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Trump Organization faces a criminal trial — why it could be tough to punish

On Monday, Donald Trump will enter a new phase in his financial and legal challenges when jury selection begins in the Manhattan district attorney's criminal tax fraud trial against his business.

The Trump Organization might face an uphill battle on the legal merits of the case, as its former CFO, Allen Weisselberg, already pleaded guilty and is set to implicate his former employer. But the structure of the Trump Organization and its status as a holding company could make it hard to punish the business, especially since Trump himself isn't targeted in the case. After all, you can't put a company in prison; the government has to go instead after the company's complex financial arrangements and potentially restrict its behavior.

The setup of Trump’s company and its maneuvering made news recently with the revelation that Trump incorporated a new company called Trump Organization II, on the same day New York's attorney general filed separate civil claims against Trump, his business, and three of Trump's adult children.

“It can be a real hassle for litigation figuring out who's who and where the money is and who speaks on behalf of which company,” Gregory Gilchrist, a corporate law expert at the University of Toledo, told Yahoo Finance. “It's just an extra step that the prosecutors need to go through, but they will — they're qualified to do that.”

NEW YORK, NEW YORK - SEPTEMBER 08: New York State Attorney General Letitia James (L) looks on as Manhattan District Attorney Alvin Bragg speaks at a press conference after Steve Bannon, former advisor to former President Donald Trump surrendered at the NY District Attorney's office to face charges on September 08, 2022 in New York City. Bannon faces a new criminal indictment that will mirror the federal case in which he was pardoned by former President Donald Trump. He and others have been alleged to have defrauded contributors to a private $25 million fundraising effort to build a wall along the U.S.-Mexico border according. (Photo by David Dee Delgado/Getty Images)
New York State Attorney General Letitia James (left) and Manhattan District Attorney Alvin Bragg (right) are leading parallel investigations into former President Donald Trump and his business. (David Dee Delgado/Getty Images) (David Dee Delgado via Getty Images)

Trump’s ‘black box’

A relatively small outfit itself, the Trump Organization manages a group of entities from a hotel in Hawaii to a golf course in Scotland and other assets that largely operate independently — connected only by their common ownership by Donald Trump. During his presidency, Trump disclosed that he owned about 500 different entities in total, structured in mind-boggling layers of complexity.

The Trump Organization has long been private and outside of the prying rules that govern public companies, frustrating generations of investigators trying to see what’s under the hood. Yahoo Finance recently spoke to prominent Trump biographers, who reflected on the organization’s lack of transparency.

“For decades, journalists and prosecutors have tried to dig into that opaque black box called the Trump Organization but not ever gotten very far,” Gwenda Blair, a Columbia University professor and Trump family biographer, told Yahoo Finance.

The public will never have a real sense of Trump’s business and net worth behind all the “smoke and mirrors,” another former biographer, Harry Hurt III, said.

The company took its current shape in 1973 when, two years after taking over for his father Fred, Donald Trump rebranded it as The Trump Organization. Since 2017, the company has been led by Trump’s sons, Eric and Don Jr., even as their father has maintained ownership over a vast majority of the assets.

A photo of U.S. President Donald Trump's late father Fred Trump sits behind him as he gives an interview with Reuters in the Oval Office at the White House in Washington, U.S., February 23, 2017. REUTERS/Jonathan Ernst
A photo of President Donald Trump's late father, Fred, sits behind him in the Oval Office in 2017. The younger Trump took over his father's business in 1971 and renamed it "The Trump Organization." (REUTERS/Jonathan Ernst) (Jonathan Ernst / reuters)

Even Donald Trump Jr. has distanced himself from the company's accounting setup, according to recently released excerpts of his deposition to Letitia James and her team. “I had no real involvement in the preparation of the Statement of Financial Condition and don't really remember ever working on it with anyone,” he said, noting that it was instead largely the purview of the former CFO who later pleaded guilty.

“I'm not an accountant,” he added under questioning from prosecutors. Still, he contended that he believed that most of the Trump Organization’s practices complied with generally accepted practices.

In their own depositions, Eric Trump and the elder Donald Trump himself both took the 5th amendment and refused to answer questions.

The possible ‘benefit’ of Trump Organization II

In terms of what comes next, Gilchrist said he doubts that Trump will transfer his assets into Trump Organization II and continue along like before. "I don't think it could work because it frankly seems too transparent,” he says.

But a second holding company at his disposal could still benefit Trump, Gilchrist stressed. The primary Trump Organization could soon be hindered from doing business in the event of a conviction. But, Gilchrist said, "The new organization, if it's not included in the indictment, will not have felony status at the end of the day.” That means it could take on future projects for Trump without the stigma of a criminal conviction.

A worker drives a Zamboni at Wollman Rink in Central Park, after the city severed several contracts with the Trump Organization, in New York City, U.S., January 14, 2021.  REUTERS/Brendan McDermid
The Trump Organization managed Wollman Rink in Central Park until 2021 when the city severed several contracts with the company. (REUTERS/Brendan McDermid) (Brendan McDermid / reuters)

Trump's financial challenges come in addition to a swirl of other investigations into his conduct. Those include the Justice Department's investigation into the Jan. 6 riot at the Capitol, as well as a securities probe into his social media platform, Truth Social. The former president was also recently deposed in a defamation suit filed by a writer accusing him of rape.

As for the criminal case against his business, the Trump Organization could face heavy fines. There's also the possibility that a judge will order the government to oversee the inner workings of the business. Also on the table is a punishment to essentially ban a company from continued operation, colloquially known as the corporate death penalty.

Representatives from the Trump Organization didn’t respond to multiple questions from Yahoo Finance on Friday, including whether any settlement talks might be in the offing.

Ben Werschkul is a Washington correspondent for Yahoo Finance.

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