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Attorney General Schneiderman sues Donald Trump, Trump University, Michael Sexton for 'defrauding consumers out of $40 million with "sham university" '

by jmaloni

Press release

Mon, Aug 26th 2013 06:00 pm

Schneiderman: "No matter how rich or popular you are, no one has right to scam hard working New Yorkers"

Attorney General Eric T. Schneiderman has announced he filed a lawsuit against Donald Trump, The Trump Entrepreneur Institute - formerly named Trump University LLC ("Trump University"), and Michael Sexton, former president of Trump University, for engaging in what the AG called persistent fraudulent, illegal and deceptive conduct in connection with the operation of Trump University.

Between 2005-11, Trump University operated as an unlicensed educational institute that promised to teach Donald Trump's real estate investing techniques to consumers nationwide but, the AG said, instead misled consumers into paying for a series of expensive courses that did not deliver on their promises.

"More than 5,000 people across the country who paid Donald Trump $40 million to teach them his hard sell tactics got a hard lesson in bait-and-switch," Schneiderman said. "Mr. Trump used his celebrity status and personally appeared in commercials making false promises to convince people to spend tens of thousands of dollars they couldn't afford for lessons they never got. No one, no matter how rich or popular they are, has a right to scam hard working New Yorkers. Anyone who does should expect to be held accountable."

The petition filed in New York Supreme Court in Manhattan by Schneiderman details the advertisements run by Trump University in major newspapers across the country and the direct mail solicitations sent to entice consumers to attend a free workshop. These ads prominently displayed Trump's photograph and signature, or were styled as letters written by Trump himself. The advertisements, Schneiderman said, were replete with false claims, including claims that consumers would learn "from Donald Trump's handpicked instructor a systematic method for investing in real estate that anyone can use." Other ads promised, "my handpicked instructors will share my techniques" or "learn from my hand-picked expert" and "just copy exactly what I've done and get rich."

An investigation by Schneiderman revealed Trump did not handpick even a single instructor at these seminars and had little or no role in developing any of the Trump University curricula, or seminar content. The investigation also revealed that officials used the name "Trump University" even though they lacked the charter necessary under New York law to call themselves a university. They were also unlicensed under New York State Education Law, evading an array of legal protections designed to protect New Yorkers from fraud.

Even though Trump University was notified by the New York State Education Department as early as 2005 that these practices violated New York law, Trump University did not change its name until May 2010 and never received a license to operate in the state. As a result, many students believed they were attending a university, when they were not. This misconception was reinforced by Trump University's use of a university-like seal on much of its material and awarding diploma-like certificates of completion bearing Trump's signature.

Despite Trump University's advertised claims, consumers attending free seminars did not learn Trump's real estate techniques. Instead, Trump University's instructors made multiple misrepresentations to convince consumers to sign up for a $1,495 three-day seminar. These misrepresentations included false claims about the three-day seminars such as:

  • Consumers would learn "everything (they( need(ed) to know" to become successful real estate investors;
  • Consumers would quickly recoup their investment by doing real estate deals, with some instructors claiming that consumers would earn tens of thousands of dollars within 30 days;
  • Instructors were "handpicked" by Trump;
  • Consumers would be taught Trump's very own real estate strategies and techniques;
  • Consumers would receive access to private sources of financing ("hard money lenders"); and
  • The three-day seminar would include a year-long "apprenticeship support" program.
  • Instructors also insinuated Trump himself would appear at the three-day seminar.

In reality, many of the promises made at the free seminars went unfulfilled. Despite claims to the contrary, consumers who paid for and attended the three-day seminars were not taught everything they needed to know about real estate investing. For example, consumers did not receive substantive instruction on how to raise money from hard money lenders or receive an extensive "apprenticeship support" program. Instead of providing the sustained support promised by Trump University's instructors, consumers were provided a list of lenders from a commercially available magazine. Instead of a personal appearance from Trump as some consumers were led to expect, some participants got their photographs taken with a life-size photo of Trump.

Instead of providing all of the promised services, instructors used the three-day seminars to pitch consumers expensive "Trump Elite" mentorship programs costing $10,000 to $35,000. Trump University promised that the mentorships provided one-on-one training during which students would have personal assistance until they executed their first real estate deal and recouped the cost of the program. While consumers were encouraged to call their credit card companies during breaks, to increase their credit limits to have access to funds to do real estate deals, the real reason Trump University asked consumers to request higher credit limits, the AG said, was so they could use the credit to pay for the expensive "Elite" programs.

Many consumers who made the costly investments did not receive the individual mentor attention promised. After an initial three-day session, many mentors failed to return phone calls or emails and provided little to no follow-up assistance. Despite diligent efforts, many consumers were unable to conclude even a single real estate deal and were left worse off than they had been before enrolling in the Trump University programs. Some consumers faced thousands of dollars of debt due to the expensive cost of the Elite Programs. Many felt they had been victims of an elaborate scam.

Trump University also committed violations of federal consumer protection law. Federal law provides a three business-day right of cancellation for the type of purchases at issue here, but Trump University repeatedly failed to honor consumers' timely requests to cancel.

The lawsuit seeks full restitution for the more than 5,000 consumers nationwide who were defrauded of more than $40 million in the scheme, disgorgement of profits, as well as costs and penalties and injunctive relief prohibiting these types of illegal practices going forward.

Consumers with complaints against Trump University should file a complaint with the OAG. Complaint forms are available here.

The case is being handled by assistant attorneys general Tristan C. Snell and Melvin L. Goldberg, under the supervision of the Bureau of Consumer Frauds and Protection's Deputy Bureau Chief Laura J. Levine, Bureau Chief Jane M. Azia, and Executive Deputy Attorney General for Economic Justice Karla G. Sanchez.

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