"Absurd": Experts say Trump still "playing games" with fraud bond — and it could blow up in his face

Judge could "allow the attorney general to enforce the judgment" unless Trump "provides sufficient surety"

By Tatyana Tandanpolie

Staff Writer

Published April 16, 2024 4:09PM (EDT)

Letitia James and Donald Trump (Photo illustration by Salon/Getty Images)
Letitia James and Donald Trump (Photo illustration by Salon/Getty Images)

Attorneys for Donald Trump asserted Monday night that the $175 million bond the former president posted to cover the judgement of his New York civil fraud case is financially secure, asking the judge to "set aside" the state attorney general's challenge and award him costs.

In a spate of court filings submitted just hours before the midnight deadline, Trump indicated that the bond Knight Specialty Insurance Company secured is backed by his Charles Schwab account, which contains more than $175 million in cash, CNN reports. Knight Specialty can take over the Schwab account, and any risk it assumes is also fully covered by its parent company, a joint memorandum filed by Trump's attorneys said. 

“The DJT Trust granted KSIC a security interest in a Schwab brokerage account, in which the DJT Trust is obligated to maintain no less than $175 million in cash or cash equivalents at all times,” read an affirmation filed in support of the bond by Gregory Serio, a former superintendent of insurance for New York state.

“KSIC also has a standing agreement with its parent company, Knight Insurance Company, Ltd. (‘KIC’), by which KIC reinsures 100% of KSIC’s risk,” added Serio, who is a partner of government consulting firm Park Strategies. “The $175 million bond at issue is adequately secured.”

But Trump's latest set of filings "doesn't address" the concerns with the bond, Gregory Germain, a Syracuse University College of Law professor, told Salon. The notion that the former president's "reimbursement obligation to the insurance company," that he alleges is secured in the account, sufficiently satisfies the bonding requirement is "simply incorrect," he said. 

"The insurance company must have sufficient capitalization and liquidity to immediately pay the bond amount if the judgment is affirmed, and the insurance company they utilized does not have that capacity," Germain explained, noting that Knight Specialty's parent company "appears" to have enough capital to assure payment of the bond. If Knight Insurance was "acting as a co-surety, the court might accept it."

"But instead of addressing the case properly, Trump has made absurd arguments to support the validity of the bond and has demanded sanctions, which is typical of his blustering and attacking way of handling his cases," Germain added. "Unless Trump provides sufficient surety and stops playing games, the Court will and should determine that the bond is insufficient and allow the attorney general to enforce the judgment."

Monday's filings came in response to Attorney General Letitia James challenging the financial ability of Knight Specialty to "justify the surety" earlier this month.

James' office questioned if the company was authorized to underwrite a surety bond in the state and whether it lacked a certificate from the state regulatory body attesting that it's qualified. She gave the company and the former president 10 days to submit filings showing they could financially support the bond. Experts previously told Salon that James could begin the process of seizing Trump's assets if they failed to meet her deadline. 

The company's initial bond filing's missing components and other errors prompted the New York court clerks to order it to refile its bond posting earlier this month, which Knight Specialty did the day after.

The insurer — based in California and registered in Delaware — does not have a license to issue bonds in New York or have the necessary certificate of qualification from the state Department of Financial Services, which Germain notes are required by New York insurance law. Company officials have insisted, however, that they are still authorized to issue the bond. 

Also of concern was Knight Specialty admitting that it only had $138 million in surplus capital in an April 4 filing. New York law prohibits a company from providing a bond to a single borrower that amounts to more than 10 percent of its surplus capital, which would require the company to have $1.75 billion in surplus to cover Trump's bond, experts previously told Salon.

On Monday Knight Specialty said it "independently maintains more than $539 million in assets and $138 million in equity and has access to more than $2 billion in assets and $1 billion in equity, of which nearly $1 billion is cash and marketable securities, pursuant to a reinsurance agreement with its parent company, Knight Insurance Company."

While the company's flurry of late-night filings "appears to move the ball towards assuring the AG that the bond is secure," it also "raises many new questions," former Assistant New York Attorney General Adam Pollock told Salon. 

One arises from the parent company appearing to have "adequate capitalization" without having "authority to do business in New York or to issue surety bonds," Germain pointed out. "The question, I think, is whether that reinsurance would clearly and unconditionally apply and require KIC to pay the bond, and whether the AG would be able to enforce that reinsurance commitment if KSIC was unable to pay," he said.

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Another question revolves around the Charles Schwab account Trump pledged to Knight Specialty. "If Trump has $175M free and clear, why not just directly post it and not pay a fee for a surety bond?" former Mueller prosecutor Andrew Weissmann wrote on X, formerly Twitter.

The account holds $175,304,075.95 in cash, according to Trump's lawyers. His eldest son authorized the agreement on behalf of the Donald J. Trump Revocable Trust last month, providing the company with a security interest over the brokerage account. 

A "simple answer" to the latter question, Pollock said, could be that Trump is "earning interest" on the money, which would screech to a halt should he use it to post his bond. Trump's apparent decision to not put up the money himself "also raises the question of whether the collateral is double-pledged to secure another obligation," he said.

Doing so would make the account "unavailable then as true collateral for the surety bond," Weissmann added. 

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This Schwab account appears to be different from another Schwab account Trump used as collateral when he obtained a $92 million bond through Chubb's Federal Insurance Co. earlier this year to cover the $83.3 million verdict of writer E. Jean Carroll 's defamation lawsuit against him, The Daily Beast notes. 

The former president, Germain said, appears to be "trying to use an incapable insurance company as a front to avoid meeting the statutory requirement," but "it's not going to work."

Presiding Judge Arthur Engoron tentatively scheduled a hearing to hash out the bonding issue for April 22, which Trump's lawyers argued Monday is not needed. Pollock countered, however, that not only is the hearing necessary, it will also need to be "detailed" to effectively "sort out whether this bond actually secures the judgement."

The court, Germain said, will have to determine whether Knight Insurance's reinsurance makes the parent company's capital "immediately available" to Knight Specialty if the $175 million bond has to be paid to ensure "prompt payment."

"The AG has valid reasons for questioning the validity of a bond posted by an out-of-state insurer without a certificate from the Insurance department, and having inadequate capitalization to cover the bond," he added. "I am also somewhat doubtful that a reinsurance policy would so clearly cover a default on a surety bond."

By Tatyana Tandanpolie

Tatyana Tandanpolie is a staff writer at Salon. Born and raised in central Ohio, she moved to New York City in 2018 to pursue degrees in Journalism and Africana Studies at New York University. She is currently based in her home state and has previously written for local Columbus publications, including Columbus Monthly, CityScene Magazine and The Columbus Dispatch.

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