to Trial
Count if you will the number of times the indictment uses the word “conceal” up unto the final sentence. Concealment is the embodiment of intent when it comes to tax fraud. The prosecution must be able to provide evidence of intent—that Weisselberg willfully acted in a manner to evade the tax laws. Evidence of intent is found in overt acts taken by the tax evader to conceal or secrete, and are defined in a seminal federal criminal tax case called Spies v. United States (pronounced “Speez”). The Supreme Court found in that case that overt acts of intent such as maintaining a double set of books and records, submitting false invoices, falsifying records, disguising payments off the books, and the like make up what has become known as “Spies type” evasions of intent.
The New York indictment appears to cover many of these examples of intent. What is particularly damaging in my opinion is the reference to an internal set of spreadsheets or records that document the actual total receipt of compensation not captured by the wage statements (W-2 forms) prepared and issued to the employee and the tax agencies. This recording of off-the-books compensation that is then omitted from the W-2 occurs time and time again: the use of Mercedes-Benz vehicles by both Mr. and Mrs. Weisselberg, the rent-free apartment in Manhattan, the payment of utilities and garage space for parking, the purchase of big-screen television sets, carpeting and furniture for the Weisselbergs’ personal residences, and the payment of private school tuition in the hundreds of thousands of dollars from the coffers of the Trump Organization as well as from Donald Trump’s personal account for the Weisselbergs’ grandchildren.
Allen Weisselberg not only received off-the-books compensation in the hundreds of thousands of dollars as part of his annual salary of $940,000, but he was also the person responsible for the preparation of the Trump Organization books, records, and payroll accounting to track all compensation. The free apartment, for example, was not booked in the Trump Organization’s general ledger as employee compensation but was instead labeled and deducted as “rent expense” in the general ledger. The indictment pinpoints one occasion where Weisselberg directed a staff member in the accounting department to remove the notation “Per Allen Weisselberg” from the entries in Donald J. Trump’s Detail General Ledger relating to tuition payments paid on Weisselberg’s behalf for tuition to a private school.
In short, this kind of evidence suggests a very strong case for the prosecution.
Potential Criminal Cases Against Other Weisselberg Family Members
Prosecutors conspicuously made references throughout the indictment to other Weisselberg family members who received what appears to be untaxed benefits. This includes Weisselberg’s wife who was provided her own Mercedes-Benz as well as furniture and carpeting for private residences. Did she know that these benefits were untaxed? Did she willfully and knowingly sign a false joint tax return? Does Allen want to take a chance that his wife will not be prosecuted?
What about Weisselberg’s son Barry who ran the Trump Wollman skating rink and whose son was the beneficiary of the private school tuition payments? Did Barry report the benefits on his tax return? What about his rent-free apartment? Does he have some criminal exposure? Does Allen want to take a chance on that too? He would be well advised to avoid those risks especially after the prosecutors have now issued these public signals.
Potential Additional Charges That Could Be Brought in Superseding Indictment(s)
What if the initial indictment is just the tip of the iceberg? Prosecutors obviously have witnesses that can bring the internal records of true compensation to life in the courtroom. Are witnesses also available to testify about the rumored doctoring of Trump Organization financial statements wherein assets were inflated or minimized depending on the circumstances, such as application of a business loan, where it would be helpful to maximize the value of the asset, or the reporting of property taxes, where the lower the property value, the lower the taxes?
A strong indication that prosecutors may have that kind of weapon is the indictment’s reference to “Unindicted Co-Conspirator #1,” who CNN reports is Jeff McConney, the Trump Organization’s longtime controller. McConney reportedly testified before the special grand jury, for which he was granted immunity under New York state law.
What’s the potential risk to Weisselberg from any such additional charges? Submission of false financial statements to a financial institution for the purposes of obtaining a business loan could provide the basis for bank fraud charges, which contain significant sentencing exposure. Submission of false property values to artificially lower property taxes could bring mail or wire fraud charges, which also contain significant sentencing exposure.
What if prosecutors determine the entire Trump Organization operated as a criminal enterprise and brought racketeering charges against those responsible, which could come with that category of charges? Such counts, under New York’s “little RICO” law, contain a maximum statutory exposure of 25 years and have weakened the knees of many a Mafia capo!
Superseding indictments will seriously raise the sentencing guidelines baseline, and the enticing plea deal available to Allen Weisselberg now will vanish. Little RICO charges, for example, come with a mandatory minimum of one to three years. The longer Weisselberg delays on copping a plea, the greater the cost to him in terms of potential jail time. He’d be well advised to plea and cooperate now, rather than after any such indictment is entered.
Prosecutors may also extract a price for Weisselberg to pay for his procrastination, since, among other things, there is a cost to them in terms of trial preparation. Of course, the closer the trial becomes, the greater the anxiety level, as Weisselberg nears an iron bars destiny.
Potential Federal and IRS Penalties
The indictment contains multiple references to the amounts of federal taxes evaded by Weisselberg and to the false W-2 statements submitted to the IRS by Weisselberg and the Trump Organization where substantive fringe benefits were omitted despite the existence of internal documentation that contained the true compensation figures. Could Weisselberg be looking down the barrel of federal tax fraud charges?
Never say never.
There could be residual issues left over from the Southern District of New York immunity granted Weisselberg from the Michael Cohen caper involving hush money reimbursements paid to Cohen by Trump Organization executives. But the real issue is that the resource-strained IRS will not likely spend valuable manpower on a tax case that has already been successfully prosecuted at the state level. It would be ordinary practice for the IRS to let the state prosecution stand for the individual’s criminal liability. The fact that established practices would be for the IRS to exercise restraint does not mean the IRS won’t pile on with another criminal indictment, but the IRS chief counsel will not likely authorize prosecution, and the Criminal Investigation chief won’t likely expend valuable resources on Weisselberg that could be better invested elsewhere. The IRS does not want to be perceived as persecuting in lieu of prosecuting tax thieves. That goes against its mission, which is to encourage voluntary compliance with the tax law.
But the IRS has another weapon at its disposal, and it is very likely to wield it in Weisselberg’s case. There is no statute of limitations in the IRS tax code with regard to pursuit of “civil fraud” penalties, which can climb to as much as 75 percent of the tax evaded. That figure could easily total six figures and may very well climb into seven figures for the Trump Organization’s chief accountant. Something to think about.
In short, Weisselberg had a terrible day and will have more of those in the foreseeable future. The DA’s case against him appears strong. His family may come under further attack. While his loyalty to his longtime boss is clearly being severely tested with the initial indictment filed, the CFO must know that he could be looking at spending the rest of his life in jail, should he spurn cooperation and provoke the prosecutors into filing superseding indictments containing very steep jail time.
Donald Trump exclaimed to the media prior to the unveiling of the indictment that his company’s actions were “standard practice throughout the U.S. business community, and in no way a crime.” Should this case actually go to trial, it will be fascinating to see not only if Weisselberg will testify, but just how many corporate chieftains Mr. Trump can bring to court to testify in support of his statement that the tax frauds delineated in the New York indictment are standard practice. How many real estate moguls and hotel honchos will want to take the stand and acknowledge that their companies do not tax fringe benefits of their executives and falsify their corporate records to conceal such fraud? The question answers itself.
The very fact that Trump can make such statements highlights the need for federal, state, and local prosecutors to vigorously enforce the tax law in order to induce voluntary compliance. Business leaders need to be deterred from thinking they are entitled or above the law or that they can negotiate some sort of deal that precludes jail time for executives guilty of tax fraud.
Trump and other corporate executives of the Trump Organization should be concerned about incurring their own legal trouble as the machines of the Manhattan DA’s office and the New York state attorney general’s office have now fired what appears to be just an initial salvo. Knowing how such tax crime investigations and prosecutions work in stages, I anticipate there is more to come. So should Mr. Weisselberg, if he listens to his attorneys.
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