Real estate valuations are part of the typically routine financial reporting practices at the heart of a New York judge's bombshell ruling Tuesday in the civil-fraud case against former President Donald Trump and other defendants including his two oldest sons, The Trump Organization and its former CFO Allen Weisselberg. 

But the day-to-day approach of Trump and some of his officers to financial reporting was far from routine, as described in the ruling from New York Supreme Court Judge Arthur F. Engoron. In his 35-page decision, Engoron found that New York Attorney General Letitia James had satisfied her burden of establishing liability on the part of the defendants related to their use of fraudulent documents that inflated the value of many of Trump’s signature real estate assets. 

“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...and square footage subjective,” Engoron wrote. “That is a fantasy world, not the real world.”  

On Wednesday morning Trump took to his own social media platform to attack the ruling, the AG and the judge, reiterating that the suit was politically motivated. He also asserted that there are disclaimers in the financial statements that leave him off the hook. “There is a POWERFUL Disclaimer Clause (some call it a ‘non-reliance clause,’...),” Trump wrote. Trump’s lawyer, Christopher Kise, said they would appeal, the Associated Press reported. The ruling could have serious consequences for Trump’s business: Engoron authorized James to cancel certificates for Trump companies, jeopardizing his control over the properties, according to a Bloomberg report. 

The Trump Organization isn’t the first or only company to run into legal problems with real estate valuation practices. Last year Wells Fargo beat a proposed class-action lawsuit that accused the bank of using improperly inflated underwriting metrics and deceiving investors about its commercial loans over a three-year span. But the judge’s decision in the Trump case is a cautionary tale for CFOs and financial executives seeking appraisals they can vouch for in today’s volatile commercial real estate markets. Here are three key valuation takeaways from the ruling: 

1. Accountants’ disclaimers aren’t a defense: Trump lawyers again argued that the AG’s complaint should be dismissed because the Statements of Financial Condition contained disclaimers made by then Trump accountants, Mazars, which indicated they had not audited or reviewed the statements and couldn’t give an opinion as to whether they complied with Generally Accepted Accounting Principles. But Engoron stated that these “non-party disclaimers do not insulate defendants from liability…In sum, the Mazars disclaimers put the onus for accuracy squarely on the defendants’ shoulders.” 
2. “Worthless” clauses are worthless: Donald Trump cited a clause in his company’s financial statements which he effectively viewed as another disclaimer. In part, it noted that the estimated current value of assets require judgment and might not be the value that the assets would fetch if sold. “They call it ‘worthless clause’ too, because it makes the statement ‘worthless,’” Trump stated in a sworn deposition, according to the judge’s ruling. Engoron rejected Trump’s assertion. “The clause does not use the words ‘worthless’ or ‘useless’ or ‘ignore’ or ‘disregard’ or any similar words…Additionally, as discussed supra, a defendant may not rely on a disclaimer for misrepresentation of facts peculiarly within the defendant’s knowledge.”
3. Discrepancies matter: One of the valuations that the ruling took issue with was for the 10,966-square-foot Trump Tower apartment triplex where Trump lived for decades. Between 2012 and 2016, the ruling said Trump submitted statements falsely claiming the triplex was 30,000 square feet, which resulted in an overvaluation of between $114 million and $207 million dollars. Engoron wrote that the defendants suggested the square footage calculation was subjective. “Well yes, perhaps, if the area is rounded or oddly shaped, it is possible measurements of square footage could come to slightly differing results due to user error,” he wrote. However, the judge continued, 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.”