Category Archives: General

Election 2024: Thoughts on the Trump Org Fraud Trial, Part 1

I have been meaning to write a long essay about Judge Engoron’s decision last week in New York v. Trump, the civil fraud trial regarding the interconnected series of Trump-owned enterprises that is commonly known as the Trump Organization. However this is a very busy time of year for me, which has delayed my ability to do that. As such I am now going to break the essay into two pieces: one that talks about background relevant to the case, and then a later one that delves more into the decision itself.

Many of the things I will write about in this essay start to get close to my professional interests. For that reason, I want to clarify that everything I write here are my personal opinions and should not be construed as the views of my employer.

The heart of the prosecution’s case in New York v. Trump is that, over an extended period of time, Donald J. Trump repeatedly disseminated to lenders and insurers Statements of Financial Condition that were fraudulent, in that they purported to comply with U.S. GAAP (Generally Accepted Accounting Principles) but did not in fact do so.

This is a strange case in many ways. To understand why, we need to step back and talk about how businesses generally prepare financial statements.

Many, if not most, of the businesses that we encounter in modern American life are public corporations — entities whose stock can be bought and sold on stock exchanges. These companies are required, by the Securities & Exchange Commission (SEC), to publicly file financial statements on an annual basis that comply with U.S. GAAP. Moreover, these companies are required to hire an independent public accounting firm to audit those financial statements and express an opinion that the statements are fairly stated.

An under-appreciated point is that the financial statements are the responsibility of company management, not the audit firm. The audit firm does not tell management what to record. However, the audit firm does play a societally important role in verifying the material accuracy of the financial statements, by performing various types of audit procedures. One example of this would include validating that management has appropriately followed/interpreted the applicable accounting literature in preparing its financial statements.

As another example that hits particularly close to home for me: If the company’s financial statement involves liability or asset balances that are uncertain and that require specialized expertise to estimate, the audit firm may employ their own specialists to assess the reasonableness of management’s estimates. That assessment includes looking at the data, assumptions, and methodology underlying management’s estimate, and may involve constructing an independent range of reasonable estimates. (This is, in fact, what I do for a living, with respect to a particular class of estimates relating to health insurance risk.) To the extent company management is unable to convince the audit firm and its specialists that management’s estimate is reasonable, and the difference is considered by the audit firm to be material to a reader of the financial statements, the audit firm could be unwilling to issue an unqualified audit opinion unless management agrees to change its estimate.

That is the audit firm’s ultimate “stick” in the audit process — the threat to withhold the “carrot” associated with the firm opining that the financial statements fairly present the company’s financial position. For this reason, it has become relatively rare for public companies to have significant material errors in their GAAP financial statements coming from either the misapplication of accounting principles or use of inaccurate data as inputs: An audit firm would likely detect, and require their client to correct, such an error before it appears in published financials. There are occasionally frauds perpetrated by companies that their auditors fail to detect, to be true, as well as misapplications of the accounting literature that initially went undetected before later being found and corrected. But for the most part, the audit process significantly enhances the reliability of a public company’s financial statement.

In light of this, it has become very common for privately held companies to also prepare GAAP financial statements, and get those financials independently audited, even in the absence of an SEC-imposed requirement to do so. These private company GAAP statements are often not released to the public. However, the providers of equity and debt capital to a private company may require that audited GAAP financial statements be prepared annually, so that they can monitor their investment. Also, if the company has ambitions of going public someday, they will need audited GAAP financials as part of their initial public offering registration statement. As such, even for many private companies whose financial statements aren’t publicly disclosed, an audit firm is in the background, playing a role to provide assurance that management’s financial statements comply with GAAP.

Which brings us to the Trump Organization. Not only is it not a public company, it is not even a traditional private company: There is no corporate entity called “Trump Inc.” whose stock is owned by Donald J. Trump and other family members, and that in turn operates various business ventures. Instead, the “Trump Organization” is an interweaving and opaque collective of various assets, most of which are organized into separate limited liability companies (LLCs), and all of which ultimately come under the common control of Donald J. Trump.

As such, when we’re talking about Statements of Financial Condition issued by the Trump Organization, we’re actually talking about a GAAP concept known as a “Personal Financial Statement,” covered by a piece of accounting literature called ASC 274. These statements, generally prepared by high-net-worth individuals who need to provide financial statements to lenders, focus on the balance sheet — that is, assets and liabilities — and the measurement attribute for those balances is called “estimated current value,” which is defined as “the amount at which this item could be exchanged between a buyer and seller, each of whom is well informed and willing, and neither of whom is compelled to buy or sell.”

Obviously there is considerable judgment involved in arriving at the estimated current value of the types of assets that Trump owns, such as office buildings and golf courses. Nevertheless, that doesn’t mean one has unfettered ability to invent the values reported on the financial statement; those values need to be supportable, by relevant data and methods and assumptions, as an estimate of current value consistent with the objective articulated in the language I quoted above.

Additionally, there are other more general aspects of GAAP that need to be adhered to in an ASC 274 financial statement, such as (to pick an example that will become relevant) what does or does not quality as “cash”. There are also disclosure requirements, many of which relate to things like the methodologies in use and the year-over-year consistency of the balances reported.

At the end of the day, a personal financial statement is the responsibility of the person involved, just as a corporate financial statement is the responsibility of the management of the corporation. In principle, an independent accounting firm could be involved in auditing a personal financial statement, just as they are involved in auditing a corporate financial statement. And if so, that audit would involve the accounting firm expressing an opinion that the financial statements are fairly stated in accordance with GAAP, which would mean the firm had reviewed the various estimates made and the application of accounting principles.

But more commonly, accounting firms perform what are called compilation engagements, rather than assurance engagements, with respect to personal financial statements. That is, an accounting firm is involved in helping the individual prepare and issue the statements, but does not actually audit the financials.

That’s what we’re talking about, when we’re talking about these Statements of Financial Condition that the Trump Org prepared on an annual basis and sent to its lenders and insurers. They are GAAP statements showing estimated assets and liabilities; they are the responsibility of, ultimately, Donald J. Trump; they were compiled by an external accounting firm, generally Mazars; but, importantly, they were not audited by Mazars.

And as such, there was no external gatekeeper making sure that the estimated values reported for various assets by Trump Org were reasonable, or that the overall financial statements and associated disclosures were compliant with the applicable accounting literature. However, Trump himself certified that the statements were compliant with GAAP, as part of the process for Mazars to release the compiled statements.

A question one might be asking at this point is: Why did Donald J. Trump organize his business affairs in this fashion? Why is there no umbrella holding company called “Trump Inc.” that would prepare normal corporate financial statements and have them audited by an independent accounting firm? Why instead does Trump have ownership of an opaque web of LLCs and then prepare personal financial statements that are not audited but compiled?

I’m sure the answer to those questions is multi-faceted. However I will observe the following: If one wanted to be able to play fast and loose with the accounting rules — to be able to inflate the values of one’s assets and hence one’s net worth without external oversight from accountants and their specialists — then issuing compiled personal financial statements, rather than audited corporate financial statements, would be the way to go.

I’ll pick up on that theme in part two, at a later date.

Eclipse Musings

The Great American Eclipse of 2017 has come and gone.

A year ago, I would have said that I expected to spend today in the path of totality, thanks to the fact that my father-in-law happens to own some suitably-located property in SE Nebraska.  Alas, for a variety of reasons my wife and I concluded several months back that it wasn’t going to be practical for our family to journey to Nebraska for today.  I was pleased, for my kids’ sake, that my ex-wife picked up the slack and decided to take the kids to the path of totality near St. Louis; sounds like they had excellent weather and a great eclipse-viewing experience.

My youngest kids are only slightly older than I was during the last total solar eclipse visible in the continental US, the eclipse of 1979.  I was an elementary school student in London, Ontario, where the maximum coverage was roughly 80%.  I vividly remember our class being shuttled to the school gymnasium so that we could all watch the live CBC feed from Winnipeg, which was in the path of totality.

As for me today, I was in Minneapolis, where sunny weather in the early morning was replaced by cloud cover at midday.  I wandered outside at what ought to have been the maximum eclipse period, which for Minneapolis was only 83% coverage.  Unfortunately it didn’t feel much different than a cloudy day, the sun being largely obscured by clouds.  Ah well.

For me it’s hard to think about eclipses without thinking of two pop culture touchstones.

One is Carly Simon’s “You’re So Vain” – or, as I refer to it, “The Nova Scotia Song”:

Then you flew your Learjet up to Nova Scotia
To see the total eclipse of the sun
Well, you're where you should be all the time...

An interesting piece of trivia I recently learned from Wikipedia is that there is apparently some ambiguity regarding which eclipse Carly Simon is to referring here!  Both the eclipse of 1970 and the eclipse of 1972 were visible from Nova Scotia, and the song was released about four months after the latter but purportedly had been written in 1971.  Personally I think that the song most likely refers to the 1972 eclipse, since one would have had to fly to Nova Scotia (or parts further north) in order to be in its path of totality, whereas the 1970 eclipse was visible throughout the US Eastern seaboard.  (And this lyric is in the final verse, which one could imagine to have been added to the song after the rest had been written.)

The other is Isaac Asimov’s classic short story “Nightfall”.     It was once named the very best sci-fi short story written prior to the introduction of the annual Nebula awards in 1965; and I for one would not quibble with that choice, although I recognize that there are some who consider it overrated.  It certainly captured my imagination when I first read it as a teenager, and remains vivid in my mind these many years later.

For the benefit of those who’ve not read it – “Nightfall” is set in a planetary system that involves one planet and six suns, and where darkness is unknown because at least one of the six suns is always in the sky.  The planet has a human-like intelligent race, whose scientists have recently made two interesting observations.  The first, from archaeologists, is that ruins suggest a significant cyclical pattern, with civilization being destroyed by fire approximately every 2000 years.  The second, from physicists who only recently have developed a theory of gravity, is that in order to completely explain orbital movements one would need to hypothesize the existence of a previously undetected planetoid – and furthermore, once every 2000 years, there would be an extended period of time where none of the six suns were visible, with 5 having set and the 6th being eclipsed by the planetoid…

Although I’ve never seen anything to suggest this is actually true, I have a pet theory that the final verse of the Billy Joel song “Two Thousand Years” was inspired by “Nightfall”:

And in the evening
After the fire and the light
One thing is certain: Nothing can hold back the night
Time is relentless
And as the past disappears
We're on the verge of all things new
We are two thousand years

Ah well.  Enough eclipse musings for today.  Time to start the countdown for the eclipse of 2024, whose path of totality includes where my parents live in Eastern Ontario!

Why I Naturalized

Next month will represent the 25th anniversary of when I arrived in the USA, for good, as it would turn out.

I’d lived here before, mind you:  My family had moved from Canada to the USA while I was growing up, spending about 4 years here, although we moved back to Canada a year before I graduated from high school.  After staying in Canada for university, in September 1992 I came back to the USA on a student visa, to enroll in graduate school.  It was pretty common at that time for the best Canadian university graduates seeking PhDs to go south of the border for their doctoral studies.   While some of my fellow Canadians came south with clear intentions to return to Canada after their degree, my plans were more ambiguous.  Having lived in the USA previously, I was more open than most Canadians to staying here permanently, but I could certainly have imagined going back to Canada.

But then, while in graduate school, I met an American woman… (cue The Guess Who, or perhaps Lenny Kravitz!)  When we’d each reached the point where we were growing jaded with our doctoral program and sought to do something different with our lives, our relationship gave me a reason to want to stay in the USA and build my life here, rather than go home.  And so in 1996 I found an entry-level actuarial position in Chicago, returning to Canada briefly so I could re-enter the USA on a TN visa.  Shortly thereafter I convinced my employer to sponsor me first for an H-1B visa (back before those visas became exploited by the outsourcing firms), and ultimately for my green card.  Delays in immigration processing after 9/11 slowed matters down, to be sure, but by 2005 I was a permanent resident of the USA.  (Along the way I did marry the American woman, but that didn’t actually have beneficial immigration consequences for me: Marrying her when I did would simply have entitled me to join the green card queue in the very same place that I was already at thanks to my employer’s efforts.)

When I got my green card, I wasn’t sure if I would ever take the next step and seek to become an American citizen through naturalization.  The question wasn’t yet ripe, mind you:  A new permanent resident doesn’t become eligible for citizenship until 5 years have passed.  So when 2010 rolled around, I finally had a decision to make:  Should I naturalize?

It wasn’t a decision I took lightly, being proud of my Canadian heritage.  Having said that, in many respects it felt as though whether or not I was an American citizen would be a distinction without a difference, in that changing from a green card holder to a citizen wouldn’t have much immediate impact on my day-to-day life.  For example, nothing about my income tax situation would change if I were to become an American citizen; nor would becoming an American citizen have any impact on such longer-term issues as my eligibility for Social Security or Medicare.

In the end I decided I would go ahead and naturalize, which I did in early 2011.  In my thought process at the time I identified 6 reasons why I felt becoming an American citizen was the appropriate thing to do.

Reason #6 was estate taxes.  It is widely known that there is an unlimited spousal deduction to estate taxes, so that when one spouse dies the surviving spouse can inherit everything without worrying about potential estate tax.  However, it is perhaps less well-known that this deduction only applies if the surviving spouse is a citizen.   As such, naturalizing would insulate me from a potential tax exposure, albeit one that would only occur in the unlikely parlay that not only my wife died before me, but also our financial situation had somehow improved to the point where estate taxes were potentially relevant.  While that parlay seemed remote, it was a tally for the “yes naturalize” column.

Reason #5 related to potential eldercare issues.   Like many only children, I can imagine that someday one of my parents might need to come live with me – particularly with my maternal line being so long-lived (my grandmother is still doing great at 97; her mother was still living alone and smoking a pack a day when she passed at 97; and her mother lived to be 105).   However, with my parents being in Canada and me being in the USA, it’s not so simple.  As a citizen I would have some ability to sponsor a parent into the US to live with me, whereas as a permanent resident I would not.

Reason #4 was more ephemeral:  recognizing the reality of my life.  Regardless of which country I might cheer for at the Olympics, for all intents and purposes by 2010 I’d irrevocably thrown my lot in with the United States:  my professional specialty (health insurance) only exists in the USA, my children are Americans, I’d married an American.  Rightly or wrongly, I’d chosen to live my life in the United States, and naturalizing would be an acknowledgement that I’m not really a Canadian anymore, except in my memories.

Reason #3 was voting, and politics.  I’ve always had a very strong interest in politics, and there was something odd about a passionate politics-watcher being unable to personally participate in the political process.   And not just national politics, but also local politics.  After I did naturalize, the first vote I got to cast was in a local referendum about increasing the property tax levy for my kids’ elementary school district.  It was a closely fought race, I had a strong point of view on the right course of action, and I’m really pleased that I was able to cast a vote on something that directly affected my family.

Reason #2 had more of an actuarial flavor:  mitigating deportation risk.  I’m a pretty straight arrow, so the likelihood that I would do something that could, as a non-citizen, get me deported was very low.  But, the consequences of being deported would have been very dire, for my family and for my professional prospects; and there was a lot to be said for the notion that reducing deportation risk from near-zero to zero was the right thing to do.

My thinking on this issue was also motivated by what I, as a loyal reader of SCOTUSBlog, had learned about the current state of immigration law.  The Supreme Court case Carachuri-Rosendo v. Holder was in the news in 2010, and it greatly troubled me.   Jose Angel Carachuri-Rosendo was a permanent resident  with 4 American-born children who served a 10-day jail sentence for possession of a single tablet of Xanax without a prescription.  The federal government argued that his conviction for this offense made him mandatorily deportable, i.e., that he had no ability to apply for what is called “cancellation of removal” based on an evaluation of the impact that deportation would have and him and his US citizen dependents.  The Supreme Court ultimately ruled in Carachuri-Rosendo’s favor, thus returning some administrative discretion to the question as to whether he would be deported.   Nevertheless, the case reinforced that even “permanent residents” can be subject to deportation for relatively trivial offenses.  I wasn’t planning on committing any such offenses; but why take that risk?

That bring us to my rather curious Reason #1:  giving me the flexibility to leave the USA.  “Permanent residency” is only permanent so long as you continue to live in the USA, you see.  My family actually had our green cards when we lived here in the 1980s, but when we moved back to Canada we had to give them up.   So, if I remained a green card holder, and circumstances arose where I might want to live in a foreign country for some period of time, coming back to live in the USA afterwards would not be a slam-dunk for me.  Whereas by naturalizing, I’d gain a potentially useful right:  the right to leave, knowing that I was free to return.

You’ll notice that the canonical “love of my adopted country” didn’t make my list.  That’s not because I don’t love the United States; I do, to be sure, although that love can wax and wane with the political winds…   Clearly there are many, many naturalized American citizens for whom the United States has given them an opportunity for a good life that didn’t exist for them in their homeland, and for those people the opportunity to call themselves a citizen of the United States has a deep emotional meaning.  I respect that.  And I have a very good life in the USA, and I’m thankful for that.  But, I had the good fortune to have been born in an equally wonderful country.  If I’d never immigrated to the USA, my life in Canada would certainly have been very different in the details than my life here – some other career, some other wife & family – but I don’t doubt that I’d have been able to have a very good life in Canada.  As such, I wasn’t exactly inclined to sing along to the Lee Greenwood song at my naturalization ceremony.   I’d like to think that doesn’t make me any less of an American than anyone else.


Welcome to my homepage and blog!

My name (predictably) is Rowen Bell.  I am a Canadian by birth, but I’ve lived more than half my life in the USA.  By profession I am an actuary, with the bulk of my experience being in the health insurance field.  I’m also an amateur musician, a sports buff, a bridge player, an interested observer of politics and the law, and a few other things to boot.

I’ll be adding to this website from time to time, as time & interests allow.  To understand what I’m hoping to accomplish with this website, take a look at my Introduction page.