If you missed it yesterday, the New York Times dropped an incredibly thorough investigative report about the untold origin story of Donald Trump’s wealth. The big takeaway is that Trump didn’t, as he claims, get only $1 million from his father Fred (obviously a lot of money to begin with), but over the years received $413 million from his dad in one form or another. From the Times reporting: “By age 3, [Donald Trump] was earning $200,000 a year in today’s dollars from his father’s empire. He was a millionaire by age 8. In his 40s and 50s, he was receiving more than $5 million a year.” In fact, The Times concluded that Fred Trump directly lent his son at least $60.7 million ($140 million in today’s dollars), and that records show much of it was never repaid.
Of the more detestable details, Trump tried to rewrite his father’s will to bulwark his role as the sole executor of the estate when Fred died, a move Fred rejected. Also, in 2004—about seven years after Fred died—the Trump family sold off his empire, which he hoped to leave as a legacy. At that very time Trump’s tax shelter from a declared 1994 loss of $500 million was about to run out.
Was it legal? The Times reports a number of the exchanges within the Trump family were likely illegal or improper, such as one instance of Fred skirting the gift tax with an investment in one of Donald’s properties, which ended in mutual benefit for both: Trump got a $15 million bailout he needed and Fred essentially created a $15 million tax break for himself to the tune of $10,000. According to the Times, a spokesman for the New York State Department of Taxation and Finance responded that agency was immediately launching a review the allegations and “vigorously pursuing all appropriate areas of investigation.”
Well, like father, like son. Donald Trump appears to have done exactly what his father taught him. Lucky for us, we have a case study: Trump Vineyards. Full disclosure: I’m not a financial expert, but there are many reporters out there who are. I hope some of them can dig deeper than I can, and that this serves as at least an arrow in the right direction.
But here, best I can put it, is what’s going on.
Fred Trump, it can’t be said enough, wasn’t a good guy. He was a racist slumlord, as none other Woody Guthrie told us in a song called “Old Man Trump,” about Guthrie’s life in one of Fred Trump’s properties. That property—Beach Haven—appears in the Times’ report, and was apparently one of several similar properties Fred assigned his children as landlords.
This is of particular importance to us, because one technique Fred used to shelter money was to nest properties for his children within properties he himself owned, such as Beach Haven. (Unrelated: Donald Trump has both a sister—Maryanne, who is a federal judge—and a brother, Robert.) This, however, was according to the Times apparently designed as much for Fred to shelter his own money as it was to enrich his kids.
Enter Trump Vineyards.
Last year I reported on the strange story of Trump Vineyards and Trump Winery, which are two different entities with purportedly two different owners: Donald Trump (through the Trump Organization and an array of other parent and holding companies) and Eric Trump specifically. In short, Trump’s worth is essentially derived from a Ponzi scheme of debt, but in light of the Times’ report the involvement of his kids should demand review of tax evasion.
The story of Trump Vineyards is dazzling. Trump bought the property—a lumpy carpet of green hills in my old haunt of Charlottesville, Virginia—from an heiress of the Kluge family. The Kluges wanted about $100 million for the vineyard and estate, but Trump eventually got the vineyard for $6.2 million and a little while later—for $6.7 million—he got the prize: the mansion, which he turned into a luxury hotel. The deals involved a series of lawsuits and countersuits, lies, betrayals, broken friendships and mass unmarked graves of hawks and owls and other birds of prey, as well as your standard accusations of fraud and Trump stiffing his lawyers and welching on a contract and so on. You can and should read the full story here.
From my earlier report:
In February of this year, President Trump’s administration granted Trump Vineyard Estates LLC an H-2A visa for immigrant labor. But major media outlets covering the winery — notably NPR, CNN and The Washington Post — stopped their investigation a little short when they saw a seemingly contradictory legal disclaimer on Trump Winery’s website: “Trump Winery is a registered trade name of Eric Trump Wine Manufacturing LLC, which is not owned, managed or affiliated with Donald J. Trump, The Trump Organization or any of their affiliates.”
That’s intentionally misleading: Eric Trump did indeed own Trump Winery (despite his dad claiming to own it “100%” [in 2016]), but Donald Trump owns and, as president, profits from the vineyard the winery sits on. [That property is called] “Trump Vineyard Estates LLC,” which is registered to the Trump Organization and apparently worth between $5 million and $25 million dead presidents.”
More interesting than that, though, is the fact that Trump Winery—again, purportedly owned only by Eric and not affiliated with the Trump Organization—is indeed affiliated with the Trump Organization. This is evident on the winery’s website, which links to “Our Hotels,” which are, of course, Trump Hotels, which are, of course, owned by the Trump Organization.
What’s more, one of those hotels is a resort at Trump Winery itself. But the winery isn’t the land. That land belongs to Trump Vineyards, and it’s owned by Donald Trump (via Trump Org). Here’s from Trump’s 2018 financial disclosure form.
To my untrained eye, Trump has blurred some lines. First, it appears the Trump Org might have taken over Trump Winery on March 2, 2017, which would explain the website confusion, except that Trump Winery isn’t listed on Trump’s financial disclosure forms. Hm.
Take two: Perhaps the Trump Org didn’t take over Trump Winery, but Trump Winery is maybe doing business as or with Trump Org, or doing cross-promoting or something like that. But this would violate ET’s disclaimer that “Trump Winery is a registered trade name of Eric Trump Wine Manufacturing LLC, which is not owned, managed or affiliated with Donald J. Trump, The Trump Organization or any of their affiliates.”
According to Albemarle County records, it seems the Trump Organization does own the winery. In the listing above, we see “Trump Virginia Lot 5 LLC” (owned by Trump Org) as being a vineyard, as its underlying asset. The Albemarle County records, though, call it a winery.
This clearly has nothing to do with Eric, BUT in this year’s financial disclosure form Trump lists “Trump Virginia Lot 3 LLC” — NOT Lot 5 LLC, the one listed above as owning the winery — as ”[formerly known as] Eric Trump Land Holdings.” So did the Trump Org buy this from Eric somewhere? Well, Albemarle County property records indicate otherwise. They show the property as last purchased not from Eric, but from a man named Salvatore Cangiano, who was the initial buyer of that property when the Kluge estate sold in 2011. The entity that bought it (which is owned by Donald Trump) is the same entity that holds it today.
It gets weirder.
That parcel — “Trump Virginia Lot 3 LLC” — was appraised this year at $35,700. But Trump, in his financial disclosure this year, claimed it had a value of between $500,000 and $1,000,000, as well as an income of the same range:
Trump might be inflating the value here to use for debt collateral, or the opposite, he could deflate the value to count as a loss for a tax break. Either way, the income listed comes from “rent.” So who pays rent? It’s not far-fetched to presume it’s Eric Trump Wine Manufacturing LLC, but that obviously doesn’t square with the 2018 appraisal of $35,700, which seems to derive from the fact that the 94-acre parcel is “vacant residential land.”
So, considering Trump has broken up the land into several lots, and considering the winery is on one, as is the hotel, and two different entities in the same family are interacting here, with one of them invisible entirely (Eric’s) and the other including Eric, who is paying rent to whom?
Okay, so know how much Trump bought the lots for and how much he lists their valuation on his forms, but: We don’t know how much Eric paid him for the winery, if anything. We also don’t know if Eric just owns the wine label itself, which wouldn’t square with the advertisements for the land and hotels on the website. We also don’t know Eric’s loans or debts, because unlike Trump he isn’t required to release his financial disclosure form. The vineyard seems to be fertile ground for both sheltering money and inflating value for debt collateral, exactly like Fred did.
There’s a remarkable similarity here to what Fred did not just in nesting his family within his own holdings, but also possibly in skirting the gift tax. For instance, if Trump did give Eric the winery and didn’t report that and pay the gift tax, or if the Trump Org has as it seems invested in and perhaps profits from the business of Eric’s winery, Trump would have at the very least set a table that looks quite similar to the one his father did. And this is just one of hundreds of Trump Org ventures.
This pattern is reflected in a Washington Post report that ran last August about the Trumps committing possible gift tax fraud, through — surprise surprise — some of Eric’s properties. From that report, which I will try to summarize in simple terms afterwards:
According to a recent story by ProPublica and the Real Deal, in April 2016, a limited liability company managed by Trump sold two condominium apartments to a limited liability company managed by Eric Trump. They were on the 13th and 14th floors of a 14-story, full-service, doorman building at 100 Central Park South in Manhattan. This is a prime Midtown neighborhood, yet the sale price for each condo was just $350,000. Although the condition and square footage of apartments 13G and 14G are not readily known…. two years before the Trump transaction, apartment 5G sold for $690,000. Maybe the two units in question were in terrible shape, but two months before the sale to Eric Trump’s LLC, they were advertised for $790,000 (on the 13th floor) and $800,000 (on the 14th floor), according to ProPublica.
Basically, if you give your son a major discount on something this valuable, you’ve given him a gift and you need to report it. So maybe Trump did report it, but we don’t have his tax returns so we don’t know. The Post report goes on, drawing conclusions based on state tax records they obtained:
Since Trump did not cast the transactions as gifts for state and local tax purposes, it is almost certain that he did not do so for federal gift tax purposes, either. In our combined 40 years of experience as tax lawyers, we are unaware of a situation in which a taxpayer would report a transaction as a fair market value between strangers on the state level (and thus incur real estate taxes) but treat it as a gift at the federal level (and thus incur an additional tax). It’s fair to infer that Trump didn’t follow the rules.
The Virginia state records are apparently available at request under the state’s FOIA laws, though their disclosure isn’t mandatory.
So that’s one avenue for reporters to follow. But it gets crazier.
Check this out: According to Trump’s financial disclosures, a bunch of different entities hold different portions of different assets.
That Lot 3 parcel, which Trump apparently misrepresented on his financial disclosure form, is entirely owned by Trump Vineyard Estates LLC, which is 99% owned by DJT Holdings LLC, which itself is owned by another company called DJT Holdings Corporation. Trump owns 30% of the shares of DJT Holdings Corporation, and the other 60% is owned by Trump Family Associates LLC and the Trump Family Trust, where Mr. Trump, along with family members including Eric, is one of 13 trustees.
All for a vineyard. Not the most complex asset by a long shot. You can imagine how quickly this can scale, and how someone working fast enough and loud enough on a big enough stage could blow smoke all over the place. And what’s smoke? An impression of something when there’s nothing. It’s not about what these forms show us. It’s about what they don’t show us.
That is, we see Trump properties, but only the ones where Trump is the sole owner. More importantly, we don’t see how Trump is using these properties. Even though he disclosed (perhaps falsely) how much he makes from his assets and assigned them a range of value, he doesn’t say whether or how much he’s used them for collateral. That is, he doesn’t reveal whether he (or his family) have taken out loans against these assets, or how much he owes on some of the “other” unnamed assets that themselves might be backing up still more loans (his or others).
We also can’t see whether he’s using this (perhaps intentionally inflated) property value as collateral to back more loans for other properties, then doing the same thing with them and spreading that around from one to the other in a sort of self-inflicted Ponzi scheme of debt.
It’s not far-fetched.
When Trump bought the rolling green vineyard in 2012 from heiress Patricia Kluge, he said, “I’m really interested in good real estate, not so much in wine.” (Trump, who lost a brother to alcoholism, doesn’t drink.) “This place had a $28 million mortgage on it, and I bought it for $6.2 million. It’s a Trump deal!”
And indeed, today Mr. Trump lists the value of that land far above the price he paid. But, as his 1995 tax records showed us, Trump loves to use real estate as debt collateral. He’ll leverage one property to prop up another. The value of real estate isn’t fixed, after all; it’s always in flux, depending on the market and who’s buying. This means real estate value is like a balloon Trump can inflate and deflate at will. Also note that Trump bought the property in 2011, when no one would lend him money.
Or, as this Times report says:
“[E]ven as his companies did poorly, Mr. Trump did well. He put up little of his own money, shifted personal debts to the casinos and collected millions of dollars in salary, bonuses and other payments. The burden of his failures fell on investors and others who had bet on his business acumen.
Mr. Trump created his business empire using what the economist Hyman Minsky called Ponzi financing. In that arrangement, debt is supported by rising asset prices; when those prices come down—in Mr. Trump’s case, the value of real estate—then creditors discover that the debt will not be repaid.
...Bankruptcy has been the building block for Mr. Trump’s wealth accumulation. Indeed, looked at in light of the presidency, Mr. Trump’s record in real estate development is almost entirely based on financing methods that are contrary to the laws governing the nation’s debt.
And guess what? When you use debt for collateral, the interest is… wait for it…
Again, I’m no financial expert, but I know there are many reporters out there who are. These furrows, it seems, are worth digging.