As Usual, the Cover-Up is Worse Than the Crime

As Usual, the Cover-Up is Worse Than the Crime

(How Election Law and Accounting Rules Helped the SDNY DA's Office Convict Trump)

At first brush, paying off a porn star, a "playboy bunny", and a doorman to obtain their stories is fairly innocuous. Also, Trump did not buy the stories or create the general ledger entries himself. This is also what Trump, his ardent followers, and Republicans want everyone to focus on. This post discusses the "rest of the story" - how the cover-up conspiracy violated both FEC donation rules and accounting doctrine causing a simple misdemeanor to become a felony.

However, to fully understand the prosecution's case, it is necessary to understand: (1) legal definitions of "conspiracy" and "criminal intent"; (2) New York State Senate Open Legislation - "Falsifying business records"; (3) the accounting principle/doctrine of "substance over form"; and, (4) Federal Election Commission (FEC) donation rules.

This post discusses the "rest of the story". The details Trump wants everyone to ignore.

Set Up:

Three (3) people were paid off by Trump associates (Cohen and parent company of The National Enquirer). The Manhattan "Hush Money Cover Up" trial focused on the payoff by Michael Cohen to Stormy Daniels. The payoffs to Karen McDougal (playboy bunny) and Dino Sajudin (doorman) were used to establish a pattern of intent. (Refer to the above chart.)

The focus of the trial was to determine the reason the stories were purchased (intent). The evidence provided by the prosecution included general ledger entries, text messages, and testimony of David Pecker, Michael Cohen, and others with ties to Donald Trump.

Legal Definitions:

Conspiracy  (https://www.justia.com/criminal/offenses/inchoate-crimes/conspiracy/)

According to Justia.com, "A conspiracy occurs when two or more people agree to commit an illegal act and take some step toward its completion. [A] [c]onspiracy ... does not require that the illegal act actually have been completed."

"[A] [c]onspiracy first requires a showing that two or more people were in agreement to commit a crime. This agreement does not have to be formal or in writing. All that is required is that the parties had a mutual understanding to undertake an unlawful plan. Second, all conspirators must have the specific intent to commit the objective of the conspiracy. This means that someone who is entirely unaware that they are participating in a crime cannot be charged with conspiracy."

Because Trump was in 'agreement with' and had an 'understanding of' the conspiracy to cover up the hush money payments, he was charged by the Southern District of New York's (SDNY) District Attorney (DA). The plan was agreed upon via a series of phone calls and personal discussions with both David Pecker and Michael Cohen. Steps toward completion of the conspiracy included: (1) purchase of the stories concerning the tryst Trump had with Stormy Daniels; (2) payment {in excess of 2016 FEC contribution limits} was made to Stormy by Michael Cohen; and, (3) improper general ledger entries were made. Therefore, Trump was in agreement with the informal plan and all elements of a conspiracy were met.

Criminal Intent (https://legaldictionary.net/criminal-intent/)

According to LegalDictionary.net, "[c]riminal intent is the conscious decision someone makes to deliberately engage in an unlawful or negligent act, or to harm someone else. There are four specific examples of criminal intent: purposeful, reckless, knowing, and negligent. An act becomes criminal when taking into account the intent of the person who carries it out."

According to David Pecker's testimony during the trial, the intent was to hide Stormy Daniel's story about her tryst with Donald Trump. It was thought that publication of this story so soon after the incendiary, misogynistic, "men's locker room" statements caught on tape by Access Hollywood would cause significant damage to Trumps 2016 presidential campaign.

New York State Senate Open Legislation - "Falsifying business records":

Section 175.10 - "Falsifying business records in the first degree"

'A person is guilty of falsifying business records in the first degree when he commits the crime of falsifying business records in the second degree, and when his intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof. Falsifying business records in the first degree is a class E felony.'

Section 175.05- "Falsifying business records in the second degree"

Falsifying business records in the second degree is a class A misdemeanor. A person is guilty of falsifying business records in the second degree when, with intent to defraud, he [or she]:

1.  Makes or causes a false entry in the business records of an enterprise; or

2.  Alters, erases, obliterates, deletes, removes or destroys a true entry in the business records of an enterprise; or

3.  Omits to make a true entry in the business records of an enterprise in violation of a duty to do so which he knows to be imposed upon him by law or by the nature of his position; or

4.  Prevents the making of a true entry or causes the omission thereof in the business records of an enterprise.

Falsifying Business Records:

Trump Trial: A Case Study in Accounting

Trump was convicted of 34 counts related to falsifying business records. The 34 counts reflect a pattern of falsifying business records to obscure the purpose of the hush money payments. Each count corresponds to specific accounting entries that were allegedly manipulated to disguise reimbursements as legal expenses, thereby violating both state (NY Senate Sections 175.10 and 175.05 as described above) and potentially federal laws (Federal Election Committee donation rules as described below).

1) Counts 1-11: Checks and Check Stubs:

* These counts involve monthly checks paid to Michael Cohen throughout 2017.

* Each check was recorded as payment for legal services, but prosecutors alleged they were reimbursements for the hush money.

2) Counts 12-22: General Ledger Entries:

* The Trump Organization’s ledger entries for these checks were recorded as legal expenses.

* The prosecution claimed these entries were made to conceal the actual purpose of the payments.

3) Counts 23-34: Invoices and Documentation:

* These counts include the invoices submitted by Cohen to the Trump Organization.

* Each invoice falsely described the services rendered, masking the true nature of the payments.

Substance over Form (i.e. misleading general ledger entries)

According to Palidine Law, Substance over form is both a principle and a doctrine. As an accounting principle, it is designed to ensure that an entity’s financial statements provide an accurate and complete overview of its events and transactions. These statements measure and report the economic impact of a transaction instead of its legal form, which could conceivably mislead people on its true intent.

The IRS uses the substance over form doctrine to stop taxpayers from changing the form of a transaction to derive a financial benefit. Courts have typically allowed the IRS to make a claim of substance over form while requiring the taxpayer to justify their chosen transaction form, making the doctrine an effective tool for tax authorities.

FEC Presidential Candidate Campaign Donation (52 U.S.C. Section 30116, 52 U.S.C. Section 30118):

The Federal Election Commission (FEC) is an independent regulatory agency that administers and enforces federal campaign finance laws. The FEC regulates who can and can't contribute as well as contribution limits. Campaigns are prohibited from accepting contributions from certain types of organizations and individuals. These prohibited sources are:

*  Corporations, including nonprofit corporations, and professional corporations

*  Labor organizations (although funds from a separate segregated fund are permissible)

*  Federal government contractors

*  Foreign nationals

*  Contributions in the name of another

Additionally, a contribution made by one person in the name of another is prohibited. For example, an individual who has already contributed up to the limit to the campaign may not give money to another person to make a contribution to the same candidate. Similarly, a corporation is prohibited from using bonuses or other methods of reimbursing employees for their contributions.

Further, a candidate’s salary or wages earned from bona fide employment are considered his or her personal funds. However, compensation paid to a candidate in excess of actual hours worked, or in consideration of work not performed, is generally considered a contribution from the employer. If the employer is a corporation, ..., or another prohibited source, the excess payment would result in a prohibited contribution under the regulations applicable to that employer.

The above FEC contribution requirements are why The National Enquirer's attorney refused to allow the hush money payment to Stormy Daniels to be recorded on that company's financial records.

Since the hush money payment was related to the 2016 presidential election, it is necessary to know the limits for the 2015 - 2016 election period. According to an HK Law online "Federal Contribution Limits for 2015-2016" table, the maximum individual donation a candidate each election cycle (Primary and National elections are separate cycles) is $2,700. The maximum contribution amount per the table is $46,800 (National Party Committee donation to a Senate candidate). The Stormy Daniels payment was $130,000.  Refer to the Chart and footnotes at the top of the blog post.

Conclusion:

On May 31, 2024, Donald Trump was convicted of 34 counts related to falsifying business records. The checks from the Trump Organization to reimburse Michael Cohen for paying off Stormy Daniels and Karen McDougal were not for actual attorney services. The intent of the payments was to hide stories about affairs Mr. Trump had with both women. News of the affairs soon after the incendiary, misogynistic, "men's locker room" statements caught on tape by Access Hollywood would cause significant damage to Trumps 2016 presidential campaign.

The checks paid along with the related invoices and the general ledger entries should have been reported as campaign contributions in accordance with FEC requirements and accounting principles. However, the transactions were reported on the financial documents as legal fees and the total reimbursement exceeded FEC allowances. (Michael Cohen pleaded guilty to several charges, including campaign finance violations, and testified that he made the payments at Trump’s direction. Further, David Pecker's testimony corroborated that of Cohen. 

Trump was found guilty of 34 felony counts by the Manhattan jury because the accounting documents (i.e. business records) and testimony showed that Donald Trump was part of the conspiracy to hide hush money payments as legal fees. Because the business records were falsified with the intent to commit another crime, specifically campaign finance violations, the violations were correctly upgraded to a Class E felony in accordance with New York Penal Law § 175.10.

Sources:

Legal definition of conspiracy: Justia.com; https://www.justia.com/criminal/offenses/inchoate-crimes/conspiracy/

Legal definition of criminal intent: LegalDictionary.net; https://legaldictionary.net/criminal-intent/

Falsifying business records in the first degree (Class E felony): The New York Senate; NYSenate.gov; https://www.nysenate.gov/legislation/laws/PEN/175.10.

Falsifying business records in the second degree: The New York Senate; NYSenate.gov; https://www.nysenate.gov/legislation/laws/PEN/175.05.

CPA Trendline - Trump Trial: A Case Study in Accounting? https://cpatrendlines.com/2024/06/02/in-the-end-the-hush-money-case-was-about-accounting/

Paladini Law - Tax Law Firm: https://paladinilaw.com/substance-over-form/

Federal Election Commission (FEC) website - Who can and can't contribute: https://www.fec.gov/help-candidates-and-committees/candidate-taking-receipts/who-can-and-cant-contribute/

Federal Election Commission (FEC) website - Contribution limits: https://www.fec.gov/help-candidates-and-committees/candidate-taking-receipts/contribution-limits/

HKLaw online - "Federal Contribution Limits for 2015-2016" table: https://www.hklaw.com/files/Uploads/Documents/Practices/PoliticalLaw/20152016_FECContributionLimits.pdf

FBI website - Election Crimes and Security:  https://www.fbi.gov/how-we-can-help-you/scams-and-safety/common-scams-and-crimes/election-crimes-and-security

Justice Federal Prosecution and Election Offenses 8th edition (Dec 2017) Chapter 5 Section C (2) Substantive Statutes

(a)  Limitations on contributions and expenditures (52 U.S.C. Section 30116)

(b)  Prohibition on contributions and expenditures by national banks, corporations, or labor organizations (52 U.S.C. Section 30118)

https://www.justice.gov/criminal/file/1029066/dl?inline