August 28, 2015

When rosy results were trumped up for the Donald's casinos

In the early 2000s federal regulators cracked down on accounting shenanigans, their first target was Donald Trump's casino company.

By Aaron Elstein

Photo: Associated Press

Donald Trump said his underlings simply got carried away when his casino company reported that it was making money.

Early last decade, a massive accounting crisis infected corporate America. Companies like WorldCom, Sunbeam, Waste Management and many others cooked the books to make their numbers look better. After Enron abruptly collapsed in a spectacular late-2001 bankruptcy, regulators vowed to crack down on the worst abusers.

Their first target was Donald Trump's casino company.

At the dawn of the millennium, all was not well at Trump Hotels & Casino Resorts Inc., the company that owned the Trump Plaza, Trump Marina and Taj Mahal in Atlantic City, and whose chairman and lead shareholder was none other than the Donald himself, with a 41% stake. The company was a real money-loser, piling up up nearly $150 million in net losses between 1996 and 1998. How, you may ask, could a casino operator manage to lose money? The house always wins, doesn't it? Ordinarily yes, but not when the house has borrowed a ton of money and interest payments are sucking all the profits out the door.

You can understand that Trump's minions were getting tired of constantly reporting bad news and, when it came time to report earnings for the third quarter of 1999, wanted to tell folks something good instead. So they did that. They did it by putting out a press release reporting pro forma quarterly income of $14 million, or 63 cents a share. Hey now! The Trump casinos were making money!

Wait, hang on. You might have noticed that the earnings were described as "pro forma." That is Wall Street-speak for "as if" or "earnings before a whole bunch of bad stuff."

The Trump results ignored an inconvenient truth. Those stronger-than-expected profits didn't mean the casinos were performing better, but rather were due to an undisclosed one-time gain of $17.2 million stemming from the termination of a lease. To further bolster pro forma results, Trump Hotels & Casino Resorts disclosed that it excluded an $81.4 million charge related to closing the Trump World's Fair resort.

The earnings announcement was so distorted that the Securities and Exchange Commission called it "materially misleading" because it "created the false and misleading impression" that the company was performing better when in fact it was not. The SEC said that Trump Hotels & Casino Resorts violated federal anti-fraud laws by "knowingly or recklessly" issuing the information.

"This is the first commission enforcement action to address the abuse of pro forma earnings figures," said Stephen Cutler, director of the SEC's enforcement division when the case was brought in 2002. "The case starkly illustrates how pro forma numbers can be used deceptively and the mischief that they can cause."

Mr. Trump said at the time that underlings simply got carried away as they tried to cast his company's results in the best light possible—an important thing to do because the company was trying to drum up new funds to build a mega-resort in Atlantic City. The earnings release "was just a statement that was too verbose," Mr. Trump explained to The Wall Street Journal. Neither he nor any executives were sanctioned, and his casino company didn't admit any wrongdoing as part of a settlement with the SEC. Nor did anyone pay a fine.

The Trump casino company went back to reporting real numbers instead of fake ones. In 2004, it filed for bankruptcy. It did so again in 2009, and again in 2014.

http://www.crainsnewyork.com/article/20150828/BLOGS02/150829877/when-rosy-results-were-trumped-up-for-the-donalds-casinos

David [Cay] Johnston wrote a stellar book: TEMPLES OF CHANCE How America Inc. Bought Out Murder Inc. to Win Control of the Casino Business that documents in great detail the shenanigans in Atlantic City.

When Trump and Merv Griffin were granted licenses, one could make a valid argument that they were under-capitalized and the licenses should not have been granted based on NJ Regulations.

In addition, Steve Perske was instrumental in passage of the legislation, went on to become Chairman of the Gam[bl]ing Commission. 
There was an issue of Daddy Trump bailing out the Donald's mortgage with chips from another casino - money-laundering that Perske successfully prevented from being addressed.

Donald Trump's business conduct seems consistent based on the current lawsuit against his phony 'university.'