A New York judge ruled on Tuesday that Donald J. Trump persistently committed fraud by inflating the value of his assets, and stripped the former president of control over some of his signature New York properties.
The surprising decision by Justice Arthur F. Engoron is a major victory for Attorney General Letitia James in her lawsuit against Mr. Trump, effectively deciding that no trial was needed to determine that he had fraudulently secured favorable terms on loans and insurance deals.
Ms. James has argued that Mr. Trump inflated the value of his properties by as much as $2.2 billion and is seeking a penalty of about $250 million in a trial scheduled to begin as early as Monday.
Justice Engoron wrote that the annual financial statements that Mr. Trump submitted to banks and insurance companies “clearly contain fraudulent valuations that defendants used in business.”
Ms. James, in a brief statement, said, “We look forward to presenting the rest of our case at trial.”
A lawyer for Mr. Trump, Christopher M. Kise, indicated that he would likely appeal the decision, which he called “outrageous” and “completely disconnected from the facts and governing law.” He said that the judge ignored an earlier appeals court ruling and “basic legal, accounting and business principles.”
Mr. Trump, for his part, noted that Justice Engoron was a Democrat and called him “deranged.”
While the trial will determine the size of the penalty, Justice Engoron’s ruling granted one of the biggest punishments Ms. James sought: the cancellation of business certificates that allow some of Mr. Trump’s New York properties to operate, a move that could have major repercussions for the Trump family business.
The decision could terminate his control over a flagship commercial property at 40 Wall Street in Lower Manhattan and a family estate in Westchester County. Mr. Trump might also lose control over his other New York properties, including Trump Tower in Midtown Manhattan and his golf club in Westchester.
The order will not dissolve Mr. Trump’s company itself, which is a collection of hundreds of entities, but the decision could nonetheless have a sweeping impact on the company’s New York operations. If Justice Engoron’s decision is not reversed by an appeals court, it could shut down an entity that employs hundreds of people working for him in New York, effectively crushing the company.
“The decision seeks to nationalize one of the most successful corporate empires in the United States and seize control of private property,” Mr. Kise said.
The order would also unwind the Trump Organization L.L.C. That entity is relatively inconsequential, a vehicle for the sprawling company’s brand name. But it has been synonymous with Mr. Trump from his earliest days as a developer with a penchant for tabloid publicity, bringing his father’s outer-borough business to the heart of Manhattan.
While Ms. James’s civil case had been overshadowed by the four criminal indictments of the former president — which are unrelated to Ms. James’s accusations — the judge’s decision, if it stands, will represent the first punishment to emerge from a government investigation into Mr. Trump.
Justice Engoron’s decision narrows the issues that will be heard at trial, deciding that the core of Ms. James’s case was valid. It represents a major blow to Mr. Trump, whose lawyers had sought to persuade the judge to throw out many claims against the former president.
In his order, Justice Engoron wrote scathingly about Mr. Trump’s defenses, saying that the former president and the other defendants, including his two adult sons and his company, ignored reality when it suited their business needs. “In defendants’ world,” he wrote, “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.”
“That is a fantasy world, not the real world,” he added.
The judge also levied sanctions on Mr. Trump’s lawyers for making arguments that he had previously rejected. He ordered each to pay $7,500, noting that he had previously warned them that the arguments in question bordered on being frivolous.
Repeating them was “indefensible,” Justice Engoron wrote.
Even if Mr. Trump does not successfully appeal the ruling, he still has an opportunity to delay the trial, or even gut the case. Mr. Trump has sued Justice Engoron himself, and an appeals court is expected to rule this week on his lawsuit. But if the appeals court rules against him, Mr. Trump will have to fight the remainder of the case at trial.
Mr. Trump is his own most dedicated promoter and for years has acted as a booster for the value of his buildings and his brand. The possibility that Mr. Trump’s exaggerations could be criminal has long intrigued prosecutors, and the Manhattan district attorney’s office at one point came close to indicting Mr. Trump on charges that he had misrepresented their value.
The current district attorney, Alvin L. Bragg, declined to pursue that case, but later indicted the former president in connection with a hush money payment to a porn star.
Ms. James started investigating Mr. Trump in March 2019 and filed a lawsuit against him last September, accusing him of “staggering” fraud in representing the value of his apartment buildings, hotels and golf clubs, among other assets. Her filings have accused Mr. Trump of using simple, duplicitous tricks to multiply the represented value of his signature properties, from Trump Tower to Mar-a-Lago.
In one noteworthy example, she accused Mr. Trump of overestimating the size of the triplex apartment in Trump Tower in which he lived for decades, saying it was 30,000 feet, rather than about 11,000. Justice Engoron seized on that, noting that Mr. Trump’s lawyers had “absurdly” suggested that the calculation of square footage was subjective and adding that good-faith measurements might vary by as much as 10 to 20 percent, but not 200 percent.
“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,” he wrote.
Mr. Trump’s lawyers had asked Justice Engoron for a so-called summary judgment — a ruling that they were entitled to a victory before trial based on undisputed facts — seeking to toss out many claims against him. They relied heavily on an appeals court ruling from June that raised the notion that some claims against Mr. Trump might be too old to proceed to trial.
Justice Engoron denied Mr. Trump’s request, interpreting the appeals court ruling as relatively inconsequential for the case, while granting Ms. James’s similar bid for partial summary judgment.
Mr. Trump, a Republican, has denied all wrongdoing and accused Ms. James, a Democrat, of political persecution. His lawyers have noted that the banks that lent Mr. Trump money were hardly victims: they turned profits. They also argued that valuing property can be subjective, more art than a strict science.
“The court disregarded the viewpoint of those actually involved in the loan transactions who testified there was nothing misleading, there was no fraud, and the transactions were all highly profitable,” Mr. Kise said in his statement. He added that there was “zero evidence of any default, breach, late payment or any complaint of harm.”
But those are some of the very arguments for which Justice Engoron, with whom Mr. Trump’s lawyers have tangled at every turn, issued sanctions.
“The documents do not say what they say; that there is no such thing as ‘objective’ value,” the judge wrote, paraphrasing their arguments as he saw them, and adding, “Essentially, the court should not believe its own eyes.”
In a footnote, he added a line from the movie “Duck Soup” uttered by Chico Marx: “Well, who ya gonna believe, me or your own eyes?”