My analogy has been: It’s like getting pulled for speeding in New York, but saying it’s okay because I have a Tennessee license, so New York traffic laws shouldn’t apply to me.
I recently retired from a surplus lines insurance company. We do have to be licensed as a surplus lines insurer to write business in that state, but said licensing process and rules are much looser than for the admitted market.
To what extent they are looser, specifically around solvency and reserve requirements, I don’t know, but certainly they’d have to be licensed as the primary bond issuer.
There’s one thing I don’t understand about this ongoing issue at all… isn’t the point of the bond that Trump had to pay $175M into (presumably) an escrow account, or the like? Like, he literally had to pony up the dough, and then he would get it back if his appeal was successful?
If so, then why does it matter what the financial status of the company that wrote the check was, if the check clears?
Or is there not actually a transfer of funds, rather, just a proof of “see, I guarantee I have this much money, to prove I can pay if I have to, but no one is actually paying anything right now”?
I asked the same question and someone (sorry, I can’t recall who) pointed out that Trump might be required to maintain certain levels of cash or some of his loans can be called. Someone then asked, wouldn’t the cash then be encumbered, illiquid, and violative of the loan requirements?
Damned if I know.
It’s this. That’s what a bond is: a guarantee by the surety company that even if Trump doesn’t pay the amount, the surety company will. Trump doesn’t have to put up the full amount in cash; he has to provide the bond company with sufficient collateral that they think he’s worth the risk.
Neither does the bond company have to put up the cash. Rather, they have to show that they are promising to pay if Trump defaults, and they have the money to cover that promise.
A bond is a specialised form of insurance. If your state law requires you to carry $1 million accident insurance on your vehicle, you don’t have to deposit the million into an escrow. You have to find an insurance company that is willing to accept you as a risk, and which has the financial resources to cover the $1 million dollars, if needed. But your insurance company doesn’t have to deposit a million dollars in some account for each motorist they insure; rather, they have to have sufficient financial resources to cover those motorists who do get in an accident.
That’s why the three deficiencies that have been reported about the bond are so significant:
-
Registration as an insurance company in New York is essential, to meet the liquidity requirements under New York insurance law. The Knight company isn’t registered in New York so doesn’t meet that requirement.
-
The insurance company has to have enough liquid assets to ensure it can cover the loss, if needed. There appear to be doubts that the Knight company that has issued the bond does in fact meet those liquidity requirements.
-
Apparently the bond didn’t contain a promise by the Knight company to pay the amount, if needed. Instead, it said that it guaranteed that Donald Trump would pay. That defeats the entire purpose of an insurance bond, since the Knight Company wouldn’t really be guaranteeing that it would pay if Trump defaults.
There’s also some Cayman connection, that the Knight company has some of its assets stashed in the Caymans, and it is notoriously difficult to enforce a judgment against assets in the Caymans. The AGNY must be wondering if the bond would really give her any protection, if the Knight company refused to pay and the Knight money is all out of reach in the Caymans.
That’s the sort of issue that Judge Erogan is going to have to deal with at the hearing this week.
The simple and accurate response is, “This is New York, you’re trying to insure someone here, so yes today you are a New York insurer and have to follow our rules.”
I can’t imagine how this would NOT be the correct response, otherwise the rule is pointless. “You must be licensed in NY, unless you’re not.”
IIRC, I think it came down to the fact that Trump still has access to and control of the 175 million in the account that’s allegedly securing the bond. Whether it’s encumbered in other ways, I don’t know.
This was the brick wall my line of questioning ran into. Even if the cash is encumbered only by a surety bond, doesn’t that also block any other use of the cash?
IOW, if the reason he needed the bond is because he might need access to the cash, the very cash that is collateralizing the bond, then he can’t access the cash after all. It’s collateral.
I think you and @Procrustus are probably right about this. I think he was trying to preserve accessible cash, and that this was likely the genesis of many of the flaws with the Knight Bond.
The last iteration of the Bond – the one with the signature page from the wrong Bond – was the first time we saw language that locked up the ~$175 in the (second) Schwab brokerage account with Knight.
With … Knight … only? We still don’t know. But it looked like it was formally Pledged to Knight.
Which – as we know – still leaves a number of serious problems unresolved.
“Monday. Splendid!” (“Blazing Saddles”)
I am not a financial professional, but my understanding is that some of the lines of credit that Trump is using to prop up his ‘empire’ are dependent on his maintaining not only a specific ‘net worth’ but also a second amount of ‘liquidity’.
That is, not only does his assets minus liabilities have to meet a specific value, but he must have a certain amount of ‘cash on hand’, or available funds. This doesn’t have to be only cash, but can be easily convertible bonds, stocks, or other instruments that could be converted into cash easily. A ground lease for Trump Tower definitely has a significant value, but it isn’t easily convertible, for example.
During the trial, Trump spoke of the value of the ‘Trump’ brand. As everything else is ‘mortgaged to the hilt’, I suspect Trump was taking out loans based on the ‘Trump’ brand. Not by putting the brand up as collateral, but by saying that all his properties had higher worth because of his name being associated with them. I’m guessing these loans are structured so that as long as his brand has worth (as measured by his liquidity), they are fine.
But, as his liquidity starts to drop, he has to provide additional collateral. This, of course, is in the form of liens on unencumbered property that he has control over, reducing his liquidity even more. A downward spiral.
That is, it isn’t that he doesn’t have access to the $130 million (or even the $454 million) needed for the bond. It’s that if he loses control of those funds that he would have to liquidate property that is probably difficult (or unprofitable) to liquidate in order to prevent calling in on loans that are anchored to real property.
I get that. But once his required available cash collateralizes a surety bond, it’s no longer available, right?
Of course. Which, perhaps, is why he uses a company to issue the bond that is not licensed in NY, so that the State of NY cannot be sure the bond actually has liquid collateral behind it. See discussion on automobile insurance.
Technically, if the insurance company doesn’t have to cash to cover your accident, you are on the hook for it. Insurance boards in the various states make sure the insurance companies have adequate cash to cover anticipated claims.
By running this scam, maybe Trump has bought himself time to launder enough cash to provide enough liquid collateral to prevent default.
However, I understand that an independent monitor has been overseeing the Trump business holdings since November 2022.
The ones in NY only of course. This should have prevented him from funneling funds out of state.
I’m not entirely sure that’s accurate.
Flipping through the original Barbara Jones order this morning, I don’t see a geographic limitation. It seems anything in the Trump Organization universe is within her purview.
Also – particularly relevant is E.15(f) (the damned doc doesn’t seem to be editable; I can’t copy and paste), which inserts Barbara Jones squarely into the middle of any Trump effort to secure a Surety Bond.
Isn’t the Trump brand worthless, and has been for a few years? Would anyone now pay for his name?
Google “Trump name removed hotel” and you’ll get a bunch of hits, some from as far back as 2019.
I wouldn’t say the Trump brand is worthless. Look at recent sales of tennis shoes, bibles, and digital trading cards. Losing value, as if it’s being mismanaged, yes, but not worthless.
I suppose that’s true. And If he stays out of prison, he can capitalize on that.
If he GOES to prison, his company, or whatever is left of it can find some way to grift off of that I suppose. Toilet bowl wine anyone?