TRUMP: He Is Who He Appears To Be, Part Three

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BANKRUPTCIES AND BUSINESS FAILURES

One of the main selling points for Donald Trump in his candidacy was that he was a successful businessman, and that was exactly what the country needed to Make America Great Again.

But what the minority of the country that voted for Trump didn’t realize was that Trump’s business model is really a scorched earth approach to financial success:  invest none of his own capital, use his fame to convince financial institutions to loan him vast sums of money, and then when the businesses fail, obtain even more loans in exchange for reducing the share of his ownership, then when the business finally defaults, declare bankruptcy and leave other people holding the debt.

Bitter?  Oh, a tad…

Let’s start at the beginning.

The Early Years and Daddy’s Money

After Trump graduated from Wharton, where he claimed to be first in his class, and implied that he graduated with an MBA, both claims being proven false, he went to work for his father’s real estate business.

His first project, backed by his father Fred Trump was the Swifton Village apartment complex in Cincinnati which his father bought for $5.7 million in 1962.  He let Donald refurbish it and sell it for $6.75 million. This sounds good, except that when taking account the money that the younger Trump poured into the property, it would have to have sold for $7.9 million to have earned a profit.  (Newsweek)

Donald Trump was on his way to using other people’s money for his own gain.

In 1972, his father brought Donald into a limited partnership that owned a senior citizen apartment in East Orange, New Jersey. Fred shrunk his ownership from 75% to 27% by turning over the rest of his stake over to two entities controlled by Donald, and providing him with an income stream.

In 1974, Fred Trump named Donald beneficiary of a $1 million trust fund that provided him with $1.3 million in income over the next five years. (Newsweek)  This is the famous “million dollar gift” to Donald that he used to start his “empire.”

In 1978, the senior Trump hired Donald as a consultant to help sell his ownership in a real estate partnership. The deal was extremely lucrative for Donald, earning him over $10.4 million in today’s dollars over several years.

Flush with money from his father, in 1980 Donald Trump formed a partnership with a subsidiary of Hyatt Hotels to purchase the struggling Commodore Hotel for redevelopment, and turned it into the Grand Hyatt New York. Fred Trump made sure the deal happened by co-guaranteeing the construction loan for $70 million, and arranged a credit line for Donald with Chase Manhattan Bank.  (Newsweek)

The critical factor in getting the hotel built was in securing an “extraordinary” 40-year tax break that cost New York City $360 million in forgiven or uncollected taxes on a property that only cost $120 million to build in 1980.  (New York Times)

This set the pattern for the rest of Trump’s New York career, which eventually included 15 buildings at the core of his NY empire:  to manipulate and use political connections, obtain huge amounts of assistance from the government and taxpayers, securing grants and incentives to benefit him (New York Times), and leverage all of this to assist in securing financial investments from outside sources, using little or no money of his own.

In 1980, Fred Trump funneled a “hot tip” to Donald, through a friend, that a parcel of land was available in Atlantic City, New Jersey, and was zoned for a casino.  On this tip, Donald Trump formed the Trump Plaza Corporation and applied for a casino license.

Trump wanted to build a 612-room hotel and casino, but the banks would not finance him.

So Trump formed a partnership with Harrah’s Entertainment, who put up all the money for the project in exchange for Trump developing the project. (Newsweek)

In 1984, Harrah’s at Trump Tower opens and Trump is enraged. He thought he would get top billing. Harrah’s spent $9.3 million promoting the Trump name, and giving him a positive reputation in the casino business, but soon discovered the true price for being involved with Trump: he used the Harrah’s promotion of him to leverage financial backing and purchased the nearby Hilton Atlantic City Hotel, which he renamed Trump Castle.

This “business plan” put him operating two businesses in Atlantic City that were in direct competition with each other. This infuriated Harrah’s to the point that they immediately sold their interest as soon as Trump Castle opened.

Trump’s Most Infamously Spectacular Failures

1. Trump Taj Mahal, Atlantic City: In 1990, Trump opened the Trump Taj Mahal in Atlantic City, after financing the deal with $675 million in junk bonds, agreeing to pay an astonishing 14% interest, because no financial institutions would back him. (Snopes)

The Taj Mahal was in competition with Trump Castle and Trump Plaza Casinos, which was an unsustainable business model. He defaulted six months later because he couldn’t make the interest payments to the bondholders, and in July 1991, Trump Taj Mahal filed for bankruptcy.

At one point, Trump gave up a 50% share of the casino in exchange for more favorable terms on the debts, after revealing he was going to miss a $43 million payment to investors. The banks, who were already too deep into Trump properties in Atlantic City, worried that Trump could drag them down with him, agreed to loan him tens of millions more.

The Taj Mahal pushed Trump’s total debt for three casinos to $1.2 billion. For the Taj Mahal to break even, it would have had to pull in $1.3 million a day in revenue, more than any other casino ever. (Newsweek)

2. Trump Castle, Atlantic City: This is the hotel that Trump purchased from Hilton in 1985 that put him in direct competition with his own Trump Tower hotel that caused Harrah’s to back out of as soon as the Trump Castle opened.

By 1990, the hotel was deep in debt, and Trump turned to his daddy for help. Fred Trump handed a certified check for $3.35 million payable to Trump Castle to his attorney, Howard Snyder.

Snyder went to Trump Castle and opened an account in Fred Trump’s name, deposited the check into that account, and a blackjack dealer paid out $3.35 million to Snyder in $5,000 chips.

Snyder put the chips in a small case and left – no gambling took place. (Newsweek)

By 1992, despite the elder Trump’s help, Donald and the Trump Castle were in debt $338 million, and he filed for Chapter 11 protection.

3. Trump Plaza Casinos, Atlantic City: This was the first hotel that Donald opened in partnership with Harrah’s in 1984. After Harrah’s ran away from Trump as fast as they could, Trump changed the name to Trump Plaza Casinos. He filed for bankruptcy in 1992 when he had amassed $550 million in debt, at this hotel. (Snopes)

The hotel closed in 2014, putting more than 1,000 people out of work.

4. Trump Plaza Hotel, New York: Trump purchased this hotel in 1988 for $407 million from Westin, and immediately installed his wife Ivana as the hotel’s president. At the time, lawyers told him the hotel had a $12 million net operating income.

After putting $50 million into the hotel in renovations, the hotel had a healthy operating income, but could not keep up with the heavy debt load. The hotel lost $74 million in the first year of Trump’s ownership. (New York Times)

After trying to pay off the hotel’s debt by selling off many units as condominiums, by 1990 the Plaza needed an operating profit of $40 million a year just to break even. (New York Times)

Trump filed for bankruptcy in 1992 with the hotel $550 million in debt. In order to restructure the debt and emerge from bankruptcy, Trump gave up a 49% stake in the property to secure more favorable terms from lenders, which included a forgiveness of $250 million of the debt.

Let’s be clear about the forgiveness of debt.  He no longer had to pay back that money. In essence, the bank “gave” him a quarter of a billion dollars.

This was part of a “vast and humiliating restructuring of some $900 million of personal debt that Mr. Trump owed to a consortium of banks.”  (New York Times.

5. Trump Hotels and Casino Resorts: This was one of Trump’s most colossal failures that hurt not only lenders but hundreds of individual investors as well.

Trump consolidated his three Atlantic City hotel casinos, along with other properties, in an attempt to escape his crushing debt, by establishing a public company under this name in 1995 and offering his IPO to small investors to the tune of $140 million. (Vox)

The IPO money was supposed to be reinvested into the company, but the hotels already carried so much debt that that the first moves made with the IPO money was to pay down debts that Trump had personally guaranteed, meaning the public company money was being used to buy down not a company debt, but a personal debt owed by Trump himself.  (Vox)

Once the public company was established, Trump then proceeded to suck as much money out of the public company as possible. One way to accomplish this was to have the company he controlled buy things that he personally owned.

For example, Trump Hotels and Casino Resorts, a public company under the control of Trump, purchased Trump Castle for $490 million, and Trump paid himself $880,000 for brokering the deal.  He received a $7 million pay package in 1996, including a $5 million bonus and a 71% salary increase, despite the shares of Trump Hotels and Casino Resorts dropping 70% in that year.

The company share price plummeted because it was unprofitable.  It ended up assuming $1.7 billion in debt as part of the acquisition of Trump properties, while Trump was paying himself a high salary for running a company whose sole purpose was to take huge debt loads of his personal balance sheet. (Vox)

Trump Hotels and Casino Resorts, Inc. filed for bankruptcy in 2004.  It was in debt $1.8 billion.  Trump reduced his ownership from 47% to 27% to obtain more favorable terms from the lenders and to keep the company in business.

Employees, who claimed the company strongly encouraged them to invest their savings into company stock from 1996 to 2004, filed a class action lawsuit. The company then forced them to sell their stock at a large loss when the bankruptcy was declared.

Share prices fell from $30/share to $2/share and 400 employees lost over $2 million from retirement accounts. When the forced sale arrived, the share price had dropped to $0.57/share. The employee who put $1,000 into their retirement account in 1997 now had just $59.  (Mother Jones)

Despite the bankruptcy, Trump kept his $2 million/year salary and received $82 million in compensation for the 14 years he served as chairman. (MarketWatch)

The bankruptcy restructured the company’s debt by $600 million, and cut the interest payments by $102 million. Stockholders lost 89% of their money (MarketWatch), and the company lost money every year after

During the same time period, the Dow Jones index of gambling stocks soared 160%, Harrah’s went up 150% and MGM quintupled.  (MarketWatch)

And here is where it gets even uglier, if that is possible. Trump, in his books, holds up the bankruptcy of Trump Hotels and Casino Resorts as proof of his business genius. His logic is that he climbed out of a debt so deep, that few others could have done it. He bragged that his debt was $9.2 billion, but the actual number was determined in deposition to be $3.4 billion. (Newsweek)

Even though individual investors lost vast sums of money, and his workers lost their entire retirement savings, Trump considered this a huge success.

6. Trump Entertainment Resorts: Really, this is just a continuation of the Trump Hotels and Casino Resorts, Inc. debacle. After the 2004 bankruptcy, Trump Hotels and Casino Resorts, Inc., was renamed Trump Entertainment Resorts. This company went bankrupt in 2009 when its debt reached $1.2 billion.

Trump fought with the board of directors over how to restructure the company, and eventually agreed to reduce his ownership share to 10% and resigning as the Chairman of the Board.

During Trump’s 13 year run as chairman, the casino empire lost a total of $1.1 billion, twice declared bankruptcy, and wrote down or restructured $1.8 billion in debt. (Fortune)

Trump had successfully used these companies as a means of transferring his personal debt load onto the shareholders of the companies that he would then run into the ground.  He issued rounds of junk bonds to build up cash to erase his own debts.

The New York Times said the even if the companies did poorly, “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.”

Other Trump Business Failures

1. Trump Steaks:Trump repackaged a company that he purchased into a glitzy, expensive offering of steaks exclusively sold through Sharper Image and QVC. Trump Steaks lasted exactly two months in the summer of 2007.

Sharper Image CEO Jerry W. Levin said, “We literally almost sold no steaks.”

The slimy thing about Trump Steaks was when Trump filed bankruptcy on the Atlantic City properties for the second of three times, court records show he owed $715,240 to a meat company called Buckhead Beef. (Rolling Stone)

When Trump created Trump Steaks, he struck a deal to sell Buckhead Beef under the name of Trump Steaks. So when Trump Steaks went belly-up, it insured that Buckhead Beef wouldn’t see a dime of what Trump owed them.

2. GoTrump:Trump launched his own online travel site in 2006, which basically was a “gaudier version of an existing product.” (Rolling Stone) The site promised special deals, private jets, Trump hotel recommendations and travel tips from Trump himself. The Washington Post called it a vanity site for Trump, and they were right: GoTrump folded in 2007.

3. Trump Airlines/Trump Shuttle: In 1988, Trump spent $365 million to purchase the planes and routes of Eastern Air Shuttle, including personally guaranteeing $135 million of the loan package. The rollout was lavish and moronic: maple wood veneer, chrome seat belt latches, at one point Trump wanted marble bathroom sinks, but the weight was too much for effective flight so he settled for gold plated fixtures. When the thick burgundy carpets made it hard for flight attendants to move their beverage carts, Trump advised them to push harder. (Washington Post)

Two months into operations, a harbinger of the company’s doom happened when a Trump plane experienced a malfunctioning nose gear, had to dump fuel, and then landed on its belly, skidding off the runway.

With Trump’s casinos hemorrhaging money, and the Gulf War doubling airline fuel prices, the airline wasn’t making enough money to cover the $1 million monthly interest payment on the loan (sound familiar?), and Trump defaulted.

By the end of 1991, Trump made a deal with USAir to take control of the shuttle in exchange for relieving most of Trump’s personal debt liability,and transferring the remaining $245 million in loans to USAir. Trump Shuttle folded in 1992.

4. Trump Vodka:In 2006, Trump launched Trump Vodka, calling it “Success Distilled.” It immediately flopped, some say because of his reputation as a teetotaler didn’t exactly inspire confidence in his choice of booze.

Trump abandoned his vodka in 2008.

5. Trump Mortgage: Trump launched a new firm specializing in residential and commercial real estate loans in 2006 with the claim, “I think it’s a great time to start a mortgage company.” (Rolling Stone)

He tapped E.J. Ridings for company CEO, but Money Magazine later discovered that he only had six months of experience as a stockbroker before working at a small mortgage company.

The real estate market collapsed in a matter of months, and the business fell far short of projections – less than a third of the $3 billion predicted.

Because Trump Mortgage was actually a broker, not a lender, there are very few records of its activities. Lenders are required to file detailed records of their activities with federal regulators. Trump did not. (Washington Post)

Trump Mortgage closed in 2007 without paying a $298,274 claim that it owed a former employee, or any of the unpaid taxes the company owed. The employee won a judgment by a New York State Supreme Court judge, but the bill was never paid. “The company was set up in a way that we could never recover what we were owed,” she said. (Washington Post)

6. Trump Magazine: Donald launched Trump Magazine in 2007 as a re-brand of his other publications called Trump World, which lasted just two issues, and Trump Style. Trump told CNBC after the release that the new magazine was really taking off.

The Securities and Exchange Commission records told another story, however. By the end of 2007, the company had built a deficit of well over $7 million, and the magazine folded by 2009, leaving many workers without a job, and many of them with bounced paychecks.

7. Trump University: This is a biggie, not so much financially as morally. Trump University was started in 2005 as a school that promised its “students” that they would learn the “secrets” from Trump that would allow them to make money in the real estate market.

A one-year “apprenticeship” cost $1,500. A Trump University “membership” would set you back $10,000. And the “Gold Elite” program cost $35,000.

Students said they were promised secrets that turned out to be the same information you could get anywhere on the Internet, and that the instructors were unqualified.  They claimed the “mentoring” they were supposed to receive was merely just cheerleading.

When Trump University was established, the New York State Education Department warned that it was in violation of state law for operating without a NYSED license.  Trump ignored the warning and changed the name to Trump Entrepreneur Initiative legally, while still referring to it as Trump University.

A Trump University seminar at the Pasadena Hilton in 2007 turned out to be nothing more than a sales pitch for a three-day workshop that cost $1,500. The “priceless information” promised turned out to be nothing more than “buy low, sell high.”

Lawsuits were filed in California and New York, which were then rolled into a single class action alleging that Trump University duped customers. Former New York attorney general Eric Schneiderman said, “We started looking at Trump University and discovered that it was a classic bait-and-switch scheme. It was a scam.”

A decision by the 9thCircuit U.S. Court of Appeals in San Francisco allowed Trump to settle the charges that he committed acts of fraud on 6,000 Trump University students for $25 million, but the settlement included no admission of guilt.

The settlement meant the defrauded Trump University students will not be able to testify about their experiences, and the details of Trump University operations won’t be aired in court.

A federal court approved the $25 million settlement in February 2018.

(Vox, CNN, Washington Post, Forbes)

8. Trump Beverages: Trump Ice lays claim to being “one of the purest natural spring waters bottled in the world,” according to Trump’s website, but of course it comes in a plastic bottle that can be found in all of Trump’s hotels. The mineral content is actually very low, so the premium is paid for the “image on the bottle rather than the water,” according to Michael Mascha, publisher of FineWaters.

There was also Trump Fire, trademarked in 2004 to take advantage of his Apprentice catchphrase, but never made it to market. Trump Power was trademarked around the same time. Both drinks were categorized as “non-alcoholic beverages containing fruit juices…namely, carbonated beverages.”  (Rolling Stone)

The only evidence remaining for either are the trademark applications abandoned in 2006, as well as the cancelled trademark for Trump’s American Pale Ale.

9. The New Jersey Generals: In 1983, Trump bought the USFL football team, the New Jersey Generals, for $9 million, then went on a spending spree that infuriated NFL owners. He signed Herschel Walker, Doug Flutie, tried to lure away Don Shula and Lawrence Taylor which resulted in Taylor getting a huge pay increase from the NY Giants.

Trump’s plan was to find a cheap way into the NFL. In 1986, he convinced fellow USFL owners to attempt a hostile takeover by moving the league’s schedule to compete with the NFL, instead of playing in the spring, and then sued the NFL for antitrust violations.

He told his fellow owners that the lawsuit would bring hundreds of millions, if not billions, of dollars in damages from the NFL, and that would force the NFL to merge with the USFL, and they would all be rich.

A jury did indeed rule that the NFL had violated antitrust laws, but concluded the USFL’s financial troubles were their own fault, and awarded the sum of $1 in damages.  But it wasn’t all bad – in antitrust cases, the damages are tripled, so Trump’s assault on the NFL made $3.

The USFL folded. Trump lost $22 million.

10. Tour de Trump: Donald Trump sponsored a bicycle race in 1989 and 1990, and promoted it as a cycling event that was supposed to be America’s very own version of the Tour de France.

Problem was, with Trump as the front man, instead of being greeted at the finish line by excited fans and team regalia and national colors flying, the cyclists were met by jeering protestors holding signs that said “Die Yuppie $cum,” “Hungry?  Eat the rich” and “Trump=Anti-Christ.”

Trump withdrew his sponsorship due to “financial problems with his businesses,” and DuPont took over the sponsorship.

11. Trump Network: In 2009, Trump rebranded the nutritional supplement company Ideal Health and launched it as the Trump Network.  Ideal Health was a controversial business whose model was referred to as “multilevel marketing,” in which the company would pay salespeople commissions for selling products, but more importantly for recruiting more salespeople to do the same.

The industry has been long criticized as a pyramid scheme, and as one that promises financial independence to sales recruits, but rarely actually delivering. (Washington Post)

Trump later insisted that his role in the company was limited to licensing his name, but most people in the company thought he would be actively involved.

In complaints filed with the FTC, court filings show the same pattern of big reward promises as Trump University.  People were promised they would make lots of money, but in the end, lost thousands of dollars.

In 2012, Trump Network stopped paying its bills, then sold to Bioceutica, a network-marketing company.

12. Trump International Hotel & Tower, Chicago:In 2004, Trump purchased the former Chicago Sun-Times building for $73 million to demo it and build the Trump International Hotel and Tower. The demo and construction was financed by a $650 million loan from Deutsche Bank and a trio of hedge funds, one of which was owned by George Soros.

In 2008, Trump defaulted on the construction loan and the primary lender Deutsche Bank sued him. Trump then counter-sued claiming that the bank had damaged his reputation, and engaged in predatory lending practices. Throughout the court battles, Trump was allowed to continue drawing on the credit line from Deutsch, because without the continued financing, Deutsche would have to assume the role of developer. (Chicago Tribune)  This should sound familiar because that was the exact dilemma that lenders had with Trump Taj Mahal in Atlantic City.

Deutsche Bank, at one point, responded to Trump’s legal activities by saying, “Trump is no stranger to overdue debt.” (Newsweek)

The spat was resolved when Deutsche Bank extended the terms of the loan, but forced another lender, Fortress Investment Group, to take the loss.

13. Trump Hollywood: In 2009, Trump and a developer announced plans for Trump Hollywood, a 40-story oceanfront condo complex in Florida.

With real estate imploding, lenders foreclosed on the $355 million project, after selling less than 15% of the units. Trump’s name was listed on the website as the developer, but when the deal went south, he claimed to only have licensed his name to the project. (Forbes)

14. Trump Ocean Resort Baja Mexico: This was a proposed 525-unit luxury vacation home complex with Trump’s name and image all over the property and marketing materials; he personally appeared in the marketing video for investors. The splashy marketing brought scores of buyers who all offered up beefy deposits in 2006.

By 2009, the project was still not underway, and developers notified the buyers that their $32 million in deposits had been spent, and they were walking away.

Trump also took the money and ran, claiming once again that he was not the developer, despite what the marketing materials said, and that he had only licensed his name to the project. (Newsweek)

15. Fort Lauderdale, Florida: The same story occurred here when buyers lost $100,000 in deposits on a project that Trump walked away from, again claiming to have only licensed his name.

16. Trump Tower Tampa: Investors put up millions in 2005 for a Trump Tower condominium complex that was going to be visible from the end of Bayshore Boulevard along the Hillsborough River waterline.

In 2007, ground was actually broken and the foundation footings drilled, but investors soon discovered it was a sham when, ironically, Trump sued the builder for failing to pay his licensing fees for the Trump name.

Again, in deposition, Trump claimed no liability because it was a name-licensing deal only.

Unfortunately, history usually provides a very accurate accounting of what type of a person an individual is. And the more famous the person, the more history there is.

Trump’s business deals have several things in common:

*Primarily, the use of his name and self-proclaimed reputation as a savvy businessman to secure vast sums of money in loans from financial institutions and investors, bully local governments into providing ludicrous tax breaks, all to fund massive projects that utilize none of his own money.

*Draw salary, bonuses and incentives out of each company, regardless of their financial health.

*Require the company to purchase other assets from Trump – that money going directly to him.

*When the business fails to sustain itself due to the massive interest payments due on the debt, default then enter into negotiations with the lenders to “restructure” the debt (which is a fancy term for convincing lenders to forgive some or all of a debt) so the business can continue operating.

*Finally, after consuming vast sums of other people’s money, declare bankruptcy and walk away, leaving investors devastated and the lender’s holding worthless debt, or sell what remains of the company under the provision that the new buyer assumes the debt load.

*Leave behind scorched earth:  businesses with worthless investments in what they thought would be a successful enterprise because Trump was involved, investors and individuals with significant losses including retirement savings for the same reasons, taxpayers cheated out of money, and countless lost jobs.

The New York Times sums it up perfectly by saying, “The burden of his failures fell on investors and others who had bet on his business acumen.”

In a discussion with a conservative businessman once, an ethical issue arose in our debate. I will never forget what he said.  “It is totally legal.”

Legal, yes. But is it right?

 

 

 

 

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