Weaponizing Disgorgement: The Political Crusade Against President Trump

by Gavin Wax and Edward Paltzik

President Trump is enduring an onslaught of lawsuits calculated to bankrupt him and show trials designed to imprison him. Just a few years ago it would have unfathomable to imagine an open conspiracy of judges, prosecutors, elected officials, bureaucrats, academics, and media figures feverishly plotting the destruction of Trump through relentless lawfare in a desperate gambit to keep him out of the White House. But that is precisely the situation at hand today.
One of the most powerful tools in this arsenal of lawfare is disgorgement. Disgorgement is ordinarily defined as an equitable remedy to recover ill-gotten profits arising from civil or criminal frauds and then distributing those recovered profits to victims of the fraud—a form of restitution. Prosecutors traditionally used this remedy to go after funds held by backers of terrorism, Ponzi schemes, organized crime, and other authentic criminal enterprises. When the Bernie Madoff investment fraud was discovered, the government forced the beneficiaries of the scheme to disgorge their illegal profits and reimburse the defrauded investors.

However, as the rule of law is debauched, disgorgement is being dramatically reinterpreted and expanded to punish political enemies. Indeed, disgorgement is no longer utilized only to make bona fide fraud victims whole. Instead, the federal government and states increasingly use disgorgement to punish civil and criminal defendants, confiscate their money, and dump that money into the government’s coffers without sending a penny to any victims. And that’s because, in many modern disgorgement cases, there is no victim.

New York Attorney General Letitia James and New York State Supreme Court Judge Arthur F. Engoron recently joined forces to bring this new disgorgement paradigm—punishing defendants for victimless and often entirely legal conduct—to the forefront of current legal discourse as never before. In the case of People of the State of New York by Letitia James, Attorney General of the State of New York v. Donald J. Trump et al., Index # 452564/2022, presided over by Engoron, James advanced the theory that President Trump had violated the arcane New York Executive Law by supposedly misrepresenting the value of his various real estate holdings to obtain loans from major banks that, in her view, he would not otherwise have obtained. James sought as remedy the disgorgement of Trump’s profits. It mattered not to James—who campaigned on her promise to “get Trump”—that all of these banks made tidy profits working with President Trump, and wanted to do more business with him (they called him a “whale” client) as he never missed a loan payment. Bank employees even testified that loan clients routinely present far higher valuations of their real estate than the banks and that banks accordingly apply a “haircut” as high as 50 percent to client valuations. In other words, President Trump’s interactions with the banks were routine in the world of big-time real estate investment.

Yet, in his February 16, 2024 ruling after a non-jury trial, Engoron imposed a $364 million disgorgement penalty against President Trump, though the penalty has since swelled to $464 million because of interest. Engoron speciously claimed that disgorgement must be used to protect “the integrity of the financial marketplace and, thus, the public as a whole,” which is entirely without precedent in American jurisprudence. Meanwhile, James exults in her victory by displaying a counter on her X profile showing how much money Trump owes.

But disgorgement was never intended for this broad “public” purpose, only for making whole specific victims of illegal activity. But, by selecting disgorgement as the remedy to bludgeon President Trump, Engoron, who, like James, is a Democrat partisan operating within New York’s deep-blue hegemony, unwittingly created a constitutional path for his ruling to fall hard on appeal.

The National Constitutional Law Union has issued a strategy memorandum detailing how to fight back against abusive disgorgements based on the Excessive Fines Clause of the Eighth Amendment to the U.S. Constitution, which provides: “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” In Kokesh v. S.E.C. (2017), the Supreme Court of the United States, for the first time, recognized that  disgorgement, when used to penalize or punish an individual labeled as a wrongdoer for the public good rather than to compensate any specific so-called “victims,” does not operate as compensation, but rather “operates as a penalty.” In other words, disgorgement is not actually disgorgement when money confiscated from an alleged wrongdoer is not used to compensate a supposed victim and is held in the state’s coffers. In that circumstance, the confiscation is just an unconstitutional punishment masquerading as disgorgement. A lawful disgorgement can only occur when an actual victim is compensated for proven, tangible losses. Notably, the Supreme Court cited Kokesh favorably in its follow-up disgorgement ruling, Liu v. S.E.C. (2020). Of particular interest, Justice Clarence Thomas, perhaps foreshadowing that the winds are shifting when it comes to disgorgement, opined in dissent that “[t]he difficulty of defining this supposedly traditional remedy [disgorgement] is the first sign that it is not a historically recognized equitable remedy . . . [t]his remedy has no basis in historical practice.”

The Court has also dropped other clues that punitive disgorgement rulings violate American constitutional norms. In Timbs v. Indiana (2019), a ruling authored by none other than Democrat cult hero Justice Ruth Bader Ginsburg, the Court held that the Excessive Fines Clause applies to the states with the same force as the federal government. Thirty years prior, in Browing-Ferris Industries v. Kelco (1989), the Court held that the Excessive Fines Clause applies not only to fines but to other monetary punishments (which can include disgorgement) since the word “fine” was understood by the drafters of the Eighth Amendment to mean “a payment to a sovereign as punishment for some offense.” Combined with Kokesh and Liu, these two decisions provide a clear avenue to challenge abusive disgorgement punishments, as in James v. Trump. Finally is the landmark Eighth Amendment case United States v. Bajakajian (1998), before which the Court had never applied the Excessive Fines Clause to an actual controversy. But, in Bajakajian, where a criminal defendant was charged with attempting to leave the U.S. with $357,144 of unreported cash (total amounts over $10,000 must be reported), the Court held that forfeiture (in essence, disgorgement) of the entire amount would violate the Excessive Fines Clause “because full forfeiture of [defendant’s] currency would be grossly disproportional to the gravity of his offense.”

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