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New York files civil suit against President Trump, alleging his charity engaged in ‘illegal conduct’

Donald Trump directed millions of dollars to his tax-exempt foundation. Here's how. (Video: Peter Stevenson, Lee Powell/The Washington Post, Photo: Jabin Botsford/The Washington Post)

New York’s attorney general filed suit against President Trump and his three eldest children Thursday, alleging “persistently illegal conduct” at the president’s personal charity and saying that Trump had repeatedly misused the nonprofit organization to pay off his businesses’ creditors, to decorate one of his golf clubs and to stage a multimillion-dollar giveaway at 2016 campaign events.

In the suit, Attorney General Barbara Underwood asked a state judge to dissolve the Donald J. Trump Foundation. She asked that its remaining $1 million in assets be distributed to other charities and that Trump be forced to pay at least $2.8 million in restitution and penalties.

Underwood also asked that Trump be banned from leading any other New York nonprofit organization for 10 years — seeking to apply a penalty usually reserved for the operators of small-time charity frauds to the president of the United States.

The allegations of sweeping misuse by Trump of his personal foundation came the same day that he faced another legal setback, with the rejection by an appeals court in New York of his request to halt a defamation lawsuit filed by a former “Apprentice” contestant. That decision leaves open the possibility that Trump could be deposed in the case.

Meanwhile, Underwood sent letters to the Internal Revenue Service and the Federal Election Commission in which she identified what she called “possible violations” of tax law and federal campaign law by Trump’s foundation.

The claims in the New York attorney general’s suit could trigger tax penalties by the IRS, according to tax-law experts, who noted that the Justice Department can also bring criminal charges when prosecutors believe tax-law violations are “willful.”

Marc S. Owens, a former head of the IRS’s nonprofit division, called the suit “an extraordinary catalogue of how not to run a private foundation. There’s little else [Trump] could have done that would have made it worse.”

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New York state began looking into the Trump Foundation in response to an investigation by The Washington Post.

Underwood did not run for her office: She was promoted to attorney general just weeks ago, succeeding Eric Schneiderman (D) after he resigned following allegations that he had physically abused several romantic partners.

Trump responded to the suit by calling it politically motivated.

“Schneiderman, who ran the Clinton campaign in New York, never had the guts to bring this ridiculous case, which lingered in their office for almost 2 years,” Trump wrote on Twitter. “Now he resigned his office in disgrace, and his disciples brought it when we would not settle.”

Amanda Miller, a spokeswoman for Trump’s company, echoed Trump’s assertion that the suit was politically driven, saying: “This is politics at its very worst.”

Underwood declined to comment on the case beyond issuing a written statement.

“As our investigation reveals, the Trump Foundation was little more than a checkbook for payments from Mr. Trump or his businesses to nonprofits, regardless of their purpose or legality,” she said in the statement.

In the suit, Underwood noted that Trump had paid more than $330,000 in reimbursements and penalty taxes since 2016. But she asked the judge to require Trump to pay millions more. She said a 20-month state investigation found that Trump had repeatedly violated laws that set the ground rules for tax-exempt foundations — most important, that their money is meant to serve the public good, not to provide private benefits to their founders.

Underwood said that oversight of spending at Trump’s foundation was so loose that its board of directors hadn’t met since 1999, and its official treasurer wasn’t even aware that he was on the board.

Without any outside supervision, Underwood said, the foundation came to serve the spending needs of Trump — and then, in 2016, the needs of his presidential campaign. She cited emails from Trump campaign staff members — including then-campaign manager Corey Lewandowski — directing which charities should ­receive gifts from the Trump Foundation, and in what amounts, in the lead-up to the crucial Iowa caucuses.

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The lawsuit was filed in civil court. A spokeswoman for Underwood said she did not have jurisdiction to seek criminal charges in cases involving nonprofits.

Owens, the former IRS official, said he was surprised at the scope of the violations that the Trump Foundation allegedly committed — especially because the Trump family had enough money to hire lawyers and accountants who would explain the law.

“Some of the facts are extraordinary. The failure to have board meetings since 1999, for example. You don’t see that very often,” he said.

Three of Trump’s adult children — Donald Trump Jr., Ivanka Trump and Eric Trump — were named in the lawsuit because they have been official board members of the foundation for years. Under the law, Underwood said, board members are supposed to scrutinize a charity’s spending for signs that its leader — in this case, their father — was misusing money.

But they didn’t, Underwood said.

The three siblings “abdicated all responsibility for ensuring that the Foundation’s assets were used in compliance with the law,” she wrote.

Underwood asked the judge to ban each of the three from serving as a director of a New York nonprofit organization for a year.

Although Donald Trump’s name is on the foundation, in recent years most of its money was not actually his. Trump did not donate any money to the foundation between 2008 and 2015. Instead, its largest benefactors in recent years have been wrestling moguls Vince and Linda McMahon, who gave $5 million total in 2007 and 2009. Linda McMahon was later appointed by Trump to be head of the Small Business Administration.

Behind the scenes, Underwood said, the foundation was essentially one of Trump’s personal piggy banks — a pool of money that his accounting clerks knew to use whenever Trump wanted to pay a nonprofit organization. By law, Trump wasn’t allowed to buy things for himself using the charity’s money, even if he was buying them from nonprofit groups.

At one point, during a deposition, a New York state investigator asked Allen Weisselberg — a Trump Organization employee who was listed as treasurer of the Trump Foundation — whether the foundation had a policy for determining which specific payments it was allowed to make.

“There’s no policy, just so you understand,” Weisselberg said.

The interviewer asked whether Weisselberg had understood that he was actually on the board of the Trump Foundation, and had been for more than a decade.

“I did not,” he replied.

Twice, Underwood said, Trump used the charity’s money to settle legal disputes that involved his for-profit businesses.

Trump used $258,000 from his charity to settle legal problems

Both of those payments were first reported by The Post. In March, after the attorney general’s investigation was underway, Trump repaid his foundation the $258,000 it had spent in those cases, plus more than $12,000 in interest, Underwood said.

Underwood also listed several smaller instances of what she called “self-dealing,” meaning Trump using foundation money to help his businesses. According to Underwood, the charity paid $5,000 to place an ad for Trump hotels in the program for a charity gala; paid $32,000 to satisfy an obligation of a Trump company that manages a New York estate; and paid $10,000 to buy a portrait of Trump, which was later found hanging in the sports bar at Trump’s Doral golf resort.

Underwood said Trump already had repaid amounts spent by the foundation, plus penalty taxes totaling more than $4,000.

IRS rules also prohibit tax-exempt foundations from aiding political campaigns. But Underwood listed two instances in which Trump’s foundation had seemed to do so.

In August 2013, Trump donated $25,000 from his foundation to a Florida political group aiding the reelection effort of state Attorney General Pam Bondi (R).

After The Post reported on the donation to Bondi’s group in 2016, Trump repaid the $25,000 and paid a penalty tax of $2,500 for an improper political gift.

But Underwood alleged that the campaign Trump’s foundation helped the most was his own.

In January 2016, Trump skipped a debate among Republican candidates because he was feuding with Fox News Channel, the debate’s host. Instead, Trump held a televised fundraiser for veterans — drawing millions from wealthy friends and small-dollar donors, and giving much of it to the Trump Foundation.

Underwood said that, afterward, “the Foundation ceded control over the charitable funds it raised to senior Trump Campaign staff.” She cited emails in which Lewandowski, Trump’s campaign manager at the time, directed which veterans’ charities should receive money.

At one point, Lewandowski emailed Weisselberg to ask whether the Trump Foundation’s money could be ready to distribute during Trump’s last campaign events before the Iowa caucuses: “Is there any way we can make some disbursements [from the proceeds of the fundraiser] this week while in Iowa? Specifically on Saturday,” Lewandowski wrote in an email cited by Underwood.

In 2016, Trump sought to excuse his foundation’s actions in a letter to the New York attorney general, saying that the Iowa fundraiser was a charity event. “This statement was false,” Underwood wrote, “because, in reality, the Fundraiser was a Trump Campaign event in which the Foundation participated.”

She wrote that Trump had repeatedly signed charity documents saying that nonprofit organizations like his were not allowed to become involved in political campaigns. “Mr. Trump’s wrongful use of the Foundation to benefit his Campaign was willful and knowing,” she wrote.