New Trump Foundation Probe Might Complicate New York Civil Lawsuit

(Bloomberg) -- New York Governor Andrew Cuomo’s administration is investigating whether President Donald Trump’s charitable foundation violated state tax laws, said a person familiar with the probe.

The investigation could complicate a separate civil lawsuit against the foundation if it results in a criminal referral to the New York attorney general’s office. The foundation could argue the civil litigation jeopardizes its constitutional right against self-incrimination in the criminal case and seek to have the civil suit put on hold.

“It matters how much they overlap,” said Scott Wilson, a former special counsel in the attorney general’s office who is now a partner at Boies Schiller Flexner. “The defense in the civil case could provide a problem for (the target of) the criminal case.”

Trump’s former lawyer Michael Cohen successfully used such an argument to persuade a California judge to suspend a civil lawsuit against him while New York prosecutors investigate his businesses.

New York Attorney General Barbara Underwood sued the Donald J. Trump Foundation in June, accusing it of breaking state laws governing charitable spending through improper political activity, self-dealing and failing to follow basic fiduciary obligations. Trump and his children Ivanka, Donald Jr. and Eric are also named as defendants. Underwood seeks $2.8 million in penalties and an order dissolving the foundation.

The state attorney general’s office began investigating the foundation in June 2016, and found that it operated without any oversight by a functioning board of directors. The case has been moving forward quickly in the courts, and could result in more evidence being turned over.

A judge has urged Underwood and the foundation to settle most of the lawsuit quickly.

Underwood said the foundation entered into at least five transactions that were illegal because they benefited Trump or his businesses. They include a $100,000 payment to settle claims against his Mar-A-Lago resort and a $158,000 payment to resolve a suit against Trump National Golf Club over non-payment of a prize for a hole-in-one contest.

Tax Laws

The new investigation by New York’s Department of Taxation and Finance began about a month ago, and is looking at whether the foundation violated state tax laws, according to the person familiar with the matter who asked not to be identified because the probe isn’t public. If the inquiry results in a recommendation for prosecution, it could also be referred to the New York district attorney’s office.

The probe was reported earlier by The New York Times. Appearing at an event Thursday to announce a redevelopment initiative in Brooklyn, Cuomo said in response to a reporter’s question: “For the Trump Foundation, the law is the law. It doesn’t matter who you are, the law is the law.”

“We intend to hold the foundation and its directors accountable for all violations of state law," Amy Spitalnick, Underwood’s communications director and senior policy adviser, said in a statement. "We continue to evaluate the evidence to determine what additional actions may be warranted, and will seek a criminal referral from the appropriate state agency as necessary."

James Gazzale, a spokesman for the tax department, declined to comment. A lawyer for the Trump foundation, Alan Futerfas, didn’t respond to a request for comment.

It’s unclear where the state investigation might lead. Wilson said that if the attorney general had previously uncovered potentially criminal conduct, she would likely have sought state authorization for a criminal case rather than filing a civil suit.

"If the attorney general’s office thinks an investigation is going to go criminal, it generally would be very cautious and obtain a criminal referral at that point rather than risk using civil process as an end run to get evidence," he said.

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