Trump University was an enterprise engaged in racketeering activity

June 5, 2016

Trump University was a massive fraudulent scheme that targeted financially stressed victims who borrowed money from friends and relatives, cashed out their IRAs and 401(k)s and maxed out their credit cards in order to extricate themselves from poverty. They were willing to risk financial ruin on the say-so of Donald Trump, who enriched himself by millions of dollars at their expense. If there is a silver lining to this tragic predation, you will find it in the Trump University Playbook, a remarkably detailed manual of step-by-step instructions to steal money from vulnerable victims. The fraud will not be difficult to prove because the playbook lays it all out in excruciating detail.

One of the civil cases pending against Donald Trump in federal court in San Diego is Cohen v. Trump, No. 3:13-cv-02519-DMS-RBB. I regard it as the most important case pending against Trump because, unlike the other cases, potentially hundreds of million of dollars are at stake. Two reasons explain why more money is at stake:

(1) This is the only case in which the plaintiff has alleged that Trump’s actions regarding Trump University violated the civil RICO statute that authorizes treble damages See 18 USC 1962(c), and

(2) The court has approved the plaintiff’s request to process the case as a class action that permits thousand of other victims to piggy-back their claims against Trump without having to retain counsel to independently sue him. The case is assigned to Judge Gonzalo Curiel.

RICO is an acronym for a Racketeer Influenced and Corrupt Organization that is referred to as the ‘enterprise’ in the RICO statute. An apparently legitimate organization or business, even a school or a police department, can qualify as an enterprise if it’s being used to defraud people through a pattern of racketeering activity. Trump University is the enterprise in this case. To prove a civil RICO violation, the plaintiff must prove that Trump knowingly, willfully and unlawfully defrauded people by conducting or participating, directly or indirectly, in the affairs of the enterprise (Trump University) through a pattern of racketeering activity. The ‘racketeering activity’ alleged in this case was to carry out the fraud by using wire transmissions to transmit money and the U.S. Postal Service to transmit communications. Specifically, the complaint alleges that Trump devised and knowingly carried out a material scheme or artifice to defraud or to obtain money by means of materially false or fraudulent pretenses, representations, promises, or omissions of material facts that he communicated to others by committing multiple acts of mail fraud and wire fraud every day. In short, the complaint accuses him of using his name and Trump University to create the appearance of legitimacy to conceal a scheme to induce people to pay thousands of dollars to learn his secret knowledge to make millions of dollars by acquiring distressed or forfeited real estate properties at auctions for little more than the amount of the owner/borrower’s deficiency and reselling them later at fair market value for a substantial profit.

We have a name for this money-making venture. We call it ‘vulture capitalism’ by flipping distressed properties pursuant to a detailed method controlled by statute to recycle properties that buyers no longer can afford. There is nothing magical or secret about this method. It has been around for hundreds, if not thousands of years and anyone can learn how to do it for free from the comfort of their own home by using the internet. Trump misled people when he induced them to pay thousands of dollars for his ‘secret’ knowledge that he did not develop and did not own. Even worse, he never provided the statutory process that details how to do it.

More important, this investment method is not risk free and he did not warn them about the risks involved. Consider the game Musical Chairs, for example. The proverbial music stopped when the real estate bubble burst and the market collapsed in 2007/2008. Expanding one’s inventory of dirt cheap properties is not recommended when the real estate market has not reached a bottom and reset itself so that buyers and sellers have a sufficient basis to estimate fair market value. In fact, the housing market is still circling the drain in many parts of the country.

Most of the victims of this fraud were struggling financially and hoped to avert disaster by making a killing flipping real estate. Spending their last dime to further enrich Donald Trump without receiving anything of value in return must have wreaked havoc. There ought to be a special place reserved in hell for people who engage in predatory financial frauds that target vulnerable victims.


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