Is Trump's $175 million civil fraud bond valid in New York?
When former President Donald Trump posted a $175 million bond in New York on Monday, it appeared that he had evaded a financial crisis. He had paused enforcement of the more than $460 million judgment against him following a civil fraud trial, while his appeal is pending.
But the surety bond was missing vital information typically included in those filings, experts say. These standard elements include documents related to power of attorney for the bond provider, Knight Specialty Insurance Company, a financial statement from the company and a certificate of qualification from the Department of Financial Services.
New York Attorney General Letitia James indicated in a filing Thursday, after the original publication of this story, that she, too, has concerns about the bond.
James took "exception to the sufficiency of the surety" given by Trump and the other defendants. She objected to the fact that the bond was issued by a company that is not an admitted carrier in New York, and lacks the certificate of qualification required by New York Insurance Law Section 1111.
Trump attorney Christopher Kise on Thursday alleged James' filing was "another witch hunt" and accused her office of "hiding out in silence" after an appellate court reduced the defendants' bond from more than $464 million to $175 million.
"The Attorney General now seeks to stir up some equally baseless public quarrel in a desperate effort to regain relevance," Kise said.
Within 10 days, Trump or the company must file a motion to "justify" the bond, meaning Knight must prove that it is financially capable of paying the bond.
"There seem to be serious issues," said Bruce H. Lederman, an attorney who has filed many bonds in New York, including for a real estate developer challenging a judgment. Lederman said he was struck by "glaring errors" in the bond.
"In all the years I've been doing this, you always have to have a certificate from the Department of Financial Services saying that you're licensed to issue a surety bond," he said, referring to the missing certificate of qualification.
Lederman also noticed that Knight Specialty is not listed on New York's Department of Financial Services website.
The company refiled its posting, as directed by the New York Supreme Court clerk, after CBS News published its report on Thursday and before James' took exception to the bond.
On Wednesday, the clerk's office had returned to Trump's attorneys the bond filing "for correction." There was no reason publicly specified in the request.
Adam Pollock, a former assistant attorney general in New York, said, "This bond is deficient for a number of reasons."
"Including that the company doesn't appear to be licensed in New York and doesn't appear to have enough capital to make this undertaking," Pollock said.
Knight Specialty is not licensed in New York to issue surety bonds, and Lederman noted the company's absence from the Department of Financial Services database. But the company contends it is nevertheless authorized to issue the bond.
The company also does not appear to meet a restriction under New York insurance law barring companies from putting more than 10% of its capital at risk.
Amit Shah, the president of Knight Insurance, said the restriction does not apply. He said Knight has over $1 billion in equity.
"Knight Specialty Insurance Company is not a New York domestic insurer, and New York surplus lines insurance laws do not regulate the solvency of non-New York excess lines insurers," he said. "So we don't believe we need the 10% surplus."
The billionaire behind Trump's bond is Don Hankey, the chairman of Knight Insurance, which owns the subsidiary that wrote the bond.
Hankey said that Trump used "cash" as collateral for the bond, a total of $175 million.
"First he furnished about $120 million worth of bonds that we OK'd, so we assumed it would be investment-grade bonds and cash. But as it turned out, it was all cash," he told CBS News in a brief phone call on Tuesday.
But Trump retained that $175 million cash collateral, according to Shah. He said the money is in an account that is "pledged" to the company. He would not specify the type of account. Trump paid a premium to the company that Shah declined to disclose.
"It seems to me that the underlying case is about the [New York] attorney general requiring strict compliance with the law," said Lederman.
"The law requires an insurance company posting a surety bond to be authorized in New York," he said. "And there are serious questions about if this bond was properly posted."
Under a New York law known as CPLR 2502, an "insurance company [shall be] authorized to execute the undertaking within the state."
When CBS News asked Hankey about Knight Specialty's authorization to issue bonds in New York, the company's net worth and potential deficiencies in the bond filing for Trump, he deferred to Knight's president: "I'm chairman of that company. I've got several other companies that I own. Amit Shah would be the person to talk to."
Shah explained that the company is authorized to issue a surety bond in New York through the Excess Line Association of New York (ELANY). He said the company is approved by ELANY to issue bonds from its home domicile state of Delaware, where it is allowed to write surety bonds.
"Our position is we're compliant," said Shah.
Knight's compliance officer, Mike Pepitone, said that there are a number of insurance companies that do not hold a license in every state, but a company is able to write a bond in other states where they are not licensed on what he said is called "an excess and surplus lines basis."
"For court bonds, as regulated by the CPLR, the law is clear about in-state license requirement," said Pollock, who noted that there are surety bonds used in other industries like construction that would not be subject to that rule.
Shah initially said that the company had in fact submitted a financial statement with the bond. In its initial bond filing, Pepitone said the financial statement was not supposed to be included, but later, in its updated bond filing Thursday, the company shared its financial statement.
If Knight Specialty does not have Trump's cash collateral for the bond in its possession, Lederman questioned whether the company "could or would pay immediately" if Trump loses his appeal. Lederman said James should investigate to determine if the company is in compliance with state law requirements.
"The attorney general would have ample grounds to push back here," said Pollock.
The New York Attorney General's office declined to comment. But Lederman said, "The attorney general is now requiring Trump to follow the law and have the court approve the bond because as filed, the bond is not acceptable."
Knight's updated filing included a financial statement showing that the company's surplus to policyholders is $1 billion and a joint limited power of attorney signed by Hankey and Shah.
