Trump Foundation, Accused of Sweeping Violations, Is Sued by New York Attorney General

NEW YORK — The New York state attorney general’s office filed a scathingly worded lawsuit Thursday taking aim at the Donald J. Trump Foundation, accusing the charity and the Trump family of sweeping violations of campaign finance laws, self-dealing and illegal coordination with the presidential campaign.

The lawsuit, which seeks to dissolve the foundation and bar President Donald Trump and three of his children from serving on nonprofit organizations, was an extraordinary rebuke of a sitting president. The attorney general also sent referral letters to the IRS and the Federal Election Commission for possible further action, adding to Trump’s extensive legal challenges.

The lawsuit, filed in state Supreme Court in Manhattan, culminated a nearly two-year investigation of Trump’s charity, which became a subject of scrutiny during and after the 2016 presidential campaign. While such foundations are supposed to be devoted to charitable activities, the petition asserts that Trump’s was often improperly used to settle legal claims against his various businesses, even spending $10,000 on a portrait of Trump that was hung at one of his golf clubs.

The foundation was also used to curry political favor, the lawsuit asserts. During the 2016 race, the foundation became a virtual arm of Trump’s campaign, email traffic showed, with his campaign manager Corey Lewandowski directing its expenditures, even though such foundations are explicitly prohibited from political activities.

Trump immediately attacked the lawsuit, characterizing it in a Twitter post as an attempt by the “sleazy New York Democrats” to damage him by suing the foundation, and vowing not to settle the case.

“The sleazy New York Democrats, and their now disgraced (and run out of town) A.G. Eric Schneiderman, are doing everything they can to sue me on a foundation that took in $18,800,000 and gave out to charity more money than it took in, $19,200,000,” Trump wrote. “I won’t settle this case! Schneiderman, who ran the Clinton campaign in New York, never had the guts to bring this ridiculous case, which lingered in their office for almost 2 years. Now he resigned his office in disgrace, and his disciples brought it when we would not settle.”

The $10,000 portrait was one of several examples of the foundation being used in “at least five self-dealing transactions,” according to the attorney general’s office, violating tax regulations that prohibit using nonprofit charities for private interests.

In 2007, to settle a dispute between the city of Palm Beach and Trump’s Mar-a-Lago resort, the foundation paid $100,000 to the Fisher House Foundation, another charity.

In 2012, a man named Martin B. Greenberg sued the Trump National Golf Club after he made a hole-in-one at a fundraising golf tournament that had promised to pay $1 million to golfers who aced the 13th hole, as he did. As part of a settlement, the charitable foundation paid $158,000 to a foundation run by Greenberg.

The foundation also paid $5,000 to one organization for “promotional space featuring Trump International Hotels,” and another $32,000 to satisfy a pledge made by a privately held entity controlled by Trump to a charitable land trust. The foundation lawsuit and the referrals to the federal agencies are the latest of Trump’s voluminous legal challenges, starting with the ongoing investigation by the special counsel, Robert Mueller, into ties between Trump, his associates and Russia. This week, Trump’s longtime fixer, Michael Cohen, scrapped his own legal team, as he faces an investigation by the U.S. attorney’s office in Manhattan.

The attorney general’s action is also likely to embolden critics who have accused Trump of flouting legal norms. Trump has suggested that he might pardon himself in the Mueller investigation and has repeatedly assailed the FBI.

“As our investigation reveals, the Trump Foundation was little more than a checkbook for payments from Mr. Trump or his businesses to nonprofits, regardless of their purpose or legality,” said Barbara D. Underwood, New York’s attorney general, who has been on her job a little over a month. “This is not how private foundations should function and my office intends to hold the foundation accountable for its misuse of charitable assets.”

Many of the examples cited in the lawsuit were first reported by The Washington Post.

Nonprofit organizations and charities like the Trump Foundation are governed by various state and federal laws that generally preclude them from lobbying, aiding a political campaign, or giving undue benefits that further a person’s self-interests, rather than that of the organization. The restrictions are in place to ensure that donations are used for the expressed purpose of the nonprofits; violations can result in penalties, including revocation of the organization’s nonprofit status.

The attorney general’s office is seeking $2.8 million in restitution from the Trump Foundation, and the foundation and its directors could face several million dollars in additional penalties, depending on how the court rules. The office is also seeking to bar the president from serving as a director, officer or trustee of another nonprofit for 10 years. Likewise, the petition seeks to bar Trump’s three eldest children, Donald Jr., Ivanka and Eric, from the boards of nonprofits based in New York or that operate in New York for one year, which would have the effect of barring them from a wide range of groups based in other states.

While the three eldest children ostensibly served on the foundation board from 2006 to 2017, the board never even met after 1999, according to the petition, which called the foundation “an empty shell that functions with no oversight by its board of directors.”

The action could force Trump’s children to curtail relationships with a variety of organizations. Last year, for example, Ivanka Trump said she intended to set up a charitable fund supporting “economic empowerment for women and girls.” After the election, Eric Trump distanced himself from his charitable foundation, which has also been under investigation by the attorney general’s office related to shifting its resources to the Trump Organization.

The foundation was explicitly “prohibited from participating or intervening in any political campaign on behalf of a candidate,” the petition notes, adding that Donald Trump himself signed annual IRS filings, under penalty of perjury in which he attested that the foundation did not engage in political activity. “This statutory prohibition is absolute.”

But roughly $2.8 million was raised for the foundation at a 2016 Iowa political fundraiser for the Trump campaign. At the time, Trump skipped a Republican debate and set up his own event to raise money for veterans, though he used the event to skewer his opponents and celebrate his own accomplishments.

After the event, his foundation “ceded control over the charitable funds it raised to senior Trump campaign staff, who dictated the manner in which the foundation would disburse those proceeds, directing the timing, amounts and recipients of the grants,” according to the petition.

That same month, an official at the foundation emailed Lewandowski, who was Trump’s campaign manager at the time, telling him “we should start thinking about how you want to distribute the funds collected.”

Lewandowski, in a reply, wrote that “I think we should get the total collected and then put out a press release that we distributed the $$ to each of the groups.” He later sent a list of veterans’ groups “purportedly approved by Mr. Trump to receive grants from the Foundation.”

The list was created by another campaign staffer, Lisa Maciejowski Gambuzza, and edited by a third, Stuart Jolly, a political director. And Lewandowski asked that some of the disbursements be made in Iowa in the days before that state’s presidential nominating caucuses, which mark the kickoff of the primary calendar.

Allowing the campaign to control the spending of the foundation’s charitable funds represented coordination between the two entities, as well “as an improper in-kind contribution of no less than $2.823 million (the amount donated to the foundation) to the campaign,” according to the lawsuit.

Federal election laws bar campaigns from coordinating with nonprofit groups, and from accepting donations from most corporations, including most nonprofit corporations, while donations from individuals are capped at $5,400 per election.

Trump long feuded with Underwood’s predecessor, Eric Schneiderman, who resigned last month amid a scandal involving allegations that he had physically abused a number of his girlfriends. Weeks after the 2016 election, Schneiderman’s office issued a “notice of violation” to the foundation, which had already attracted scrutiny over its practices, and ordered it to immediately stop soliciting charitable donations in the state.

At the time, Hope Hicks, then a spokeswoman for Trump, said “While we remain very concerned about the political motives behind A.G. Schneiderman’s investigation, the Trump Foundation nevertheless intends to cooperate fully.”

Amanda Miller, a spokeswoman for the Trump Organization, released a statement from the Trump Foundation on Thursday that characterized the lawsuit as “politics at its very worst.” The statement accused Schneiderman of using the foundation investigation “to not only advance his own political goals, but also for his own political fundraising,” and that Underwood has shown that “such political attacks will continue unabated.” Schneiderman’s resignation had raised questions whether his office, which had been at the heart of the Democratic legal resistance against the Trump administration, would persist in such efforts. By filing the lawsuit, Underwood,who is a career prosecutor rather than a politician, seems inclined to do so.

She also recently accused Trump of “undermining the rule of law” with his pardon practices. She made the comment when she announced she was continuing an effort begun under Schneiderman to change New York’s double jeopardy law so that state and local prosecutors would have the power to bring criminal charges against aides to Trump who have been pardoned.

The Trump Foundation has been in legal limbo since after the election, when the president wanted to dissolve it amid growing controversy about its practices. But in late 2016, a spokeswoman for the attorney general’s office, Amy Spitalnick, said the foundation “cannot legally dissolve” while it is under investigation.

The attorney general’s referrals to the IRS and the FEC could add another wrinkle that might slow the foundation’s dissolution. The agencies are not known for their expeditious handling of enforcement actions, and the lawsuit notes that the foundation cannot legally complete its wind down “until the complaints to the Internal Revenue Service and Federal Election Commission have been resolved and it is determined if any penalties or fines will be imposed on the foundation.”