SEC: Trump’s businesses lied on earnings reports in 1999

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The Securities and Exchange Commission charges Trump Hotels and Casino Resorts with intentionally misleading investors through “reckless” accounting procedures in 1999. Trump settles the case the same day, consenting to the SEC’s orders and acknowledging the charge but not having to pay any fines.

Trump’s company relied on an alternate form of performance measurement called pro forma accounting. This method excludes costs involving mergers, interest, taxes, and other charges, which results in reported net profits being higher than the real number. It’s not against the law, and it’s not controversial unless a company abuses it to mislead the public.

Pro forma calculations do not conform to generally accepted accounting principles, and the S.E.C.’s former chief accountant observed that pro forma statements tend to be ”E.B.S.” accounting, for ”everything but bad stuff.” The S.E.C. said last month that it was investigating several companies for pro forma abuses and would file civil fraud charges against violators.

The New York Times

Trump Resorts caught investigators’ attention when the company announced its third-quarter results in 1999. According to its financial reporting, the company’s net income had more than doubled in the past year. The news created some excitement until investors and partners realized the numbers were the result of “loose, inventive accounting.”

The company claimed $14 million in net income for the quarter, but the real number was around $3 million.

Trump Hotels and Casino Resorts is renamed Trump Entertainment Resorts in 2004.

External Sources

The New York Times (Archived)

Photo: Illustration by Ringer

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