Mazars USA LLP, the longtime accounting firm for the Trump Organization, has a new role: star witness in New York Attorney General Letitia James’ civil investigation into whether Trump’s company engaged in fraud. Mazars has some explaining to do. And none of it bodes well for the Trump Organization.

Unlike attorney-client privilege, New York law does not recognize any claim of confidentiality between accountants and their clients.

On Monday, James made public a bombshell letter from Mazars dated Feb. 9 warning that 10 years of the “Statements of Financial Condition for Donald J. Trump” ending in June 2020 cannot be relied upon and saying it was parting ways with Trump. This is a stunning setback to the Trump company’s defense.

The attorney general has alleged that Trump and his company used fraudulent and misleading financial statements to inflate asset values to secure loans from banks as well as reduce their values to lower their tax obligations. Mazars’ disclaimer that the values in these statements are untrustworthy directly bolsters the attorney general’s charge.

In response, the Trump organization stated that Mazars’ letter renders the investigations by James and a grand jury convened by the Manhattan district attorney to consider a separate criminal case “moot.” That is a fantasy.

Instead of having an ally supporting the claim that Trump’s asset valuations given to lenders or used in tax calculations are appropriate, the trusted accountants are disavowing them. Trump Organization insiders are left standing alone to defend the asset values’ accuracy.

But the Trump Organization is pointing to the fact that, even as Mazars says its financial statements can’t be relied upon, the accounting firm in its letter noted that “we have not concluded” that the financial statements taken “as a whole, contain material discrepancies.” A Trump company spokesperson stated that “Mazars’ work was performed in accordance with all applicable accounting standards and principles,” reiterating that “such statements of financial condition do not contain any material discrepancies.”

How could that possibly be the case? Because the applicable accounting standards and principles apparently did not require that Mazars authenticate the asset values provided by the Trump Organization. Rather, the financial statements explicitly note that Mazars did not audit or authenticate them. Mazars apparently just reported the Trump values in compiling the financial statements.

In other words, after accepting Trump’s valuations for a decade, Mazars changed its tune this month. Essentially, this letter appears to be Mazars’ effort to protect itself from knowing involvement in any fraud that might have occurred or would in the future. Presumably Mazars could be afraid of being sued by any lenders who relied upon Trump’s financial statements to make loans to the Trump Organization and then lost money.

But even so, the letter demands careful reading, as it contains other clues to new potential areas of inquiry. The letter states that Mazars’ decision was based in part on disclosures by the attorney general in a Jan. 18 court filing. That 100-plus-page verified petition detailed alleged misinformation in Trump’s financial statements regarding asset values. The attorney general bluntly criticized the financial statements’ explanation of how assets were valued “in ways which are often inaccurate or misleading to a reader” when compared with the underlying data submitted to Mazars.

Mazars employees will likely be asked what new information in the Jan. 18 petition caused Mazars to realize these financial statements they had prepared were unreliable. Mazars opened another can of worms by disclosing in the letter that the company had conducted its “own investigation” in reaching the decision to break its ties with its client. Both James and Manhattan District Attorney Alvin Bragg, who is conducting a separate criminal investigation relating to Trump Organization tax returns, seem likely to demand full access to Mazars’ investigation.

Unlike attorney-client privilege, New York law does not recognize any claim of confidentiality between accountants and their clients. In 2017, the New York appellate court rejected an accounting firm’s claim to withhold information subpoenaed by the New York attorney general in an investigation of ExxonMobil on this basis.

And that’s not all. Mazars’ other role in preparing the income tax returns for Trump for years poses further risk to Trump and his business. Trump, in fact, fought Mazars’ disclosure of his tax returns as demanded by Bragg’s predecessor, Cyrus Vance Jr., all the way to the U.S. Supreme Court and lost in 2020. Trump unsuccessfully claimed that as then-president he was immune from being investigated.

The prosecutors have reportedly since gained access to Trump’s tax returns and much more. According to a December Washington Post report, Donald Bender, a Mazars accountant, testified before the grand jury in the Manhattan district attorney’s investigation of possible tax fraud by the Trump Organization. More Mazars employees could now be called.

Mazars’ disavowal of Trump’s financial statements is a turning point in the attorney general’s investigation. The independent accountants who prepared the statements no longer defend them and will likely have to testify why they had a change of heart. The day of reckoning for Trump’s business is fast approaching.

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