Pre-Taliation in Trump Fraud Trial!

Well this is about as surprising as sunrise in the east: a hot corporate compliance issue just made a guest appearance in the civil fraud trial against Donald Trump that’s unfolding in New York this week.

Turns out that the former president (may he ever remain so) included a pre-taliation clause in the employment contract he struck with his former CFO, Allen Weisselberg. That clause came to light on Thursday, when lawyers for the New York attorney general’s office were questioning Weisselberg about the role he played in inflating the value of Trump’s assets. 

One of those lawyers, Louis Solomon, was asking Weisselberg about the severance agreement he has with the Trump Organization. That agreement promises Weisselberg a total of $2 million, to be paid in $250,000 increments from the start of 2023 through the end of 2024. 

Except, the severance agreement also includes a clause specifying that for Weisselberg to receive that $2 million, he cannot voluntarily cooperate in any government inquiry into Trump’s affairs — like, say, a civil fraud trial into whether Trump inflated the value of his assets. 

Specifically, according to a copy of the severance agreement introduced as evidence on Thursday, unless he is compelled by a subpoena or some other court-ordered process, Weisselberg cannot… 

(1) communicate with, provide information to, or otherwise cooperate in any way with any other person or entity… or (2) take any action to induce, encourage, instigate, aid, abet or otherwise cause any other person or entity to bring or file a complaint, charge, lawsuit or other proceeding of any kind against the company or any person or entity released by this agreement.

In other words, if Weisselberg wants that $2 million payout, he cannot voluntarily bring any concerns about potential misconduct at the Trump Organization to any person at all, including regulators. 

That’s pre-taliation, and it’s illegal under the Dodd-Frank Act. 

Pre-taliation has been in the compliance news lately because the Securities and Exchange Commission has been cracking down on the practice. Just last month the SEC imposed its biggest pre-taliation sanction ever, a $10 million punch to investment advisory firm D.E. Shaw for including pre-taliatory language in its employment contracts all through the 2010s. 

The SEC has busted more than one company for using pre-taliation clauses exactly the way Trump has: as threats to withhold promised severance payments. CBRE was fined $375,000 for just that offense in September, as was D.E. Shaw. Other companies were sanctioned for doing so during the SEC’s first pre-taliation crackdown in the mid-2010s.

Before anyone says, “Wait a minute, the Trump Organization is a private company so the SEC has no jurisdiction!” — I’m not sure how true that is. The SEC also recently sanctioned a private company, Monolith Resources, for pre-taliation abuses too. Remember, the key issue for SEC jurisdiction isn’t whether a company is publicly traded; it’s whether a company’s securities are traded at all — even among a relatively small number of private investors. 

To make matters even more preposterous, this is not the first time that Trump and pre-taliation have turned up in the same sentence. 

When Trump first took office in January 2017, government ethics officials issued a reminder to all federal agencies that any policies about government employee communications — like, telling them to stop talking at all, without approval from the Dear Leader — had to include language that those employees were still free to raise alarms about misconduct. That was in the wake of then-candidate Trump saying that he wanted all government employees to sign sweeping non-disclosure agreements. 

I don’t know whether all this means that the SEC can bring a pre-taliation case against Trump, or even if it could, whether SEC officials would want to bother. But given Trump’s history of violating laws, promises, contracts, and ethical norms throughout pretty much his entire career, of course a corporate compliance angle would emerge in his trial today.