Trump’s accountants sever ties, no longer stand by statements

A declaration by an accounting firm that it is dropping a client and backing away from prior financial statements is historically a red flag for investors.
Image: Mark Kauzlarich/Bloomberg

The Trump Organisation’s accounting firm said a decade of financial statements for Donald Trump can’t be relied upon and that it won’t do any new work for the company, a development New York Attorney General Letitia James said showed the urgency of her civil fraud investigation.

The firm, Mazars, notified Alan Garten, the chief lawyer for the Trump Organisation, of its decision last week in a letter, which James included in court filing Monday urging a judge to order Trump to comply with her subpoena and document requests. The state is investigating what it says was a pattern of potential fraud involving the manipulation of valuations of key Trump properties.

The probe by James, a Democrat, is one of several by law enforcement into Trump’s businesses, including a criminal investigation by the Manhattan district attorney. Lawyers for Trump, who is widely expected to again seek the nomination in the next presidential election, have long accused James of targeting him for political purposes, and have sought to block the progress of her investigation and others on multiple occasions.

A declaration by an accounting firm that it is dropping a client and backing away from prior financial statements is historically a red flag for investors, lenders or other parties that a company’s financial condition is not what it appears. It can also be a signal to regulators and other authorities that wrongdoing may have occurred, and is often the basis for launching — or expanding — enforcement investigations.

“This is bad news for Trump,” said John Moscow, a former prosecutor for the Manhattan District Attorney’s office. “He can’t say, ‘I had top-level accountants doing this work.”’

Mazars said in the letter dated February 9 that it decided to sever ties to Trump after conducting its own investigation and based on filings by the attorney general in January. The firm said it didn’t conclude the financial statements, from the years 2011 to 2020, contained material discrepancies, but decided that the “totality of circumstances” were at a point where it faced a conflict of interest with the Trump Organization.

“As a result, we are not able to provide any new work product for the Trump Organisation,” Mazars said in the letter. The firm declined a request for additional comment in a prepared statement, citing client confidentiality. A lawyer for Trump and a representative of the company didn’t immediately respond to requests for comment.

The letter should be read in the context of James’s filing last month that focused on inflated valuations of Trump Organisation assets based on aggressively optimistic assumptions, said Moscow, who is now at Lewis Baach Kaufmann Middlemiss.

“The accounting firm does not say that its work product was false, but they tell the client that it can’t be relied on as accurate,” he said. “If there are unstated assumptions that went into those numbers, and you realise that you may have been played by those unstated assumptions, this is the sort of letter you might want to write.”

The Manhattan district attorney has already filed criminal charges against the company and Chief Financial Officer Allen Weisselberg, alleging tax fraud.

James said she has detailed her “good-faith basis” for the state’s investigation in earlier court filings. “Respondents’ failure to address — much less rebut — the facts alleged in those submissions is a concession as to the gravity and extent of their conduct and confirms the merits of this investigation,” she said.

In its February 9 letter, Mazars said there were only a few tax returns that remained to be filed, including Trump’s and his wife Melania Trump’s. Those returns, which are due on February 15, have been held up by a lack of information regarding a corporate apartment used by Matt Calamari Jr., an employee and the son of the company’s chief operation officer.

© 2022 Bloomberg

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