The Making of Donald Trump (10 page)

The ruling said that Trump’s right to collect income in the future was presented as a certainty without regard for the fact that under the terms of his contracts, the flow of money might be reduced or even stop.

More important, the judge wrote that Trump had not disclosed facts needed to determine his net worth: “The values of Trump’s closely held businesses were not expressed in terms of assets or net of liabilities,” the judge wrote, before adding two crucial insights—insights that speak to how Trump could make his net worth seem to be vastly larger than it is by any standard objective measure. “The ownership percentages of each closely held business held by Trump were not disclosed. Additionally, the tax consequences on Trump’s holdings were not set forth.”

The court also took renewed interest in Trump’s stake in the West Side Yards in Manhattan, which more than three decades earlier had been the focus of a federal grand jury investigation in which Trump was a target. No charges were
filed. The New Jersey judge’s dismissal order held that the West Side Yards, the largest single piece of land available for development in Manhattan, was not “owned” by Trump, as he often claimed. Rather, as
TrumpNation
reported, Trump was subject to a partnership agreement with terms that might not be worth a dollar to him. Under oath, Trump admitted that, in the judge’s words, “under the partnership agreement, the general partners would have to recover their entire investment before Trump would see any return. As a consequence, his future profits remained speculative.” Any possible future profits are uncertain “because encumbrances on the property were not disclosed by Trump.”

As often as Trump overstates his properties’ worth, the judge’s decision also points to how he also understates or even hides debts and other liabilities or encumbrances, like mortgages. In 1985, Trump made a show of buying Mar-a-Lago, the Palm Beach, Florida, estate of Marjorie Merriweather Post, the cereal heiress who went on to run her own cereal company and became arguably the wealthiest woman in America. Post left the property to the federal government in 1973 as a winter home for the president, but Washington decided the upkeep of more than 110,000 square feet with 126 rooms and lavish grounds was more than taxpayers should bear. They put it on the market.

Trump said he paid cash for the property, which he described as run-down and in need of the Trump touch to restore its grandeur. No mortgage was involved, he said, just cash. “I put in a cash offer of five million, plus another three million for the furnishings in the house,” Trump wrote in his first book.

That was not quite true. In testimony five years later, Trump confirmed that his primary bank, Chase Manhattan, had loaned him the entire purchase price.

“They put up the eight million dollars, I believe it was eight million purchase price,” Trump testified.

“Was there any security given to Chase Manhattan for that?” the lawyer asked, inquiring as to whether a mortgage had been taken out to finance the purchase and secure the bank’s interest.

“It’s a mortgage, a non-recorded mortgage,” said Trump. “And because it’s non-recorded, I personally guaranteed it.”

In December 1985, Trump had written to Janet VB Pena, a second vice president of Chase Manhattan, seeking several modifications to the mortgage commitment the bank had made two weeks earlier. The mortgage “will not be recorded” unless Trump failed to make timely payments, a condition the bank accepted.

The bank loaned Trump $2 million more than the purchase price, a total of $10 million, on his personal guarantee. Trump put up only $2,800 cash.
He boasted that he got Mar-a-Lago for a song, a bargain that showed his extraordinary negotiating skills. “I’ve been told the furnishings in Mar-A-Lago alone are worth more than what I paid for the house,” he said in his book.

To local property tax authorities, Trump represented the situation differently. They put a value of $11.5 million on the land and buildings. Trump countered, saying that was far too much. Keeping up the estate would cost him $2 million or $2.5 million a year, he said, so he might have to subdivide and develop the land. He proposed to build ten small mansions on the grounds. The town council turned him down. Then he proposed seven mansions. Turned down again. He would have to settle for building some condos nearby.

Five years after Trump acquired Mar-a-Lago with the unrecorded mortgage, casino regulatory hearings revealed that
he had personally guaranteed more than a fourth of his more than $3 billion of debt. Many banks complained that they were unaware other banks had loaned money to Trump on his personal guarantee with no public record of the obligation.

Taking wildly different positions on the value of assets and using his emotional state to justify those valuations helps explain something else Trump has done repeatedly. Congress requires all presidential candidates to file a financial disclosure statement listing their assets, liabilities, and income. Trump’s ninety-two-page disclosure report valued one of his best-known properties at more than $50 million. But he told tax authorities the same property was worth only about $1 million. He valued another signature Trump property at zero—and demanded the return of the property taxes he had already paid.

I
n the years between 1986 and the spring of 1990, Donald Trump took in at least $375.2 million from his business enterprises. He got cash from real estate deals. He made profits through greenmailing. He took $90.5 million out of Atlantic City, stripping cash from his Trump’s Castle and Trump Plaza casinos.
His recorded cash flow averaged $1.6 million per week for 233 weeks. That’s $230,000 per day, nearly $10,000 per hour, $160 a minute, or $2.66 per second.

Yet, in the spring of 1990, Donald Trump could not pay his bills.
How could a man who had convinced the world he was a multibillionaire fail to pay contractors on his new Trump Taj Mahal—which opened April 5, 1990—for months after they had completed their work? How could he lack the resources to make a $73 million mortgage payment on Trump’s Castle Casino Resort by the Bay?

The $375.2 million was not pure profit, by any means. Out of it came fees to lawyers and investment bankers, and interest paid on stock acquired with borrowed money. But
neither does the figure include cash generated by his other investments—for which no reliable public figures exist. For example, independent observers in 1990 said Trump had received millions of dollars in developer fees and operating profits from three Manhattan buildings—the Grand Hyatt Hotel, Trump Tower, and Trump Parc—but no one knows just how much. All we have to go on are Trump’s many and often conflicting claims.

Despite Trump’s tremendous cash flow over those four years, Manhattan bankers occupied a Trump Tower conference room for more than a month in 1990 as he dickered with them for more loans to keep his empire afloat.
Trump’s inability to pay his debts had put him at risk of losing his casinos. The New Jersey Casino Control Act required that a casino owner be able to pay bills as they came due. If an owner could not pay a bill, he or she was out. If an owner could not pay cash, but could convince a creditor to extend the payment date, that was fine. Old loans could be paid off with proceeds from new loans. But unpaid bills were cause for the Casino Control Commission to cancel the casino ownership license, take control of the casino, and have it run by trustees until a buyer was approved.

The law put the onus on Trump to establish his financial stability by “clear and convincing evidence.” Nearly two decades before Congress decided that America’s top banks were too big to fail, New Jersey debated whether the same applied to one self-proclaimed multibillionaire. If the answer was yes, then Donald Trump needed a government rescue to keep his empire intact.

At the time, Trump told me and everybody else that he was worth $3 billion. It was a dubious claim for a simple reason: in
February 1990, Trump had quit paying many of his personal bills.

A few weeks later, I got my hands on Trump’s personal financial statement, which showed that he expected his income to fall to $748,000 in 1992 and to $296,000 in 1993. That’s a lot of money to most people, but not to a “billionaire” with a personal jet to maintain.

My
Philadelphia Inquirer
piece broke the news that whatever Trump was worth, he was no billionaire, much less the multibillionaire he repeatedly claimed to be.
Soon after that news story, casino regulators publicized a document showing that Trump was down to his last $1.6 million. Yet payments on more than $1 billion worth of bonds on his three Atlantic City casinos came due every ninety days.

About a hundred vendors at the newly opened Trump Taj Mahal casino took legal action to protect their interests, filing liens and other debt-protection documents. The Trump Shuttle airline that ferried passengers between Boston, New York City, and Washington was burning cash at a furious rate. Trump said the planes had gold sinks and seat-belt buckles, but the Shuttle was down to $1 million cash. That was not enough to pay employees, keep the fleet of Boeing 727s fueled, or pay for constant repairs (which were necessary, since all but one of the twenty-three airplanes were more than twenty years old).

Trump’s obvious difficulty complying with the financial stability requirements of the Casino Control Act raised a glaring question: Had the regulators been monitoring Trump’s finances since he got his casino license in 1982? The answer was no.

The regulators had been too busy with work they deemed more important. There was, for example, the predawn arrest of a cocktail waitress named Diane Pussehl, who was pulled
from bed and charged with a felony for picking up a $500 chip on the floor of Harrah’s casino. A judge tossed the case out, so the casino regulators filed a misdemeanor charge. It also was tossed. Then they went after Pussehl’s license, arguing she was morally unfit to work in a casino. Pussehl kept her license.

The Division of Gaming Enforcement came down like a wall of bricks on little people like Pussehl, but when it came to high-level regulation—casino owners playing financial games with customers connected to the Medellín drug cartel, or accusations by Trump’s biggest customer, Bob Libutti, of manipulating financial reports on the purchase of gambling chips—the regulators remained willfully blind. It was the perfect environment for a Trump.

But Trump’s unpaid bills and the presence of all those bankers in Trump Tower made it impossible for the Division of Gaming Enforcement to keep its blinders on. As more and more news reports showed the financial stress Trump was under, the DGE said it would investigate.

The seventy banks whose massive loans were about to sour insisted that Trump install a man they trusted in his headquarters: Steven F. Bollenbach, who would later head Hilton Hotels and become chief financial officer at Disney. Bollenbach had experience with Trump. In 1987, on his first day as chief financial officer at the Holiday Corporation—the owner of the Holiday Inn brand and Trump’s original partner in the Trump Plaza casino—Trump attempted to greenmail that company. Bollenbach directed Holiday’s successful effort to fend off Trump.

Bollenbach spent days in a Trump office reading through contracts, loan papers, and other documents. To use phrases that Trump would employ a quarter century later on the campaign
trail, Bollenbach’s duty was to “figure out what the hell is going on.”

In March, Trump filed a sworn statement with the Casino Control Commission listing his net worth at $1.5 billion, half of his previous public proclamations. Meanwhile, the seventy banks hired the Kenneth Leventhal & Co. accounting firm to go over Trump’s books. An independent evaluation of Trump’s finances was crucial. While the big New York banks agreed to advance Trump $60 million to avoid a fire sale of his assets, not all the banks were on board. Three Japanese banks—Sumitomo, Mitsubishi, and Dai-Ichi Kangyo—plus the German Dresdner Bank were balking, as were two smaller New Jersey banks, First Fidelity and Midlantic. The agreement required every bank to go along or the deal would fail. Ultimately all but Dresdner did. Since none of the banks trusted Trump, the objective Leventhal evaluation was central to understanding the actual state of Trump’s finances.

The Leventhal report showed that Trump was no billionaire: he had a net worth of minus $295 million. My story on that report ran across the front page of the
Philadelphia Inquirer
with the headline: “Bankers Say Trump May Be Worth Less Than Zero.” The lead sentence was, “
You may well be worth more than Donald Trump.”

Trump hated that line and the traction the story received. The story ran at a critical moment in Trump’s bid to keep his casinos. He could have been swept into the dustbin of history if the DGE prosecuted high-level offenders with the same rigor as it did the Diane Pussehl of the industry. Instead, the
Casino Control Commission listened to a less than vigorous challenge to Trump’s financial stability. Thomas Auriemma, the DGE lawyer, asked Trump’s representatives easy and irrelevant questions to gloss over the growing gap between the
revenue Trump was taking in and the bills he had coming due. The Leventhal accounting firm’s report showed that Trump’s financial situation was deteriorating rapidly. Instead of ending the year with $24 million in cash, Trump was expected to run dry before year’s end.

The DGE prepared its own 111-page report. It noted that Trump owed (not owned, but owed) $3.2 billion. Of that, he had personally guaranteed $833.5 million. Absent an agreement by all creditors, Trump would face an uncontrolled, domino-effect chain of bankruptcies. If just one creditor moved against one Trump property, the others would follow, creating chaos.

More than one thousand lawyers working for Trump and his creditors had hammered out a “fragile” deal to keep him going, hoping to minimize losses on the loans they had extended without checking his finances carefully. The lawyers had already billed almost $11 million for their services.

Part of the deal was putting Trump on an allowance. He would have to get by on $450,000 per month, down from his May 1990 spending of $583,000 (the equivalent of more than one million 2016 dollars). The allowance was so astonishingly large that
The New York Times
quoted one billionaire as saying, “I would have no idea how to spend $450,000 a month. It’s just phenomenal.”