The Making of Donald Trump (13 page)

The reinstated tax provision, which benefitted Trump because it applied only to full-time real estate investors who manage their own properties, meant that legally Trump would not pay income taxes, provided he had enough depreciation to offset his other income. Trump would likely have that much depreciation every year, assuming that the value of his
buildings is indeed as high as listed on the financial disclosure form he filed as a candidate for president.

Let’s take Trump at his word to illustrate how the tax system works for big real estate developers. Trump says NBC paid him $65 million for
Celebrity Apprentice
in both 2011 and 2012 (NBC, in a written statement, said that figure was wildly inflated). If Trump were indeed paid that much, his federal income tax bill would have been almost $23 million. However, if Trump had $65 million or more of depreciation in his buildings, he would report zero income on his tax return. That means he would pay not millions in taxes, but nothing.

The tax bill is not wiped out, however. Under the rules set by Congress, the tax is deferred into the future. The $23 million is therefore the economic equivalent of a loan from Uncle Sam at zero interest. Someday, that loan must be paid off. Typically, real estate partnerships last two decades, so let’s assume that Trump invests those loan proceeds for twenty years and earns an annual net return of 10 percent (a return that Trump would consider modest and below his skill level as an investor). When time came to repay his loan, Trump would write the Treasury a check for the almost $23 million and keep his investment gains: $130 million. In this way, Congress further enriches people like Trump, people who have the capital to go into real estate and qualify for tax exemptions under rules that exclude nearly all of their fellow Americans.

This was by no means the last time tax authorities would tangle with Trump. These cases involved his business activities, but another facet of his active efforts to avoid taxes would soon come before a grand jury. It was a case that could have cost him his lucrative casino license.

I
n 1983, after shopping at Bulgari, the high-end jewelry store on Manhattan’s posh Fifth Avenue, Donald Trump had a $50,000 necklace mailed to him at an out-of-state address. On another day, he bought jewelry that cost $15,000.
It, too, was mailed out of state, sent to the Connecticut home of his mentor and lawyer, the notorious Roy Cohn.

Both boxes were empty.

Mailing empty boxes is a way to evade sales taxes on jewelry, furs, and other expensive items easily shipped through the mail. Under New York law, as in most other states, a visitor who buys goods and has them shipped to her home state does not have to pay New York sales tax. In theory, the buyers then owe an equivalent tax to their home state, known as a use tax, but that levy is only lightly enforced. It was almost never enforced in 1983.

Once New York sales tax auditors got privy to this scam, it was easy to find the tax evaders. They did not have to comb
through every individual receipt for the twenty-eight-month period, ending in March 1983, that the investigation covered. In its shipping logs, Bulgari
had put an asterisk next to the name of every customer who received an empty box. Then, to save a little bit of money, Bulgari affixed only enough postage to cover the cost of mailing the empty box, not the weight of the jewelry. The jewelry would have only added a few ounces to most of the boxes, but—as the grand jury learned—some of the boxes would have weighed pounds.

Trump was not the only customer named in the investigation. Among the empty box recipients were singer Frank Sinatra, former secretary of state Henry Kissinger, billionaire corporate takeover specialist Ronald Perelman, socialite C. Z. Guest, actress Mary Tyler Moore, and television game show producer Mark Goodson. The investigation, like so many involving the rich or politically powerful, was conducted quietly, with no public announcement, major media coverage, or
disclosures of the names of the customers under scrutiny.
The story was broken by William Bastone, then a young reporter at the weekly
Village Voice
, learning his craft under future Trump biographer Wayne Barrett.

Bastone identified one additional buyer—Adnan Khashoggi, the Saudi Arabian arms dealer, described at the time as possibly the world’s richest man. Khashoggi often partied with Trump, both in New York and Atlantic City. He ducked $17,000 in sales taxes by having empty boxes shipped to Geneva, Switzerland. The jewelry was delivered to his apartment at Olympic Tower, a few blocks away from the Bulgari store. At the time, Olympic Tower was one of only two buildings in Manhattan that allowed apartments to be owned in the name of untraceable corporations, a form of anonymous wealth. The other such building was Trump Tower. It was not the only
time that Trump and Khashoggi would be publicly linked as supposedly very rich men who pinched what would have been pocket change for billionaires.

The grand jury heard testimony regarding 202 instances in which the global jewelry store mailed empty boxes to customers. The patrons had avoided paying a total of $1.5 million in sales taxes. Trump stood out among the customers because he made a deal to testify so that he would not be targeted.

The sales tax scandal posed a much bigger threat to Trump’s riches than the accumulated sales tax itself. As the owner of two Atlantic City casinos, any criminal charge would have jeopardized Trump’s casino license. Evading more than $5,000 of sales tax in just the two instances the grand jury reviewed could have qualified Trump for a felony indictment. Indeed, if New Jersey casino regulators had wanted to make an issue of his mere involvement in the scheme, even without a formal criminal charge, that might have justified revoking his license. Trump retained Howard Rubenstein, the go-to crisis publicist for rich New Yorkers in trouble, to deal with Bastone and other reporters.
Rubenstein said Trump had engaged only in “bona fide transactions”; he had done nothing wrong.

Robert Abrams, who was then the New York state attorney general, did not target Trump or the other buyers. Instead (like the New Jersey gaming regulators who brought the full force of law enforcement down on cocktail waitresses and blackjack dealers), Abrams went after the easy targets. He asked the grand jury to indict a local company manager, as well as Nicola Bulgari, an Italian citizen who was part owner of the store bearing his name. The grand jury granted Abrams’s requests, charging the two men with 213 crimes. For a time, Nicola Bulgari was treated as a fugitive because he did
not promptly return to New York from Italy. Abrams sought a stay behind bars for the two men.

Shortly before Christmas 1986, Mayor Ed Koch announced that Nicola Bulgari and the store manager had pled guilty, but would not get any prison time. Koch was furious about the light sentences. He also believed that the “prominent persons” who were customers should have faced felony charges.

“
We should embarrass them,” Koch said. “For a prominent person, even fifteen days in jail is a prominent sentence.” Any jail time would have cost Trump his casino license for sure.

In 1987, Khashoggi and Trump again found themselves in the public eye together. Khashoggi had commissioned the construction of a luxurious 281-foot yacht, one of the world’s largest, with polished bird’s-eye maple paneling and a master suite bathroom that one visitor joked was large enough to land a helicopter in. He named the sleek white vessel
Nabila
in honor of a daughter. The vessel was christened “The Flying Saucer” for the 1983 James Bond blockbuster
Never Say Never Again
.

Khashoggi lost the boat when he could not pay his creditors. In 1987, it went to Trump, who renamed it the
Trump Princess
. (Renaming a boat is considered bad luck, an insight missed by some of his casino competitors and high-rollers.) Along with the boat came the enormous bills to maintain and fuel it. Trump—who, as best I can tell, only traveled once on the ship and complained about being seasick on the overnight voyage from New York to the docks at his Atlantic City marina casino—escaped the $1.7 million in New Jersey sales taxes he would have owed on the boat. He achieved this by purchasing the ship through an offshore corporation he alone owned.
He then leased the ship to himself so that he only had to pay sales taxes on the monthly lease payments, just as people who lease
cars do. State tax officials looked into the deal, but concluded the tax avoidance was within the law.

In 1990, when Trump’s empire was on the verge of collapse because he could not pay back more than three billion borrowed dollars, Trump’s allies told
The New York Times
that he was about to sell the yacht for $110 million, more than three times the roughly $30 million he said he had paid for it three years earlier. It was an obviously absurd effort to hype his wealth. The newspaper wryly noted that “the Trump Organization refused to comment publicly,” code for not openly supporting a story it had planted through allies. The yacht was then sold—for millions less than Trump said he paid—to Saudi prince Al-Waleed Bin Talal bin Abdulaziz al Saud, who would soon acquire another Trump trophy property, the Plaza Hotel across from Central Park in Manhattan.

Also in 1990, Trump and Khashoggi were again linked through a prank designed to find out who was the cheapest rich person in New York. The satirical magazine
Spy
created a phony business and sent $1.11 refund checks to fifty-eight rich New Yorkers. Those who cashed the checks then got another refund check from the fake firm for half as much money. The prank ended when only two self-proclaimed billionaire penny pinchers were left. Donald Trump and Adnan Khashoggi had the dubious distinction of endorsing and depositing into their bank accounts fake refund checks for thirteen cents each.

M
ichael
Sexton, a management consultant and for-profit education entrepreneur, wrangled a brief meeting with Donald Trump in 2004. Sexton proposed licensing Trump’s name for online real estate courses similar to those periodically required for agents to maintain their licenses. Trump embraced the idea. In fact, Trump liked the idea so much that when Sexton and his associates returned to Trump Tower to close the deal, Trump announced that, rather than licensing his name, Trump was going to own the company. Sexton would get a 5 percent ownership stake and a quarter-million-dollar annual salary to run the operation.

“At Trump University, we teach success,” Trump said, looking into the camera in a 2005 promotional video. “That’s what it’s all about—success. It’s going to happen to you. We’re going to have professors and adjunct professors that are absolutely terrific—terrific people, terrific brains, successful. We
are going to have the best of the best. These are all people that are handpicked by me.”

None of those statements were true.

First, there was no “university,” neither in the commonly understood sense of the word—as an institution where many branches of advanced learning take place—nor under the laws of New York, which prohibit any enterprise from using the word
university
in its name unless it has been so authorized by the state education department.

Rather than any sort of campus, Trump University headquarters was located in a building at 40 Wall Street, which Trump owns. In July 2016,
Bloomberg Businessweek
magazine reported that 40 Wall Street was also the address of choice for stock market swindlers, boiler room operators, and penny stock cons. According to the public alert list, which is issued by the federal Securities and Exchange Commission to warn people away from scams, no other
address hosts as many unregistered stock brokerage firms.

One week after Trump University declared itself, New York officials ordered Trump to stop using the word
university
. Trump and Sexton basically ignored these demands for five years, though in 2010 they did change the name to the Trump Entrepreneur Initiative. Trump testified that he knew next to nothing about that, and referred questions to Sexton.

The faux university also did not have professors, not even part-time adjunct professors, and the “faculty” (as they were called) were certainly not “the best of the best.” They were commissioned sales people, many with no experience in real estate. One managed a fast food joint, as Senator Marco Rubio would point out during the March 3 Republican primary debate in 2016. Two other instructors were in personal bankruptcy while collecting fees from would-be
Trump University graduates eager to learn how to get rich.

Trump did not even honor his commitment to handpick the faculty. In 2012, when Trump was sued for civil fraud in California, attorney Rachel Jensen read the names of one faculty member after another, displayed photographs of them, and offered video footage of faculty at Trump University “live events.” Trump, who complained that this line of questioning was a waste of time, could not identify a single person. “Too many years ago … too many years ago … it’s ancient history,” he said. Some of these events had taken place fewer than two years earlier. Again and again and again, Trump testified that he could not remember.

It is worth noting that Trump’s memory seemed quite keen three years later, in 2001, when he insisted that he had watched on television as thousands of Muslims in New Jersey cheered while the Twin Towers burned. No videotape, photograph, or police report has ever been found to support this memory. But Trump maintains his memory was correct. After all, as he told a 2015 campaign audience in Iowa, he is possessed of “the world’s greatest memory.”

In any event, when
Jensen finally asked if Trump could name for her “one good live events instructor” for Trump University, Trump replied, “I don’t know the instructors,” thereby completely contradicting his promise that he would handpick them all.

Trump made another odd promise in the Trump University promotional video: “We’re going to teach you better than the business schools are going to teach you, and I went to the best business school,” he said. “We’re going to teach you better. I think it’s going to be a better education and it’s going to teach you what you need to know.”