But the judges said Israel must take all steps to prevent any genocidal actions.
Speaking minutes after the ruling was announced, Israeli Prime Minister Benjamin Netanyahu said the court ruling upheld Israel’s right to defend itself.
“Israel’s commitment to international law is unwavering. Equally unwavering is our sacred commitment to continue to defend our country and defend our people,” Netanyahu said. “Like every country, Israel has an inherent right to defend itself. The vile attempt to deny Israel this fundamental right is blatant discrimination against the Jewish state, and it was justly rejected.”
Israeli officials told POLITICO that while they took exception to some of the ICJ’s statements, they considered it a win for Israel that the court did not try to curtail its right to self-defense. “Many of the steps the court is asking for, we are already doing,” an Israeli official said.
Hamas greeted the ruling by firing a series of rockets into southern Israel.
Former U.S. President Donald Trump attends trial in a civil fraud case that state Attorney General Letitia James brought against him, his adult sons, the Trump Organization and others, in New York City, Oct. 3, 2023.
Eduardo Munoz | Reuters
A New York appeals court Thursday reinstated a gag order on Donald Trump in the former president’s $250 million civil business fraud trial.
The order bars Trump from making public statements about the staff of Manhattan Supreme Court Judge Arthur Engoron, who is presiding over the ongoing trial.
Engoron had imposed the gag order on Trump after Trump repeatedly targeted the judge’s principal law clerk, Allison Greenfield.
Engoron later imposed a similar gag order on Trump’s attorneys, barring them from making any public statements about confidential communications between the judge and his staff. The gag orders on Trump’s attorneys were also reinstated Thursday.
Engoron has said his chambers have been “inundated” with threats and harassment against him and his staff during the trial. An official who monitors threats for the New York Court System’s Department of Public Safety told the appeals court in a sworn statement that Trump’s comments about Greenfield have prompted “hundreds” of threatening messages, many of which were antisemitic.
In its ruling Thursday, a four-judge appellate panel lifted a temporary suspension of the gag orders on Trump and his attorneys that was put in place while Trump appealed the speech restrictions.
The gag orders are now likely to stay in place for the remainder of the trial, which is expected to last until mid-January.
Engoron acknowledged the ruling in court and informed the parties in the case that he intends to “enforce the gag orders rigorously and vigorously.”
Trump attorney Christopher Kise said the appeals court’s ruling marked a “tragic day for the rule of law” in a statement to NBC News.
“Hard to imagine a more unfair process and hard to believe this is happening in America,” Kise said, claiming the ruling prevents Trump from publicly explaining why he believes his trial is unfair.
The appellate ruling came three days after Trump’s attorneys urged the appeals court not to reimpose the gag orders, arguing that they unconstitutionally blocked Trump from accusing Engoron and Greenfield of political bias.
Engoron has found Trump in violation of his gag order twice, imposing a total of $15,000 in fines on the former president since the fraud trial began in early October.
The narrow order does not block Trump from attacking Engoron or New York Attorney General Letitia James, who brought the case accusing him and his co-defendants of falsely inflating Trump’s assets for financial gain.
Trump has repeatedly attacked both of them, casting the judge as a Trump “hater” and decrying the case as a “witch hunt.”
On Wednesday, Trump sent at least six separate Truth Social posts targeting Engoron’s wife, accusing her of criticizing Trump and commenting on the trial on X, formerly Twitter.
Engoron’s wife told Newsweek earlier this month that she does not have an account on X and has not posted any anti-Trump messages. After the gag orders were reinstated, Office of Court Administration spokesman Al Baker said that the judge’s wife “has sent no social media posts regarding the former president.”
“They are not hers,” Baker said in a statement, NBC reported.
Trump sent at least three additional posts Thursday claiming that Engoron’s wife sent anti-Trump social media messages.
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Engoron has already found Trump, his two adult sons, the Trump Organization and its top executives liable for fraudulently misstating the values of real estate properties and other assets. The trial will determine penalties and resolve other claims of wrongdoing in James’ suit.
In addition to seeking around $250 million in damages, James wants to permanently bar Trump Sr., Donald Trump Jr. and Eric Trump from running a New York business.
Engoron on Thursday morning extended the scheduled end of the trial from mid-December. He set closing arguments for Jan. 11 after Trump’s lawyers asked for more time to prepare.
The defense is expected to call Trump back to the stand as its final witness on Dec. 11. Engoron plans to issue a verdict in the case a few weeks after the trial ends.
BERLIN — Germans gave the world schadenfreude for a reason. And southern Europe couldn’t be more pleased.
For countries that spent years on the receiving end of Europe’s German-inspired fiscal Inquisition, there’s no sweeter sight than to see Germany splayed on the high altar of Teutonic parsimony.
The irony is that Germany put itself there on purpose and has no clue how it will find redemption.
A jaw-dropping constitutional court ruling earlier this month effectively rendered the core of the German government’s legislative agenda null and void left the country in a collective shock. In order to circumvent Germany’s self-imposed deficit strictures, which give governments little room to spend more than they collect in taxes, Chancellor Olaf Scholz’s coalition relied on a network of “special funds” outside the main budget. Scholz was convinced the government could tap the money without violating the so-called debt brake.
The court, in no uncertain terms, disagreed. The ruling raises questions about the government’s ability to access a total of €869 billion parked outside the federal budget in 29 “special funds.” The court’s move forced the government to both freeze new spending and put approval of next year’s budget on hold.
Nearly two weeks after the decision, both the magnitude of the ruling and the reality that there’s no easy way out have become increasingly clear. Though Scholz has promised to come up with a new plan “very quickly,” few see a resolution without imposing austerity.
The expectation in the Bundestag is that Scholz will find enough cuts to deal with the immediate €20 billion hole the decision created in next year’s budget, but not much more.
In the meantime, his government is on edge. While Economy Minister Robert Habeck, a Green, has been telling any microphone he can find that Germany’s economic future is hanging in the balance, Finance Minister Christian Lindner has triggered panic and confusion by announcing a series of ill-defined spending freezes.
On Thursday, the government was forced to deny a report that a special fund created to bolster Germany’s armed forces after Russia’s full-scale invasion of Ukraine would be affected by the cuts.
At a press conference with Italian Prime Minister Giorgia Meloni late Wednesday, Scholz endured the humiliation of a reporter asking his guest whether she considered Germany to be a reliable partner given its budget crisis. A magnanimous Meloni, whose country knows a thing or two about creative accounting, gave Scholz a shot in the arm, responding that in her experience he was “very reliable.”
Greek accounting
Between the lines, the justices of Germany’s constitutional court suggested the use of the shadow funds by Scholz’s coalition amounted to a bookkeeping sleight of hand — the same sort of accounting alchemy Berlin upbraided Greece for more than a decade ago. Perhaps unwittingly, the court ruling echoed then-Chancellor Angela Merkel’s unsolicited advice to Athens during Greece’s debt crisis: “Now is the time to do the homework!”
For eurozone countries with a recent history of debt trouble — a group that alongside Greece includes the likes of Spain, Portugal and Italy — Germany’s financial pickle must feel like déjà vu all over again. From 2010 onwards, they found themselves in the unenviable position of trying to explain to Wolfgang Schäuble, Merkel’s taskmaster finance minister, how they planned to return to the path of fiscal rectitude. At Schäuble’s urging, Greece nearly ditched the euro altogether.
The expectation in the Bundestag is that Scholz will find enough cuts to deal with the immediate €20 billion hole the decision created in next year’s budget, but not much more | Odd Andersen/AFP via Getty Images
In recent months, Germany has once again assumed the role of the fiscal scold in Brussels, where officials have been negotiating a new framework for the eurozone’s rulebook on government spending, known as the Stability and Growth Pact. The pact, which dates to 1997, has been suspended since the pandemic hit, but it is set to take effect again next year. Many countries want to loosen the rules given the huge budget pressures that have followed multiple crises in recent years. Berlin is open to reform but skeptical of granting its fellow euro countries too much leeway on spending.
The latest budget mess certainly won’t help the Germans make their case.
Simple hubris
The allure of the strategy the court has now deemed illegal was that the government thought it could spend money it salted away in the special funds without violating Germany’s constitutional debt brake, which restricts the federal deficit to 0.35 percent of GDP, except in times of emergency.
Put simply, Scholz’s coalition wanted to have its cake and eat it too, creating a veneer of fiscal discipline while spending freely to finance an ambitious agenda.
Despite ample warning from legal experts that the government’s plan to repurpose a huge chunk of emergency pandemic-related funds might not withstand a court challenge, Scholz and his partners went ahead anyway. What’s more, they staked their entire political agenda on the assumption that the strategy would go off without a hitch.
Last week’s court decision is the national equivalent of a rich kid being cut off from his trust fund: Daddy’s money is still there, but junior can’t touch it and has to exchange his Porsche for an Opel.
What many in Berlin cite as the main reason for what they are calling derSchlamassel (fiasco), however, is simple hubris.
Scholz’s mild-mannered public persona belies a know-it-all approach to governing. A lawyer by training who has served for decades in the top ranks of German government, Scholz, at least in his own mind, is generally the smartest person in the room.
During coalition negotiations in 2021, Scholz sold the budget trick idea to his future partners — the conservative liberal Free Democrats (FDP) and the Greens — as a way to square the circle between the welfare agenda of his own Social Democrats (SPD), the Greens’ expensive climate agenda, and the FDP’s demands for fiscal rigor (or at least the appearance thereof).
Indeed, it’s doubtful the coalition would have ever been formed in the first place without the plan. The Greens and FDP happily went along; after all Scholz, Germany’s finance minister from 2018-2021, knew what he was doing. Or so they thought.
Finance minister or ‘fuck-up’?
Scholz’s role notwithstanding, his successor as finance minister, FDP leader Christian Lindner, shares a lot of the responsibility for the snafu, for the simple reason that it was his ministry that oversaw the strategy.
During the coalition talks in 2021, Lindner was torn between a desire to govern and the fiscal strictures long championed by his party. Scholz offered him what appeared to be an elegant way to do both.
Scholz’s role notwithstanding, his successor as finance minister, FDP leader Christian Lindner, shares a lot of the responsibility for the snafu | Sean Gallup/Getty Images
When Lindner, who had never served in an executive government role before, was poised to secure the finance ministry, some critics questioned his qualifications to lead the financial affairs of Europe’s largest economy.
Many Germans have no doubt made their determinations in recent weeks.
Green machine
In contrast to the FDP, the Greens, had no qualms about endorsing Scholz’s bookkeeping tricks.
When it comes to realizing the Greens’ environmental goals, the ends have long justified the means.
In the early 2000s, for example, party leaders sold Germans on the idea of switching off the country’s nuclear plants and transitioning to renewables. They won the argument by promising that the subsidies consumers would be forced to finance to pay for the rollout of solar and wind power wouldn’t cost more every month than a “scoop of ice cream.”
In the end, the collective annual bill for German households was €25 billion, enough to have cornered the global ice cream market many times over.
The Greens’ ice cream strategy — secure difficult-to-reverse legislative commitments and worry about the financial details later — also informed their approach to what they call the “social, ecological transformation,” a plan to make Germany’s economy carbon neutral.
That’s why the shock of the court decision has hit the Greens hardest. After more than 15 years in opposition, the Greens saw the alliance with Scholz and Lindner as the culmination of their effort to convince Germans to embrace their ecological vision for the future. Just as the hoped-for revolution was within reach, it has slipped from their grasp.
Habeck, the face of the Green transformation, has looked like a man at his wits’ end in recent days, making dire predictions about the coming economic Armageddon.
“This marks a turning point for both the German economy and the job market,” Habeck told German public television this week, predicting that it would become much more difficult for the country to maintain the level of prosperity it has enjoyed for decades.
Road to perdition
For all his candor, Habeck failed to address the elephant in the room: It’s a fake debt crisis.
There is no objective reason for Germany to be in this dilemma. A best-of-class credit rating means Berlin can borrow money on better terms than almost any country on the planet. With a budget deficit of 2.6 percent of GDP last year and a total debt load amounting to 66 percent of GDP, Germany is also well above average compared to its eurozone peers in terms of fiscal discipline — even counting the debt raised for the special funds.
The only reason Germany can’t spend the money in the special funds is not because it can’t afford to, but rather because it remains beholden to an almost religious fiscal orthodoxy that views deficit debt as the road to perdition.
That conviction prompted Germany to anchor the so-called debt brake in its constitution in 2009, thereby allowing the government to run only a minor deficit, barring a natural disaster or other emergency, such as a war.
For eurozone countries with a recent history of debt trouble — a group that alongside Greece includes the likes of Spain, Portugal and Italy — Germany’s financial pickle must feel like déjà vu all over again | Aris Messinis/AFP via Getty Images
The constitutional amendment passed by a comfortable margin with broad support from both the Christian Democrats (CDU) and the SPD, which shared power in a grand coalition led by Merkel. At the time, Germany was still recovering from the shock triggered by the 2008 collapse of investment bank Lehman Brothers and had to commit billions to shore up its banking sector.
The country’s federal government and states had begun planning a reform of fiscal rules even before the crisis. The emergency gave them additional impetus to pursue a debt brake enshrined in the constitution as a way to restore public trust.
In that respect, it worked as planned. As countries such as Greece and Spain struggled with their public finances in the years that followed, Germany’s debt brake looked prescient.
Even as southern Europe struggled, the German economy went into high gear powered by strong demand for its wares from Asia and North America, allowing the government to not just balance its budget but to run a string of surpluses, peaking in 2018 with a €58 billion windfall.
Goodbye to all that
The good times ended with the pandemic. Germany, along with the rest of the world, was forced to dig deep. It had the fiscal capacity to do so, however, as the pandemic justified lifting the debt brake in both 2020 and 2021.
The fallout from Russia’s attack on Ukraine forced the government to do so again in 2022.
By drawing from special funds, Scholz and Lindner believed they could avoid a repeat in 2023. But the court’s ruling dashed that plan.
Long before the current crisis, it had become clear to most in government — both conservative and left-leaning — that the debt brake was a hampering investment in public infrastructure (Merkel’s coalition emphasized paying down debt instead of investing the surpluses) and, by extension, Germany’s economic competitiveness. Hence the liberal use of the now-closed special fund loophole.
Trouble is, even as many politicians have woken up to the perils of the debt brake, the public remains strongly in favor of it. Nearly two-thirds of Germans continue to support the measure, according to a poll published this week by Der Spiegel.
Repealing or even reforming the brake would require Germany’s political class not just to convince them otherwise, but also to muster a super majority in parliament, which at the moment is unlikely.
Late Thursday, the finance minister signaled that the debt brake would have to fall for 2023 as well. That means the government will have to retroactively declare an emergency — likely in connection with the war in Ukraine — and then hope that the constitutional court buys it.
BERLIN — German Chancellor Olaf Scholz said Wednesday his ruling coalition would seek to present new budget plans “very quickly” to Parliament, after a constitutional court ruling last week plunged his government and its finances into disarray.
The chancellor is facing mounting criticism that he still hasn’t managed to offer a proposal on how to make up Germany’s yawning budgetary shortfall one week after the bombshell court ruling blew a €60 billion hole in the books.
It’s an accounting mess that now throws into doubt future payments for energy, the green transition of industry and microchip manufacturing.
Crucially, last week’s ruling means not only a delay to next year’s budget — which became evident on Wednesday when a parliament committee postponed a preliminary adoption of spending plans for 2024 — but may also require a supplementary “emergency” budget for this year to deal with the fallout of the court decision.
Speaking at a press conference with Italian Prime Minister Giorgia Meloni in Berlin, Scholz evaded specifics on what happens next, arguing the consequences of the ruling must still “be examined very carefully,” which should now be done “very swiftly and promptly.”
The Social Democratic chancellor argued his three-party coalition, which also includes the Greens and the liberal Free Democratic Party (FDP), was determined to “very quickly” move forward with new budget plans, and “ensure that what we have set out to do — for good cohesion in Germany, for the further development of our welfare state, for the modernization of our economy — can actually be pursued further.”
Still, he did not say where he could make the spending cuts that appear to be needed to make this possible.
Scholz had already sounded upbeat on Tuesday that, despite budget cuts, Germany could still pay subsidies to chipmakers Intel and TSMC for building new plants in eastern Germany.
A key consequence of last week’s ruling is that it will probably limit the ability of German leaders, both at the federal and state level, to use money from a variety of special funds that have been established to circumvent the debt brake. This mechanism restricts the federal deficit to 0.35 percent of GDP, except in times of emergency.
During a budgetary committee hearing on Tuesday, several legal experts argued Scholz’s government would have to present a supplementary “emergency” budget for this year to account for more than €30 billion of expenses for energy subsidies. These subsidies had been financed via a special fund outside the regular budget — a practice that is likely to be unlawful in the light of last week’s ruling.
Controversially, such a decision would probably require the suspension of the debt brake for this year.
Questioned by POLITICO during an event in Berlin on Tuesday evening, German Finance Minister Christian Lindner, who has expressed great pride about upholding the debt brake in the past, evaded making a clear reply on potentially relaxing debt rules for this year.
Lindner also argued the 2024 budget would be “a little less moderate and a little more restrictive.”
A New York judge on Friday denied a request by former President Donald Trump and his co-defendants for a mistrial in the $250 million civil business fraud case against them.
Manhattan Supreme Court Judge Arthur Engoron said the arguments for a mistrial were “utterly without merit” as he declined to sign the defendants’ bid for a motion to throw out the case.
The ruling came two days after attorneys for Trump Sr., Donald Trump Jr., Eric Trump, the Trump Organization and its top executives argued that the case had been undermined by political bias.
The defense lawyers claimed that Engoron and his principal law clerk have “tainted these proceedings” and that “only the grant of a mistrial can salvage what is left of the rule of law.”
But Engoron in Friday’s ruling disputed each allegation of bias, and made clear that he intends to preside over the case until its conclusion.
“As expected, today the Court refused to take responsibility for its failure to preside over this case in an impartial and unbiased manner,” Trump’s attorney Alina Habba said in a statement. “We, however, remain undeterred and will continue to fight for our clients’ right to a fair trial.”
The lawsuit, brought by New York Attorney General Letitia James, accuses the defendants of fraudulently inflating the values of Trump’s real estate properties and other assets for years in order to obtain tax benefits, better loan terms and other financial perks.
In addition to seeking $250 million in damages, James wants to permanently bar Trump and his two adult sons from running a New York business.
Engoron has already found the defendants liable for fraud and ordered the cancellation of their New York business certificates. The trial, which is being conducted without a jury, will determine penalties and resolve James’ other claims of wrongdoing by Trump and his co-defendants.
An appeals court has temporarily paused the process of dissolving Trump’s business entities.
In Friday’s ruling, Engoron went through all of the defendants’ arguments for a mistrial and explained why each was “without merit.”
The defense lawyers had pointed to articles that Engoron had linked to in his alumni newsletter, claiming they created an appearance of impropriety because they were related to the fraud case.
Engoron responded that he “neither wrote nor contributed to any of the articles on which defendants focus, and no reasonable reader could possibly think otherwise.”
He also shrugged off claims that he and his clerk are “co-judging,” writing, “my rulings are mine, and mine alone.”
The clerk has become such a target of criticism that Engoron has imposed gag orders barring both Trump and his lawyers from making comments about her. Trump has already violated the narrow gag order twice, receiving a total of $15,000 in fines.
A New York appeals judge on Thursday temporarily suspended those gag orders, citing the “constitutional and statutory rights at issue.”
In their bid for a mistrial, the defense lawyers had also that the clerk’s presence in the case damages its integrity because of contributions she made to Democratic groups, including some that are supporting the attorney general.
They had also accused the clerk of making contributions over the $500 limit that applies to members of a New York judge’s staff.
But Engoron said Trump’s lawyers were ignoring that the clerk is a candidate for judicial office, and therefore is not bound by the $500 limit when contributing to her own campaign or buying tickets to political functions.
Engoron said it was “nonsensical” to assume that the clerk’s attendance at events sponsored by political organizations suggests that she, and by proxy the judge himself, must therefore agree with the views of those groups.
“And in any event, they are a red herring, as my Principal Law Clerk does not make rulings or issue orders — I do,” Engoron wrote.
He noted that the attorney general’s office has called for a full briefing schedule on the mistrial motion. But “in good conscience, I cannot sign a proposed order to show cause that is utterly without merit, and upon which subsequent briefing would therefore be futile.”
The trial, which began last month, is expected to last until late December. Trump, a leading Republican presidential candidate, faces four pending criminal cases in addition to the fraud case and other civil matters.
A judge on Tuesday ruled that Donald Trump and his company are liable for fraud by misstating the true values of multiple real estate properties for years and thus grossly overstating the former president’s net worth by billions of dollars.
Judge Arthur Engoron in his bombshell decision also canceled the New York business certificates of Trump, the Trump Organization, and the other defendants, including two of his sons, in a lawsuit by the state Attorney General’s Office.
The judge said he would appoint an independent receiver to manage the dissolution of the corporate entities whose business certificates he canceled.
It is not clear whether Engoron’s decision means the Trump Organization and related entities will have to completely cease doing business in New York, or whether the companies can be legally reconstituted later.
A spokeswoman for Attorney General Letitia James declined to comment on that question.
But Trump’s lawyer Chris Kise, who called the decision “outrageous,” said it “seeks to nationalize one of the most successful corporate empires in the United States and seize control of private property all while acknowledging there is zero evidence of any default, breach, late payment or any complaint of harm.”
“While the full impact of the decision remains unclear, what is clear is that President Trump and his family will seek all available appellate remedies to rectify this miscarriage of justice,” Kise said.
Engoron’s ruling, which also dismissed Trump’s request to dismiss the case, did not settle six other claims in dispute in the case whose defendants included him, the company and his sons Donald Trump Jr. and Eric Trump, as well as former Trump Organization Chief Financial Officer Allen Weisselberg, company executive Jeff McConney.
Those issues remaining claims will be addressed at a nonjury trial due to begin Monday.
James is seeking $250 million in damages in the case and wants Trump and his two adult sons barred from doing business in the state.
Engoron, in granting partial summary judgment to James on the fraud claim, found that Trump made false and misleading valuations for multiple real estate assets in statements to insurers and banks for years as he sought more favorable terms on insurance coverage and loans.
Because of those misstatements, Trump also inflated his true net worth in annual financial statements by billions of dollars, according to the decision.
“In defendants’ world: rent regulated apartments are worth the same as unregulated apartments; restricted land is worth the same as unrestricted land; restrictions can evaporate into thin air; a disclaimer by one party casting responsibility on another party exonerates the other party’s lies,” Engoron wrote.
“That is a fantasy world, not the real world.”
Engoron also ordered sanctions of $7,500 for five attorneys who represented the Trump defendants for making frivolous and previously rejected arguments in court filings. Kise is among those fined by the judge.
“Today, a judge ruled in our favor and found that Donald Trump and the Trump Organization engaged in years of financial fraud,” James wrote in a post on the X social media site.
“We look forward to presenting the rest of our case at trial,” James added.
Trump, the front-runner for the 2024 Republican presidential nomination, separately faces a total of 91 felony charges in four criminal cases. Two of those cases relate to efforts to reverse his re-election defeat in 2020. Another case involves his retention of classified government documents at his Mar-a-Lago club in Florida, a property that is mentioned in Engoron’s ruling Tuesday.
In the fourth criminal case, Trump is charged with falsifying business records related to a 2016 hush money payment to porn star Stormy Daniels.
He has pleaded not guilty to all of the charges.
Engoron in his ruling wrote that James’ office in its civil fraud suit “has prevailed on liability on its first cause of action … as against all defendants.”
The judge added that if liability for fraud is established under New York law, that statute allows the attorney general to obtain an order enjoining defendants from continuing to do business or “any fraudulent or illegal acts.”
Even after Engoron appointed an independent financial monitor for the Trump Organization last year, “defendants have continued to disseminate false and misleading information while conducting business,” the judge wrote.
“This ongoing flouting of this Court’s prior order, combined with the persistent nature of the false [statements of financial condition] year after year, have demonstrated the necessity of canceling the [defendants’ business] certificates … as the statute provides,” the judge wrote.
Engoron’s 35-page ruling details how Trump fraudulently valued his Mar-a-Lago club in Palm Beach, once by more than 2,000%, Trump Park Avenue and 40 Wall Street in New York City, his Seven Springs property in Westchester County, New York, and his golf course in Aberdeen, Scotland.
“Time and time again, the Court is not comparing one appraisal to another; it is comparing an independent professional appraisal to a pie-in-the-sky dream of concocted potential,” Engoron wrote.
After noting that Trump submitted statements falsely claiming that the Trump Tower apartment in which he resided for decades was nearly three times its actual size, and was worth a whopping $327 million, the judge wrote, “a discrepancy of this order of magnitude, by a real estate developer sizing up his own living space of decades, can only be considered fraud.”
“The documents here clearly contain fraudulent valuations that defendants used in business,” Engoron wrote.
“Defendants respond that: the documents do not say what they say; that there is no such thing as ‘objective’ value; and that, essentially, the Court should not believe its own lying eyes,” the judge noted.
Kise, the Trump attorney, said Engoron’s “outrageous decision is completely disconnected from the facts and governing law.’
“The Court ignored fully the Appellate Division mandate and basic legal, accounting and business principles,” Kise said. “Without even conducting a trial, the Court substituted its own judgment for that of nationally recognized experts from the NYU Stern School of Business and beyond. More importantly, the Court disregarded the viewpoint of those actually involved in the loan transactions who testified there was nothing misleading, there was no fraud, and the transactions were all highly profitable.”
Another Trump attorney, Alina Habba, in a statement said, “It’s important to remember that the Trump Organization is an American success story and the fact that a judge without trial would say there is no question of fact and issue a decision like this in summary judgement is concerning.”
Habba who was among the attorneys sanctioned by Engoron.
Trump responded to Engoron’s ruling by reposting a statement on social media attacking James and the judge, while doubling down on his claims of having a much higher net worth than what was displayed on the financial statements at the center of the fraud case.
“It is very unfair, and I call for help from the highest Courts in New York State, or the Federal System, to intercede,” Trump wrote in a post on his Truth Social site.
In a tweet Tuesday, Eric Trump, who runs the Trump Organization with Donald Trump Jr., wrote, “In an attempt to destroy my father and kick him out of New York, a Judge just ruled that Mar-a-Lago, in Palm Beach Florida, is only worth approximate ‘$18 Million dollars’ “
“Mar-a-Lago is speculated to be worth [well] over a billion dollars making it arguably the most valuable residential property in the country. It is all so corrupt and coordinated,” Eric wrote.
E. Jean Carroll, who accused former President Donald Trump of rape, arrives at Manhattan Federal Court for the continuation of the civil case, in New York City, May 9, 2023.
Brendan McDermid | Reuters
A federal judge on Wednesday ruled that Donald Trump is civilly liable for defamatory statements he made about writer E. Jean Carroll in 2019 when she went public with claims he had raped her decades earlier.
Judge Lewis Kaplan, as part of that ruling, said the upcoming trial for Carroll’s lawsuit against Trump will only deal with the question of how much the former president should pay her in monetary damages for defaming her.
Normally, a jury would determine at trial whether a defendant is liable for civil damages claimed by a plaintiff.
But Kaplan found that Carroll was entitled to a partial summary judgment on the question of Trump’s liability in the case.
He cited the fact that jurors at a trial in a separate but related lawsuit in May found that Trump sexually abused Carroll in a New York department store in the mid-1990s, and defamed her in statements he made when he denied her allegation last fall.
Carroll’s lawyers argued, and Kaplan agreed, that the jury’s verdict in that case effectively settled the legal question of whether Trump had defamed her in similar comments he made about Carroll in 2019.
“The truth or falsity of Mr. Trump’s 2019 statements therefore depends — like the truth or falsity of his 2022 statement — on whether Ms. Carroll lied about Mr. Trump sexually assaulting her,” Kaplan wrote in his 25-page decision in U.S. District Court in Manhattan.
“The jury’s finding that she did not therefore is binding in this case and precludes Mr. Trump from contesting the falsity of his 2019 statements,” Kaplan wrote.
The ruling is the latest in a series of big losses for Trump in lawsuits filed by Carroll.
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At the trial that ended in May, Trump was ordered to pay Carroll $5 million in damages for the comments he made after he was president. Trump is appealing the verdict and damages in that case.
The suit that was the subject of Kaplan’s ruling Wednesday relates to statements about Carroll that Trump made when he was president as he denied her claim of rape.
Trial in that case is set to begin Jan. 15, just as the Republican presidential nomination contest is set to heat up with primaries and caucuses. Trump is the front-runner in the contest for the 2024 GOP nomination.
Carroll’s lawyer, Roberta Kaplan, who is not related to the judge, in a statement, said, “We look forward to trial limited to damages for the original defamatory statements Donald Trump made about our client E Jean Carroll in 2019.”
Trump’s lawyer, Alina Habba, said, “We remain very confident that the Carroll II verdict will be overturned on appeal which will render this decision moot.”
“Carroll II” is the shorthand name for Carroll’s second lawsuit, which was the subject of the trial that ended in May.
Habba said she believes that a federal appeals court in New York will block the upcoming trial in Carroll’s first lawsuit from starting as scheduled “as it considers the meritorious defenses that have been raised by President Trump.”
Trump is appealing Judge Kaplan’s dismissal of his own claim that Carroll defamed the former president when she reiterated her claim that Trump had raped her. Trump’s argument is based on the fact that jurors at the trial in May had not found that he raped Carroll, but had instead sexually abused her.
Judge Kaplan, in an August ruling, brushed aside Trump’s argument, saying that the jury’s finding that Trump had “deliberately and forcibly” penetrated Carroll is consistent with the common use of the term rape, if not the technical definition under New York law.
A month earlier, the Department of Justice dropped its nearly three-year-long effort to shield Trump from civil liability in the suit related to comments he made about Carroll as president. The DOJ had argued that Trump was acting within the scope of his office as president when he made the statements about Carroll.
In dropping that argument, the DOJ cited a decision by the federal appeals court in Washington, D.C., which suggested Trump could be personally sued if his statements did not have the purpose of serving the U.S. government.
The department also noted that Trump’s allegedly defamatory statements about Carroll continued after he left the White House in early 2021 and that those statements are included in an amended suit Carroll filed against him last month.
Russia fined Apple and Wikipedia on Thursday for not deleting what it says is fake news about Vladimir Putin’s war on Ukraine.
A Russian court fined Apple 400,000 rubles — around €4,000 — for failing to remove material on Apple Podcasts it considered to be false, reported Russian state-run news agency TASS.
Russian media regulator Roskomnadzor had reportedly notified the company that it needed to remove information that was “aimed at destabilizing the political situation” in the country.
The same court also later fined Wikipedia 3 million rubles — around €29,000 — for the same offense.
This is the first time Apple has been fined for this offense, Russian media reported, while Wikimedia Foundation, which owns Wikipedia, has been fined numerous times. In April, the company was reportedly fined for the seventh time for not deleting what it said was “banned content” related to the Russian military.
Apple paused the sale of all its products in Russia and limited Apple Pay services in 2022, in response to the Kremlin’s full-scale invasion of Ukraine.
POLITICO has contacted both Apple and Wikipedia for comment.
A Russian court on Friday sentenced opposition leader and Kremlin critic Alexei Navalny to an additional 19 years in a maximum-security prison, finding him guilty on extremism charges in what critics have lambasted as a “sham trial.”
Navalny, who is already serving a nine-year prison term in a maximum-security facility in Melekhovo, 250 kilometers east of Moscow, now faces decades behind bars.
Prosecutors had requested a 20-year sentence for Navalny, who said on social media on Thursday before the verdict that he expected to receive a lengthy “Stalinist” sentence.
“When the figure is announced, please show solidarity with me and other political prisoners by thinking for a minute why such an exemplary huge term is necessary,” he wrote. “Its main purpose is to intimidate. You, not me.”
Although he has visibly lost weight, Navalny cut a relaxed figure, chatting to co-defendant Daniel Kholodny ahead of the hearing and appearing to crack jokes with the defense team while the verdict was being read out.
Prosecutors had also asked for Navalny to be transferred to a “special regime” penal colony, likely more isolated and with restricted access, a request that was granted by the court.
“Today’s decision [about a move to a special regime prison] formalizes that which is already being done today,” Olga Romanova from the prison rights NGO Russia Behind Bars told morning radio show RZVRT.
Yevgeny Smirnov from Pervy Otdel, a law firm specialized in espionage and treason cases, said sending Navalny to a “special regime” colony is “a way of increasing pressure on him even more.”
“Such prisons are reserved for those who instead of a death sentence have been restricted in their freedom for life, and especially dangerous repeat offenders,” Smirnov said. “Political prisoners rarely fall in that category. In fact, in my memory, Navalny is the first.”
He said that in the worst case, Navalny would be kept alone in a cell and only be allowed a single long visit and a single parcel a year.
Experts on Russia’s prison system have also expressed concern about Navalny’s safety from fellow inmates if he were to be transferred to such a prison.
Harsh crackdown
A longtime critic and the main political opponent of Russian President Vladimir Putin, Navalny, 47, was arrested on his arrival back to Russia in January 2021 after being treated in Germany following a suspected Kremlin-sanctioned poisoning. At the time, the Kremlin denied Putin had ordered Navalny’s poisoning, and said there was no reason to open a criminal investigation, a decision that was later condemned by the European Court of Human Rights.
Navalny was arrested on his arrival back to Russia in January 2021 after being treated in Germany following a suspected Kremlin-sanctioned poisoning | Kirill Kurdryavtsev/AFP via Getty Images
The extremism charges are not the end. Navalny is also facing an additional trial on terrorism charges in connection with an April bombing in St. Petersburg which killed pro-war blogger Vladlen Tatarsky, according to AP. Navalny, who was behind bars at the time of the attack, said he could face an additional 10 years for that charge.
Members of Navalny’s team have said he has faced harassment in jail, being denied food and access to medical care. Navalny has accused the prison authorities of using various pretexts to place and keep him in solitary confinement, in violation of Russian law.
After his imprisonment, a Russian court labeled Navalny’s movement as “extremist,” which led to his network of campaign offices being shut down. With the government cracking down on his supporters, many have fled, gone underground or been locked up.
However, some allies of the opposition leader continued showing their support, organizing demonstrations inside and outside Russia. On Friday, outside the prison gates, several dozen people, many of them young, waited in the afternoon sun in an expression of their support for Navalny, under the watchful eye of prison guards and police, some of whom asked passers-by for their documents.
European Council President Charles Michel called Friday’s verdict in “yet another sham trial” against Navalny “unacceptable.”
“This arbitrary conviction is the response to his courage to speak critically against the Kremlin’s regime,” Michel said. “I reiterate the EU’s call for the immediate and unconditional release of Mr. Navalny.”
Showing support
A handful of people gathered in front of the penal colony in Melekhovo ahead of Friday’s verdict, braving long journeys in sweltering summer heat to express their support. Many of those who spoke to POLITICO had traveled for hours to the penal colony in Melekhovo in a show of support for Navalny, despite having no illusion about the outcome of the case.
“In Russia, people get these kind of sentences simply for saying the truth,” said Alexander, a lanky 18-year-old economics student with green eyes who had traveled for several hours by train and car from Yaroslavl. “I believe that there should be no place for such lawlessness in the modern world.”
Refused access onto the prison grounds, he had spent hours waiting in the burning sun together with other supporters, while police guards approached them one by one and jotted down their personal details.
“I know they’ll be on my doorstep soon,” said Alexander. “But I’m not ashamed of my views.”
Two female supporters stood outside the prison gates, two hours before the sentencing was scheduled to take place.
Elena, 60, said she had traveled overnight from St. Petersburg to attend the hearing.
“It’s for my own conscience,” she told POLITICO. “And for Navalny to see that he has support.”
She was carrying a bag with water, tea and an umbrella in case the weather turned.
Another woman, also called Elena, 53, with her brown hair tied into a pigtail, had gotten up at 4 a.m. to make the journey from Moscow.
“Many of those who support Navalny have fled to avoid being mobilized,” she said. “We are women of a certain age and don’t run that risk.”
Roman, a fashionable 18-year-old dressed in a Yankees cap, sunglasses and a Japanese anime shirt, traveled three hours by train and three hours by car from Shakovskaya, a town in the Moscow region with his 16-year-old girlfriend.
“This way we show others that they are not alone in their opposition to Putin, to the war. Maybe it’ll inspire others too,” he said.
Asked whether he thought his presence outside the penal colony could have repercussions, he said: “Sooner or later it undoubtedly will. But it’s not worth being scared. I’ve already understood that there won’t be a good end to all of this either way.”
What to gift the man who is barred from receiving anything, and also is Vladimir Putin’s biggest political foe?
How about a mass demonstration?
That’s what supporters of Alexei Navalny are ginning up for the jailed Russian opposition leader’s 47th birthday on Sunday.
From exile, they are calling Russians to action, both inside and outside the country.
“Let’s show him on his birthday that he has not been forgotten,” Georgy Alburov, who works for Navalny’s Anti-Corruption Foundation (FBK), said in a YouTube video posted in mid-May. “Wherever you are, whichever country, go out to support Navalny.”
Sunday marks the third birthday that Navalny will spend in prison since he was arrested after recovering from a poison attack, which his team says was carried out on Russian President Putin’s direct orders.
“Putin wants Navalny to feel alone. Moreover, he wants every single one of us to feel that way,” Lyubov Sobol, another Navalny associate, said in the video calling for protests.
The Navalny team is counting on Russian exiles spread around the globe to participate in the protests. Demonstrations have been announced in dozens of countries, from Australia to Brazil to Japan.
‘The real heroes’
But Russians still in the country are given special status in the call to protest.
“Those who come out in protest [in Russia] are the real heroes,” another political activist, Ruslan Shaveddinov, said in the video.
The demonstration drive is designed to be a unifying moment, but it has exposed divisions among those Russians who have stayed in Russia and those who have left. And it has hit a nerve among some of Navalny’s staunchest supporters.
At stake is the question: Who has the right to ask Russians to take to the streets to protest their government, and is it worth the risk they run?
Some 2500 supporters of Russian opposition politician Alexei Navalny marched in Berlin earlier this year | Omer Messinger/Getty Images
Since Navalny’s jailing, his supporters still in Russia have been living on a knife edge.
A Russian court decision in June 2021 labeling his movement as “extremist” has led to his network of campaign offices being dissolved. His allies have fled, gone underground, or been locked up. Any day now, Lilia Chanysheva, a former regional coordinator of Navalny’s team, is expected to be sentenced to 12 years in prison on extremism charges.
The pressure on Navalny himself shows no sign of abating, either, now that he has been transferred to a maximum-security prison in Melekhovo, a town some 250 kilometers east of Moscow. New criminal charges are constantly being lodged against him, including for extremism and most recently terrorism, which could see his sentence of 11 and a half years extended by decades.
His team members say he is being harassed in jail and being denied food and access to medical care. The only way to save him, they argue, is to keep him in the public eye.
Irritating logic
Admitting the risk of prosecution for Russians inside the country, they have promised to provide legal and financial aid to those who are detained on Sunday.
But that has sparked further irritation, with some pointing out that in today’s Russia, any link to Navalny is toxic. Critics question the logic that to help one man, supporters must expose themselves to jail sentences; they accuse Navalny’s team-in-exile of being detached from the reality on the ground.
“[In Russia,] anyone who stages even a one-man picket can be slapped with criminal charges,” Alexei Vorsin, a former Navalny coordinator in Khabarovsk, wrote on Telegram on May 29. Vorsin has fled the country after being charged with extremism.
Vladimir Pastukhov, a Russian analyst based in London, drew a parallel with Bloody Sunday in 1905, when Father Gapon famously led a march of peaceful protesters right into the path of the Winter Palace’s guards’ bullets.
”It’s a question of responsibility [that Navalny has] toward his congregation, and the right to use it as cannon fodder against the Kremlin,” Pastukhov said in a YouTube video broadcast of “Khodorkovsky Live.”
Activists in Russia have been issued with pre-emptive warnings by the authorities not to act on the June 4 protest call, and several are already facing charges of organizing an unsanctioned event, for simply sharing information on the protest online.
Nonetheless, there are those like Moscow opposition politician Elvira Vikhareva, who has gone as far as publicly announcing her intention to take to the street.
Alexei Navalny embraces his wife Yulia in this photograph taken from a TV screen during a live broadcast of a court hearing in 2022 | Alexander Nemenov/AFP via Getty Images
“I am convinced that politically motivated murders, the persecution of dissidents, and assassination attempts will continue as long as we allow these scoundrels to continue making a fool out of people,” she said in a post on Telegram.
In a written comment to POLITICO, Vikhareva, who in March said traces of poison had been found in her blood, specified that she thought it was “up to every individual to decide” which risks they were prepared to take.
‘Monstrous ambivalence’
Faced with public backlash over the potential dangers, Navalny’s team has partially backtracked or at least softened its message. It recently released a second video saying there were other, less risky, ways of showing Navalny “that he is not alone.”
Leonid Volkov, one of Navalny’s closest allies, recently listed a number of such “in-between options” during a breakfast radio show hosted by the Russian journalist Alexander Plushev. They included putting up flyers at building entrances, “talking to acquaintances on social media,” or chalking Navalny a birthday message in a public place.
But Volkov defended his team’s overall strategy, saying that there was a demand for protest, and that excluding Russia from a worldwide demonstration would be “strange.”
Dmitry Oreshkin, a political analyst based in Riga, told POLITICO that even a high turnout in Russia, which he thought unlikely, would not impact the Kremlin’s current course.
“This type of regime does not listen to street protests, and easily suppresses them,” Oreshkin said.
And yet, he argued, the alternative is for Russians “to sit at home and do nothing,” normalizing their government’s politics of repression and war.
“That is the monstrous ambivalence facing Russians today.”
Jamie Dettmer is opinion editor at POLITICO Europe.
KYIV — “She’ll say whatever the FSB [Federal Security Service] wants her to say,” said Ilya Ponomarev, a former Russian lawmaker-turned-dissident who now lives in Kyiv.
Discussing who was behind the bombing of a St. Petersburg café earlier this month — which left 40 injured and warmongering military blogger Vladlen Tatarsky dead — the “she” in question was 26-year-old Darya Trepova who, until recently, was an assistant at a vintage clothing store and a feminist activist, and has been accused of being the bomber.
And the St. Petersburg bombing — as well as another carried out against commentator Darya Dugina — has now sharpened a debate within the deeply fractured, often argumentative and diverse Russian opposition, regarding the most effective tactics to oppose President Vladimir Putin and collapse his regime — raising the question of whether violence should play a role, and if so, when and how?
Russian authorities arrested Trepova within hours of the blast, and in an interrogation video they released, she can be seen admitting to taking a plaster figurine packed with explosives into a café that is likely owned by the paramilitary Wagner group’s Yevgeny Prigozhin. On CCTV footage, she can be seen leaving the wrecked café, apparently as shocked and dazed as others caught in the blast.
But Ponomarev says she wasn’t the perpetrator, instead insisting that it was the National Republican Army (NRA) — a shadowy group that also claimed responsibility for the August car bombing that killed Dugina, daughter of ultranationalist ideologue Alexander Dugin. Yet, many security experts are skeptical of the NRA’s claims, as the group has offered no concrete evidence to the outside world.
Still, Ponomarev insists they shouldn’t be doubtful and says the group does indeed exist.
“I do understand why people are skeptical. The NRA must be cautious, and for them, the result is more important than PR about who they are. That’s why they asked me to help them with getting the word out, and whatever evidence they show me cannot be disclosed because that would jeopardize their security.”
But who, exactly, are they? According to Ponomarev, the group is comprised of 24 “young radical activists, who I would say are a bit more inclined to the left, but there are different views inside the group, judging from what I have heard during our discussions” — which have only been conducted remotely.
When asked if any of them had serious military training, he said he didn’t think so. “What they pulled off in St. Petersburg wouldn’t require any, and what was done with Dugin’s daughter? We don’t know the technical details but, in general, I can see how that could have been done by a person without any specific training.”
Yet, security experts say they aren’t convinced that either of the apparently remotely triggered bombings could have been accomplished by individuals without some expertise in building bombs and triggering them remotely — especially when it comes to the attack on Dugina, who was killed at the wheel of her car.
Regardless, the bombings are intensifying discussions within the country’s fragmented opposition.
On the one hand, key liberal figures, including Alexei Navalny, Vladimir Kara-Murza — who was found guilty of treason just last week and handed a 25-year jail term — Mikhail Khodorkovsky, Garry Kasparov and Dmitry Gudkov, are all critical of violence. Although they don’t oppose acts of sabotage.
Alexei Navalny is among those who are critical of violence, though aren’t opposed to sabotage | Kiril Kudryavtsev/AFP via Getty images
“The Russian opposition needs to agree on nonaggression because conflicts and scandals in its ranks weaken us all,” Gudkov, a former lawmaker, said. “We need to stop calling each other ‘agents of the Kremlin’ and find the points according to which we can work together toward the common goal of the collapse of the Kremlin regime,” he added in recent public comments.
Gudkov, along with his father Gennady — a former KGB officer — and Ponomarev became leading names in the 2012 protests opposing Putin’s reelection, and they joined forces to mount an act of parliamentary defiance that same year, filibustering a bill allowing large fines for anti-government protesters.
On the issue of mounting violent attacks and targeting civilians, however, they aren’t on the same page. “There are many people inside the Russian liberal opposition who are against violent methods, and I don’t see much of a reason to debate with them,” Ponomarev told POLITICO. There are times when nonviolent methods can work — but not now, he argues.
Meanwhile, inside Russia, Vesna — the youth democratic movement founded in 2013 by former members of the country’s liberal Yabloko party — led many of the initial anti-war street protests observing the principle of nonviolence, though that didn’t prevent the Kremlin from adding it to its list of proscribed “terrorist” and extremist organizations. Nonviolence is likewise observed by the Feminist Anti-War Resistance (FAR), which was launched by activists Daria Serenko and Ella Rossman hours after Russia invaded Ukraine.
“We are the resistance to the war, to patriarchy, to authoritarianism and militarism. We are the future and we will win,” reads FAR’s manifesto. The organization has used an array of creative micro-methods to try and get its anti-Putin message across, including writing anti-war slogans on banknotes, installing anti-war art in public spaces, and handing out bouquets of flowers on the streets.
Interestingly, scrawling on bank notes is reminiscent of Otto and Elise Hampel in Nazi Germany during the 1940s — a working-class German couple who handwrote over 287 postcards, dropping them in mailboxes and leaving them in stairwells, urging people to overthrow the Nazis. It took the Gestapo two years to identify them, and they were guillotined in April 1943.
But such methods don’t satisfy Ponomarev, the lone lawmaker to vote against Putin’s annexation of Crimea in the Russian Duma in 2014. He says he’s in touch with other partisan groups inside Russia, and at a conference of exiled opposition figures sponsored by the Free Russia Forum in Vilnius last year, he called on participants to support direct action within Russia. However, he was largely met with indifference and has subsequently been blackballed by the liberal opposition due to his calls for armed resistance.
Meanwhile, opposition journalist Roman Popkov — who was jailed for two years for taking part in anti-Putin protests and is now in exile — is even more dismissive of nonviolence, saying he talks with direct-action groups inside Russia like Stop the Wagons, who claim to have sabotaged and derailed more than 80 freight trains.
On Telegram, Popkov mocked liberal opposition figures for their caution and doubts about the St. Petersburg bombing. “The Russian liberal establishment is groaning in fear of a possible ‘toughening of state terror’ after the destruction of the war criminal Tatarsky,” he wrote. Adding, “It is difficult to understand what other toughening of state terror you are afraid of.”
According to Popkov, who is also a member of the Congress of People’s Deputies — a group of exiled former Russian lawmakers — the opposition doesn’t have a plan because it is too fragmented, but “there is the need for an armed uprising.”
However, several of Putin’s liberal opponents, including Khodorkovsky, approach the issue from a more cautious angle, saying that people should prepare for armed resistance but that the time is nowhere near right for launching it — the result would almost certainly be ineffective and end up in a bloodbath.
A federal appeals court ruled Monday that Berkeley, California, cannot enforce a ban on natural gas hookups in new buildings, saying a U.S. federal law preempts the city’s regulation.
The ruling from the 9th U.S. Circuit Court of Appeals in San Francisco was a response to a case from 2019 by the California Restaurant Association against the city of Berkeley. In the appeal, the three-judge panel said the U.S. Energy Policy Conservation Act of 1975 preempts the city’s ban on the installation of natural gas piping within new construction.
“By completely prohibiting the installation of natural gas piping within newly constructed buildings, the City of Berkeley has waded into a domain preempted by Congress,” Judge Patrick Bumatay, a Trump appointee, wrote for the panel.
The decision could have ramifications for efforts by other cities and counties in California to ban natural gas appliances in new buildings to help reduce climate-changing greenhouse gas emissions. A few dozen cities across the country, including San Francisco, New York City, San Jose, Seattle, and Cambridge, Massachusetts, have also moved to ban natural gas hookups in some new buildings, citing environmental and health reasons.
All three judges on the panel were Republican appointees. The ruling reversed a 2021 decision by a U.S. district judge who had blocked the challenge to the city’s ban.
However, states such as Texas and Arizona have barred cities from imposing natural gas bans and argued that consumers should have the right to choose their energy sources.
Jot Condie, president and chief executive of the California Restaurant Association, in a statement said the city’s ordinance is an overreaching measure beyond the scope of any city and that it would limit the variety of cuisine that restaurants can offer.
“Natural gas appliances are crucial for restaurants to operate effectively and efficiently,” Condie said. “Cities and states cannot ignore federal law in an effort to constrain consumer choice, and it is encouraging that the Ninth Circuit upheld this standard.”
The Supreme Court in a unanimous decision Wednesday ruled that a woman could not use protection under the U.S. bankruptcy code to avoid paying a debt that resulted from fraud by her partner.
The court said that the woman, Kate Bartenwerfer, owed the debt to San Francisco real estate developer Kieran Buckley even if she did not know or could not have known about her now-husband David’s misrepresentations about a house they sold to Buckley for more than $2 million.
The decision resolves a difference of opinion between several federal circuit appeals courts on the question of whether an innocent party can be liable in bankruptcy proceedings for another person’s fraud.
The 9-0 ruling written by Justice Amy Coney Barrett underscored a Supreme Court decision in 1885, which found that two partners in a New York wool company were liable for the debt due to the fraudulent claims of a third partner even though they were not themselves “guilty of wrong.”
Barrett dismissed Bartenwerfer’s grammatically focused argument that the relevant section of the bankruptcy code, written in a passive voice as “money obtained by fraud,” refers to “money obtained by the individual debtor’s fraud.”
“Innocent people are sometimes held liable for fraud they did not personally commit, and, if they declare bankruptcy, [the bankruptcy code] bars discharge of that debt,” Barrett wrote.
“So it is for Bartenwerfer, and we are sensitive to the hardship she faces,” she wrote.
The debt to Buckley, which was originally a court judgment of $200,000 imposed in 2012, since has grown to more than $1.1 million as a result of interest, according to Janet Brayer, the attorney who represented Buckley in a lawsuit over the house sale.
Brayer said that debt is growing at a current rate of 10% annually and that it excludes attorney fees to which she is entitled to under California law.
“We have been working on this since 2008, and now finally have been vindicated and justice served for all victims of fraud, Brayer said. “Hence, I am a happy girl today.”
Iain MacDonald, a lawyer for Bartenwerfer, did not have an immediate comment on the ruling, saying he planned to discuss the decision with her.
Justice Sonia Sotomayor, in a concurring opinion joined by Justice Ketanji Brown Jackson, noted that the ruling involves people who acted together in a partnership, not “a situation involving fraud by a person bearing no agency or partnership relationship to the debtor.”
“With that understanding, I join the Court’s opinion,” Sotomayor wrote.
The ruling on Bartenwerfer’s case came 18 years after the events that triggered the dispute.
Bartenwerfer, and her then-boyfriend David Bartenwerfer, jointly bought a house in San Francisco in 2005 and planned to remodel it and sell it for a profit, the ruling noted.
While David hired an architect, engineer, and general contractor, monitored their progress and paid for the work, “Kate, on the other hand, was largely uninvolved,” Barrett wrote.
The house was eventually bought by a man named Kieran Buckley after the Bartenwerfers “attested that they had disclosed all material facts relating to the property,” Barrett noted.
But Buckley learned that the house had “a leaky roof, defective windows, a missing fire escape, and permit problems.”
He then sued the couple, claiming he had overpaid for the home based on their misrepresentations of the property.
A jury ruled in his favor, awarding him $200,000 from the Bartenwerfers.
The couple was unable to pay the award or other creditors and filed for protection under Chapter 7 of the bankruptcy code, which normally allows people to void all of their debts.
But “not all debts are dischargeable,” Barrett wrote in her ruling.
“The Code makes several exceptions to the general rule, including the one at issue in this case: Section 523(a)(2)(A) bars the discharge of ‘any debt … for money … to the extent obtained by … false pretenses, a false representation, or actual fraud,'” Barrett wrote.
Buckley challenged the couple’s move to void their debt to him on that ground.
A U.S. Bankruptcy Court judge ruled in his favor, saying “that neither David nor Kate Bartenwerfer could discharge their debt to Buckley,” the opinion by Barrett noted.
“Based on testimony from the parties, real-estate agents, and contractors, the court found that David had knowingly concealed the house’s defects from Buckley,” Barrett wrote.
“And the court imputed David’s fraudulent intent to Kate because the two had formed a legal partnership to execute the renovation and resale project,” she added.
The couple appealed the ruling.
The U.S. Bankruptcy Appellate Panel for the 9th Circuit Court of Appeals found that David still owed the debt to Buckley given his fraudulent intent.
But the same panel disagreed that Kate owed the debt.
“As the panel saw it [a section of the bankruptcy code] barred her from discharging the debt only if she knew or had reason to know of David’s fraud,” Barrett wrote.
Bartenwerfer later asked the Supreme Court to hear her appeal of that ruling.
In her opinion, Barrett noted that the text of the bankruptcy code explicitly bars Chapter 7 from being used by a debtor to discharge a debt if that obligation was the result of “false pretenses, a false representation, or actual fraud.”
Barrett wrote, “By its terms, this text precludes Kate Bartenwerfer from discharging her liability for the state-court judgment.”
The justice noted that Kate Bartenwerfer disputed that, even as she admitted, “that, as a grammatical matter, the passive-voice statute does not specify a fraudulent actor.”
“But in her view, the statute is most naturally read to bar the discharge of debts for money obtained by the debtor’s fraud,” Barrett wrote.
“We disagree: Passive voice pulls the actor off the stage,” Barrett wrote.
The justice wrote that Congress, in writing the relevant section of the bankruptcy code, “framed it to ‘focu[s] on an event that occurs without respect to a specific actor, and therefore without respect to any actor’s intent or culpability.'”
It’s been nearly three years since most people with federal student loans have had to make a payment on their education debt.
The U.S. Department of Education has repeatedly cited specific dates for when the bills would resume, only to extend the pandemic-era break yet again.
Most recently, amid legal challenges to the Biden administration’s student loan forgiveness plan, the government told borrowers they’d get even more time. But the timing it gave wasn’t as straightforward as it was with previous extensions.
As a result of those challenges, the Education Department announced another extension of the repayment pause in late November.
It said federal student loan bills will be due again 60 days after the litigation over its student loan forgiveness plan resolves and it’s able to start wiping out the debt. But the Department added that if the Biden administration is still defending its policy in the courts by the end of June, or if it’s unable to move forward with forgiving student debt by then, the payments will pick up at the end of August.
The Supreme Court will begin to hear oral arguments over Biden’s plan at the end of February.
When payments could resume depends in part on when the justices reach their decision, said higher education expert Mark Kantrowitz.
“If the court issues a ruling a few weeks after the Feb. 28 hearing, repayment could restart in May or June,” Kantrowitz said. “If they wait until the end of the term, when they go on recess, in June or July, then there would be an August or September restart.”
It’s a time of uncertainty for the federal student loan system.
With Biden’s forgiveness plan up in the air, borrowers may be unsure what they owe. Throughout the pandemic, there have been a lot of changes to the companies that service federal student loans. And then there’s the fact that after three years without payments, millions of Americans have simply become accustomed to life without student debt bills.
“These student loan borrowers had the reasonable expectation and belief that they would not have to make additional payments on their federal student loans,” Education Department Undersecretary James Kvaal said in a November court filing. “This belief may well stop them from making payments even if the Department is prevented from effectuating debt relief.
“Unless the Department is allowed to provide one-time student loan debt relief,” he went on, “we expect this group of borrowers to have higher loan default rates due to the ongoing confusion about what they owe.”
Considering that the U.S. Department of Education has already extended the payment pause roughly eight times, it’s possible borrowers could get more time still, Kantrowitz said.
“There will always be an excuse if they want a reason for another extension,” he said. “The most likely reasons could include a new worrisome Covid-19 mutation or economic distress.”
The U.S. government has extraordinary collection powers on federal debts and it can seize borrowers’ tax refunds, wages and Social Security checks if they fall behind on their student loans.
During the extended payment pause, however, the Education Department also says it won’t resume collection activity.
With headlines warning of a possible recession and layoffs picking up in some sectors, experts recommend that borrowers try to salt away the money they’d usually put toward their student debt each month.
Certain banks and online savings accounts have been upping their interest rates, and it’s worth looking around for the best deal available. Consumers will just want to make sure any account they put their savings in is insured by the Federal Deposit Insurance Corp., meaning up to $250,000 of the deposit is protected from loss.
And while interest rates on federal student loans are at zero, it’s also a good time to make progress paying down more expensive debt, experts say.
The average interest rate on credit cards is currently more than 20%.
With headlines warning of a possible recession and layoffs picking up, experts recommend that you try to put away the money you’d usually put toward your student debt each month.
Certain banks and online savings accounts have been upping their interest rates, and it’s worth looking around for the best deal available. You’ll just want to make sure any account you put your savings in is FDIC insured, meaning up to $250,000 of your deposit is protected from loss.
And while interest rates on federal student loans are at zero, it’s also a good time to make progress paying down more expensive debt, experts say. The average interest rate on credit cards is currently more than 19%.
If you have a healthy rainy day fund and no credit card debt, it may make sense to continue paying down your student loans even during the break, experts say.
That’s because months during the government’s payment pause still count as qualifying payments for those programs, and since they both result in forgiveness after a certain amount of time, any cash you throw at your loans during this period just reduces the amount you’ll eventually get excused.
Even though there’s some uncertainty around the date that federal student loan bills will pick up again, you want to be prepared for whenever they do.
You can compare how much your monthly bill would be under different repayment plans using one of the calculators at Studentaid.gov or Freestudentloanadvice.org.
If you’re unemployed or dealing with another financial hardship, you might want to put in a request for an economic hardship or unemployment deferment. Those are the ideal ways to postpone your federal student loan payments, because interest doesn’t accrue.
If you don’t qualify for either, though, you can use a forbearance to continue suspending your bills. Just keep in mind that with forbearance, interest will rack up and your balance will be larger — possibly much larger — when you resume paying.
Higher education expert Mark Kantrowitz had previously recommended that federal student loan borrowers refrain from refinancing their debt with a private lender while the Biden administration deliberated on how to move forward with forgiveness. Refinanced student loans wouldn’t qualify for the federal relief.
Now that borrowers know how much in loan cancellation is on the table — if the president’s policy survives the Supreme Court — borrowers may want to consider the option, Kantrowitz said. With the Federal Reserve expected to continue raising interest rates, he added, you’re more likely to pick up a lower rate with a lender today than down the road.
Still, Kantrowitz added, it’s probably a small pool of borrowers for whom refinancing is wise.
Your rate doesn’t matter if you lose your job, have sudden medical expenses, can’t afford your payments and find that defaulting is your only option.
Betsy Mayotte
president of The Institute of Student Loan Advisors
Those include borrowers who don’t qualify for the Biden administration’s forgiveness — the plan excludes anyone who earns more than $125,000 as an individual or $250,000 as a family — and those who owe more on their student loans than the administration plans to cancel, he said. The latter borrowers may want to look at refinancing the portion of their debt over the relief amounts, he added.
Still, borrowers should first understand the federal protections they’re giving up by refinancing, warns Betsy Mayotte, president of The Institute of Student Loan Advisors.
For example, the U.S. Department of Education allows you to postpone your bills without interest accruing if you can prove economic hardship. The government also offers loan forgiveness programs for teachers and public servants.
“Your rate doesn’t matter if you lose your job, have sudden medical expenses, can’t afford your payments and find that defaulting is your only option,” said Mayotte in a previous interview about refinancing.
The Biden administration’s most recent announcement that the pause on federal student loan bills would be extended left borrowers with more uncertainty: It didn’t provide a date for when the payments would resume.
The pandemic-era relief policy suspending federal student loan bills and the accrual of interest has been in effect since March 2020. Turning the $1.7 trillion lending system back on for some 40 million Americans is a massive task that the U.S. Department of Education has been reluctant to undertake.
The administration had hoped to ease the transition for borrowers by first forgiving a large share of student debt, but its plan to do so, unveiled in August, soon faced a barrage of legal challenges and remains tied up in the courts. That development is why borrowers have gotten even more time without a student loan bill.
Here’s what you need to know about the latest payment pause extension.
The Education Department has left things a little open-ended when it comes to the timing of federal student loan payments resuming.
It has said the bills will be due again only 60 days after the litigation over its student loan forgiveness plan resolves and it’s able to start wiping out the debt.
If the Biden administration is still defending its policy in the courts by the end of June, or if it’s unable to move forward with forgiving student debt by then, the payments will pick up at the end of August, it said.
Most recently, the Supreme Court has said it will hear oral arguments around the president’s plan in February.
That means the earliest that payments could restart would likely be May 1, if the justices reach a quick decision, said higher education expert Mark Kantrowitz.
The U.S. government has extraordinary collection powers on federal debts and it can seize borrowers’ tax refunds, wages and Social Security checks if they fall behind on their student loans.
During the extended payment pause, however, the Education Department is also ceasing all collection activity, it said.
Kantrowitz had previously recommended that, despite the chance of picking up a lower interest rate, federal student loan borrowers refrain from refinancing their debt with a private lender while the Biden administration deliberated on how to move forward with forgiveness. Refinanced student loans wouldn’t qualify for the federal relief.
Now that borrowers know how much in loan cancellation is coming — if the president’s policy survives in the courts — borrowers may want to consider the option, Kantrowitz said. With the Federal Reserve expected to continue raising interest rates, he added, you’re more likely to pick up a lower rate with a lender today than down the road.
Still, Kantrowitz added, it’s probably a small pool of borrowers for whom refinancing is wise.
It would be deeply unfair to ask borrowers to pay a debt that they wouldn’t have to pay, were it not for the baseless lawsuits brought by Republican officials and special interests.
Miguel Cardona
Secretary of the U.S. Department of Education
He said those include borrowers who don’t qualify for the Biden administration’s forgiveness — the plan excludes anyone who earns more than $125,000 as an individual or $250,000 as a family — and those who owe more on their student loans than the administration plans to cancel. Those borrowers may want to look at refinancing the portion of their debt over the relief amounts, Kantrowitz said.
Borrowers need to first understand the federal protections they’re giving up before they refinance, warns Betsy Mayotte, president of The Institute of Student Loan Advisors.
For example, the Education Department allows you to postpone your bills without interest accruing if you can prove economic hardship. The government also offers loan forgiveness programs for teachers and public servants.
“Your rate doesn’t matter if you lose your job, have sudden medical expenses, can’t afford your payments and find that defaulting is your only option,” Mayotte said, in a previous interview about refinancing.
With headlines warning of a possible recession and layoffs picking up, experts recommend that you try to salt away the money you’d usually put toward your student debt each month.
Certain banks and online savings accounts have been upping their interest rates, and it’s worth looking around for the best deal available. You’ll just want to make sure any account you put your savings in is FDIC-insured, meaning up to $250,000 of your deposit is protected from loss.
And while interest rates on federal student loans are at zero, it’s also a good time to make progress paying down more expensive debt, experts say. The average interest rate on credit cards is currently more than 19%.
If you have a healthy rainy-day fund and no credit card debt, it may make sense to continue paying down your student loans even during the break, experts say.
That’s because months during the government’s payment pause still count as qualifying payments for those programs, and since they both result in forgiveness after a certain amount of time, any cash you throw at your loans during this period just reduces the amount you’ll eventually get excused.
Sam Bankman-Fried’s arrest in the Bahamas on Monday marks the beginning of a new chapter in the FTX saga, one that will pit the former crypto billionaire against the Southern District of New York.
The indictment is expected to remain sealed until Tuesday morning. U.S. prosecutors haven’t commented, and neither the Attorney General of the Bahamas nor the Royal Bahamas Police Force would confirm the nature of the charges against Bankman-Fried.
The New York Times reported that the charges against Bankman-Fried included conspiracy to commit wire fraud and securities fraud, as well as standalone charges of securities fraud, wire fraud and money laundering.
The SEC has initiated a separate set of charges against Bankman-Fried, relating to “violations of our securities laws, which will be filed publicly tomorrow in the Southern District of New York,” enforcement director Gurbir Grewal said in a statement on Monday.
A spokesperson for the SEC declined further comment.
The charges could land Bankman-Fried in prison for decades, legal experts told CNBC. But before he ever serves time, U.S. prosecutors have to secure an extradition from the Bahamas back to New York.
An effort to extradite
“It is inconceivable to me that the Justice Department would have charged this case unless they were confident that they could extradite him,” Renato Mariotti, a former federal prosecutor, told CNBC.
Mariotti anticipates an extradition will take weeks to complete.
“The statement by the Bahamian government suggests that they’re going to cooperate,” Mariotti said.
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The U.S. and the Bahamas have had an extradition treaty in place since 1931, with the most recent iteration codified in 1990. Because Bankman-Fried hasn’t been convicted in the Bahamas yet, U.S. prosecutors had to secure an arrest warrant and provide sufficient evidence to the Bahamians that he had committed a crime.
Extradition is the first step in a process that could take years to finish. Given the magnitude of Bankman-Fried’s alleged crimes, prosecutors and regulators will be pursuing concurrent cases around the world.
A trial in the U.S. “may not occur for years,” Mariotti said.
“The more that they charge, the bigger that the case is, the more time they’re going to need to get in motion,” he said. “I would say late 2023 is the earliest a trial would occur.”
Prosecutors could argue that FTX breached its fiduciary duty by allegedly using customer funds to artificially stabilize the price of the company’s self-issued FTT coin, Mariotti said.
Intent is also a factor in fraud cases, and Bankman-Fried insists he didn’t know about potentially fraudulent activity. He told CNBC’s Andrew Ross Sorkin at the New York Times DealBook conference that he “didn’t knowingly commingle funds.”
“I didn’t ever try to commit fraud,” Bankman-Fried said.
In prepared testimony for the House Financial Services committee, new FTX CEO John Ray confirmed that commingling of funds had occurred between FTX and Alameda Research, Bankman-Fried’s hedge fund.
Other legal trouble
Beyond the criminal charges set to be unveiled Tuesday morning, Bankman-Fried is also facing civil action, which could be brought by the SEC, the Commodity Futures Trading Commission and state banking and securities regulators, said Richard Levin, who chairs the fintech and regulation practice at Nelson Mullins Riley & Scarborough.
The CFTC and lawmakers have begun their probes into FTX and Bankman-Fried, who told Sorkin he was down to his last $100,000.
Shortly after Bankman-Fried’s arrest, the SEC appeared to confirm that the agency would pursue a separate set of charges from the criminal indictment.
Lawmakers also expressed their satisfaction at Bankman-Fried’s arrest. Senator Sherrod Brown (D-Ohio), who chairs the Senate Committee on Banking, Housing, and Urban Affairs, applauded both the Justice Department and Bahamian law enforcement “for holding Sam Bankman-Fried accountable.”
Rep. Maxine Waters (D-Calif.), the chairwoman of the House Financial Services Committee, echoed that sentiment, but expressed disappointment that Bankman-Fried was arrested before his House testimony, which was scheduled for Tuesday.
“I am surprised to hear that Sam Bankman-Fried was arrested in the Bahamas at the direction of the United States Attorney,” Waters said in a statement.
“[The] American public deserves to hear directly from Mr. Bankman-Fried about the actions that’ve harmed over one million people,” Waters continued.
Bankman-Fried had also been invited to appear before the Senate prior to his arrest. That hearing will occur on Wednesday.
It’s unclear whether the SEC or the CFTC will take the lead in securing civil damages.
“The question of who would be taking the lead there, whether it be the SEC or CFTC, depends on whether or not there were securities involved,” Mariotti told CNBC.
SEC Chairman Gary Gensler, who met with Bankman-Fried and FTX executives earlier this year, has said publicly that “many crypto tokens are securities,” which would make his agency the primary regulator.
But many exchanges, including FTX, have crypto derivatives platforms that sell financial products like futures and options, which fall under the CFTC’s jurisdiction.
“For selling unregistered securities without a registration or an exemption, you could be looking at the Securities Exchange Commission suing for disgorgement — monetary penalties,” said Levin, who’s represented clients before both agencies.
Investors who have lost their savings aren’t waiting. Class-action suits have already been filed against FTX endorsers, like comedian Larry David and football superstar Tom Brady. One suit excoriated the celebrities for allegedly failing to do their “due diligence prior to marketing [FTX] to the public.”
FTX’s industry peers are also filing suit against Bankman-Fried. Failed lender BlockFi sued Bankman-Fried in November, seeking unnamed collateral that the FTX founder provided for the crypto lending firm.
FTX and Bankman-Fried had previously rescued BlockFi from insolvency in June, but when FTX failed, BlockFi was left with a similar liquidity problem and filed for bankruptcy protection in New Jersey.
Bankman-Fried has also been sued in Florida and California federal courts. He faces class-action suits in both states over “one of the great frauds in history,” a California court filing said.
The largest securities class-action settlement was for $7.2 billion in the Enron accounting fraud case, according to Stanford research. The possibility of a multibillion-dollar settlement would come on top of civil and criminal fines that Bankman-Fried faces.
A life behind bars
If the DOJ were able to secure a conviction, a judge would look to several factors to determine how long to sentence him.
Based on the size of the losses, if Bankman-Fried is convicted on any of the fraud charges, he could be behind bars for years — potentially for the rest of his life, said Braden Perry, a partner at Kennyhertz Perry who advises clients on anti-money laundering, compliance and enforcement issues.
But the length of any potential sentence is hard to predict, said Perry, who was previously a senior trial lawyer for the CFTC, FTX’s only official U.S. regulator.
Federal sentencing guidelines follow a numeric system to determine the maximum and minimum allowable sentence, but the system can be esoteric. The scale, or “offense level,” starts at one, and maxes out at 43.
A wire fraud conviction rates as a seven on the scale, with a minimum sentence ranging from zero to six months.
But mitigating factors and enhancements can alter that rating, Perry told CNBC.
“The dollar value of loss plays a significant role. Under the guidelines, any loss above $550 million adds 30 points to the base level offense,” Perry said. FTX customers have lost billions of dollars.
“Having 25 or more victims adds 6 points, [and] use of certain regulated markets adds 4,” Perry said.
That means Bankman-Fried could be facing life in federal prison, without the possibility of supervised release, if he’s convicted on just one of the offenses that prosecutors will reportedly pursue.
If convicted, his sentence could be reduced by mitigating factors.
“In practice, many white-collar defendants are sentenced to lesser sentences than what the guidelines dictate,” Perry said. Even in large fraud cases, that 30-point enhancement previously mentioned can be considered punitive.
By way of comparison, Stefan Qin, the Australian founder of a $90 million cryptocurrency hedge fund, was sentenced to more than seven years in prison after he pleaded guilty to one count of securities fraud.
Kris Marszalek, CEO of Crypto.com, speaking at a 2018 Bloomberg event in Hong Kong, China.
Paul Yeung | Bloomberg | Getty Images
Kris Marszalek wants everyone to know that his company, Crypto.com, is safe and in good hands. His TV appearances and tweets make that clear.
It’s an understandable approach. The crypto markets have been in freefall for much of the year, with high-profile names spiraling into bankruptcy. When FTX failed last month just after founder Sam Bankman-Fried said the crypto exchange’s assets were fine, trust across the industry evaporated.
Marszalek, who has operated out of Asia for over a decade, subsequently assured clients that their funds belong to them and are readily available, in contrast to FTX, which used client money for all sorts of risky and allegedly fraudulent activities, according to court filings and legal experts.
Bankman-Fried has denied knowing about any fraud. Regardless, FTX clients are now out billions of dollars with bankruptcy proceedings underway.
Crypto.com, one of the world’s largest cryptocurrency exchanges, may well be in fine health. After the FTX collapse, the company published its unaudited, partial proof of reserves. The release revealed that nearly 20% of customer funds were in a meme token called shiba inu, an amount eclipsed only by its bitcoin allocation. That percentage has dropped since the initial release to about 15%, according to Nansen Analytics.
Marszalek said in a Nov. 14 livestream on YouTube that the wallet addresses were representative of customer holdings.
While no evidence has emerged of wrongdoing at Crypto.com, Marszalek’s business history is replete with red flags. Following the collapse of a prior company in 2009, a judge called Marszalek’s testimony unreliable. His business activities before 2016 — the year he founded what would become Crypto.com — involved a multimillion-dollar settlement over claims of defective products, corporate bankruptcy and an e-commerce company that failed shortly after a blowout marketing campaign left sellers unable to access their money.
Court records, public filings and offshore database leaks reveal a businessman who moved from industry to industry, rebooting quickly when a venture would fail. He started in manufacturing, producing data storage products for white label sale, then moved into e-commerce, and finally into crypto.
CNBC reached out to Crypto.com with information on Marszalek’s past and asked for an interview. The company declined to make Marszalek available and sent a statement indicating that there was “never a finding of wrongdoing under Kris’s leadership” at his prior ventures.
After CNBC’s requests, Marszalek published a 16-tweet thread, beginning by telling his followers: “More FUD targeting Crypto.com is coming, this time about a business failure I had very early in my career. I have nothing to hide, and am proud of my battle scars, so here’s the unfiltered story.” FUD is short for fear, uncertainty and doubt and is a popular phrase among crypto executives.
In the tweets, Marszalek described his past personal bankruptcy and the abrupt closure of his e-commerce business as learning experiences, and added that “startups are hard,” and “you will fail over and over again.”
Marszalek founded a manufacturing firm called Starline in 2004, according to his LinkedIn profile. Based in Hong Kong, with a plant in mainland China, Starline built hardware products like solid state drives, hard drives, and USB flash drives. Marzsalek’s LinkedIn page says he grew the business into a 400-person company with $81 million in sales in three years.
There was much more to the story.
Marszalek owned 50% of the company, sharing ownership and control with another Hong-Kong based individual, who partnered with Marszalek in multiple ventures.
In 2009, Marzsalek’s company settled with a client over a faulty shipment of flash drives. The $5 million settlement consisted of a $1 million upfront payment and a $4 million credit note to the client, Dexxon. The negotiations over the settlement began at some point after 2007.
CNBC was unable to locate Marszalek’s business partner.
Court documents don’t show whether Starline made good on either the $1 million “lump sum settlement fee” or the $4 million credit note. Starline was forced into bankruptcy proceedings by the end of 2009, court records from 2013 show.
Over the course of 2008 and 2009, Marszalek and his partner were transferred nearly $3 million in payments from Starline, according to the documents.
Over $1 million was paid out to Marszalek personally in what the court said were “impugned payments.” His partner took home nearly $1.9 million in similar payments.
“It appears that there was a concerted effort to strip the cash from Starline,” Judge Anthony Chan later wrote in a court filing.
Some $300,000 was paid by Starline to a British Virgin Islands holding company called Tekram, the document says. That money went through Marszalek, and Tekram eventually returned it to Starline.
By 2009, Starline had collapsed. Marszalek’s representatives told CNBC in a statement that Starline went under because customers failed to pay back credit lines that the company had extended them during the financial crisis of 2007 and 2008. Starline borrowed that money from Standard Chartered Bank of Hong Kong (SCB).
“The bank then turned to Starline and the co-founders to repay the lines of credit and filed for liquidation of the company,” the statement said.
Starline owed $2.2 million to SCB.
Marszalek said on Twitter that he had personally guaranteed the loans from the bank to Starline. As a result, when the bank forced Starline into liquidation, Marszalek and his partner were forced into bankruptcy as well.
The court found that the $300,000 transfer to Tekram was “in truth a payment” to Marszalek.
Marszalek said the money in the Tekram transfer was repayment of a debt Starline owed to Tekram. The judge described that claim as “inherently incredible.”
“There is no explanation why the repayment had to be channelled through him or why the money was later returned to the debtor,” the judge said.
Bankruptcy didn’t sever the ties between Marszalek and his partner or keep them out of business for long. At the same time Starline was shutting down, the pair set up an offshore holding company called Middle Kingdom Capital.
Middle Kingdom was established in the Cayman Islands, a notorious hub for tax shelters. The connection between Middle Kingdom and Marszalek and his partner, who each held half of the firm, was exposed in the 2017 Paradise Papers leak. The Paradise Papers, along with the Panama Papers, contained documents about a web of offshore holdings in tax havens. They were published by the International Consortium of Investigative Journalists.
Middle Kingdom was the owner of Buy Together, which in turn owned BeeCrazy, an e-commerce venture that Marszalek had started pursuing. Similar to Groupon, retailers could use BeeCrazy to sell their products at steep discounts. BeeCrazy would process payments, take a commission on goods sold, and distribute funds to the retailers.
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Sellers and buyers flocked to the site, drawn in by considerable discounts on everything from spa passes to USB power banks. Buy Together drew attention from an Australian conglomerate called iBuy, which was on the verge of an IPO and pursued an acquisition of BeeCrazy as part of a plan to build out an Asian e-commerce empire.
Court filings and Australian disclosures show that to seal the deal, Marszalek and his partner had to remain employed by iBuy for three years and clear their individual bankruptcies in Hong Kong court. The partner’s uncle came forward in front of the court to help his nephew and Marszalek clear their names and debts, filings show.
While the judge called the uncle’s involvement “suspicious,” he allowed him to repay the debt. As a result, both Marszalek and his partner’s bankruptcies were annulled. A few months later, in October 2013, BeeCrazy was purchased by iBuy for $21 million in cash and stock, according to S&P Capital IQ.
A month and a half after buying BeeCrazy, iBuy went public. Marszalek was required to remain until 2016.
The company struggled after its IPO as competition picked up from bigger players like Alibaba. Marszalek was eventually promoted to CEO of iBuy in August 2014, according to filings with Australian regulators.
Alibaba headquarters in Hangzhou, China.
Bloomberg | Bloomberg | Getty Images
Marszalek renamed iBuy as Ensogo in an effort to retool the company. Ensogo continued to suffer, running up a loss in 2015 equal to over $50 million.
By the following year, Ensogo had already reportedly laid off half its staff. In June 2016, Ensogo closed down operations. The same day, Marszalek resigned.
After the sudden shuttering of Ensogo, sellers on the site told the South China Morning Press that they never received proceeds from items they’d already delivered as part of a final blowout sale.
“[Many] sellers had already sold their goods but had yet to receive any money from the platform at that time, their money thus vanished altogether with the online shopping platform,” according to translated testimony from a representative for a group of sellers before Hong Kong’s Legislative Council.
One seller told Hong Kong’s The Standard that she lost more than $25,000 in the process.
“It seems to us that they wanted to make huge business from us one last time before they closed down,” the seller told the publication.
Marszalek’s representative acknowledged to CNBC that “the shutdown angered many customers and consumers” and said that was “one of the reasons Kris was opposed to the decision.”
Marszalek moved quickly on to his next thing. The same month he resigned from Ensogo, Foris Limited was incorporated, marking Marszalek’s entry into the crypto market.
Foris’ first foray into crypto was with Monaco, an early exchange.
With a leadership team composed entirely of former Ensogo employees, Monaco told prospective investors they could expect three million customers and $169 million in revenue within five years.
The exterior of Crypto.com Arena on January 26, 2022 in Los Angeles, California.
Rich Fury | Getty Images
By 2021, the company had smashed its own goals, crossing the 10 million user mark. Revenue for the year topped $1.2 billion, according to the Financial Times. That’s when crypto was soaring, with bitcoin climbing from about $7,300 at the beginning of 2020 to a peak of over $68,000 in November of 2021.
The company inked a deal with LeBron James for a Super Bowl ad, aired a prior commercial with Matt Damon and spent a reported $700 million to put its name on the arena that’s home to the Los Angeles Lakers. It’s also a sponsor of the World Cup in Qatar.
The market’s plunge in 2022 has been disastrous for all the major players and goes well beyond the FTX collapse and the numerous hedge funds and lenders that have liquidated. Coinbase’s stock price is down84%, and the company laid off 18% of its staff. Kraken recently cut 30% of its workforce.
Crypto.com has laid off hundreds of employees in recent months, according to multiple reports. Questions percolated about the company in November after revelations that the prior month Crypto.com had sent more than 80% of its ether holdings, or about $400 million worth of the cryptocurrency, to Gate.io, another crypto exchange. The company only admitted the mistake after the transaction was exposed thanks to public blockchain data. Crypto.com said the funds were recovered.
Marszalek went on CNBC on Nov. 15, following the FTX failure, to try and reassure customers and the public that the company has plenty of money, that it doesn’t use leverage and that withdrawal demands had normalized after spiking.
Still, the market cap for Cronos, Crypto.com’s native token, has shrunk from over $3 billion on Nov. 8 to a little over $1.6 billion today, reflecting a loss of confidence among a key group of investors. During the crypto mania at this time last year, Cronos was worth over $22 billion.
Cronos has stabilized of late, hovering around six cents for the last three weeks. Bitcoin prices have been flat for about four weeks.
Marszalek’s narrative is that he’s learned from past mistakes and that “early failures made me who I am today,” he wrote in his tweet thread.
He’s asking customers to believe him.
“I’m proud of my scar tissue and the way I persevered in the face of adversity,” he tweeted. “Failure taught me humility, how to not overextend, and how to plan for the worst.”
Correction: Crypto.com’s Super Bowl ad featured LeBron James, not Matt Damon. The commercial with Damon came out in late 2021.
Clarification: This story has been updated to more accurately reflect where in Asia Marszalek has operated.
Former U.S. President Donald Trump speaks at a rally to support Republican candidates ahead of midterm elections, in Dayton, Ohio, November 7, 2022.
Gaelen Morse | Reuters
A federal judge on Friday did not grant a Justice Department request to hold former President Donald Trump‘s office in contempt of court for allegedly failing to comply with a grand jury subpoena, NBC News reported.
The department wanted Judge Beryl Howell to find Trump’s office in contempt for not fully complying with the subpoena issued in May, which demanded he return classified documents still in his possession, according to a person familiar with the issue who spoke to NBC News.
The Justice Department had no comment on Howell’s rejection of the request, which came after a closed hearing was scheduled for the matter in U.S. District Court in Washington, D.C.
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The hearing was sealed because it relates to grand jury proceedings. NBC News was part of a media coalition seeking access to the hearing.
Trump’s lawyers Evan Corcoran, Jim Trusty and Timothy Parlatore were seen entering Howell’s chambers around the time of the scheduled hearing at 2 p.m. ET, NBC reported.
The trio then was leaving the courthouse at just before 3:30 p.m.
Federal prosecutors are conducting a criminal investigation of Trump for his failure to return government documents when he left the White House, as well as for possible obstruction of justice.
An August FBI raid of his residence at the Mar-a-Lago club in Palm Beach, Florida, found thousands of such records, more than 100 of which were marked classified or highly classified.
Trump last month announced his candidacy for the Republican presidential nomination in 2024.
Trump’s spokesperson, in a statement Friday, said, “The President and his counsel will continue to be transparent and cooperative, even in the face of the highly weaponized and corrupt witch-hunt from the Department of Justice.”
“Hillary Clinton was allowed to delete and acid wash 33,000 emails after they were subpoenaed by Congress, yet absolutely nothing has happened to hold her accountable,” the spokesperson said.
“If the Department of Justice can go after President Trump, they will surely come after any American who they disagree with.”
John Ray, chief executive officer of FTX Cryptocurrency Derivatives Exchange, arrives at bankruptcy court in Wilmington, Delaware, US, on Tuesday, Nov. 22, 2022.
Eric Lee | Bloomberg | Getty Images
Attorneys in the Bahamas filed an emergency motion on Friday asking a Delaware bankruptcy judge to compel U.S. leaders of failed crypto firm FTX to give them access to databases as part of the proceedings.
The emergency motion claims that despite “many attempts to obtain access,” FTX employees and counsel have stymied Bahamian regulators in their effort to get critical financial information located in Amazon Web Services and Google Cloud Portal databases.
The lawyers, working on behalf of the Securities Commission of the Bahamas, said the U.S. bankruptcy proceedings will “suffer no harm or hardship if this relief is granted.” They’re seeking data on FTX international customers that is stored on AWS servers, including “wallet addresses, customer balances, deposit and withdrawal records, trades, and accounting data.” Google’s technology served as an analytics platform for FTX International’s data.
“While the Joint Provisional Liquidators are happy to engage in dialogue with the U.S. Debtors, their refusal to promptly restore access has frustrated the ability of the Joint Provisional Liquidators to carry out their duties under Bahamian law and placed FTX Digital’s assets at risk of dissipation,” the filing read.
FTX filed for bankruptcy protection last month after a liquidity crunch at the crypto exchange, which was intermingling assets with sister hedge fund Alameda Research. FTX founder Sam Bankman-Fried, who had an estimated net worth of $16 billion before the collapse, will appear before U.S. lawmakers next week.
