Paul Manafort Trump campaign chairman gets escorted to jail and now faces even harder times with a liquidity crunch as assets are seized. Always keep enough assets out of the crosshairs to pay the lawyers.
Paul Manafort has surrendered to federal authorities -- as the photo shows -- on charges he committed a wide variety of nebulous activities on behalf of foreign governments before and after he ran Donald Trump’s presidential campaign.
His Virginia apartment had already been raided by federal agents and he’s been ordered to turn himself in. It’s the kind of nightmare scenario that requires big cash to mount a credible legal defense.
Manafort may not have the kind of money free right now. If he does, imploding real estate deals will force him to make some unusually difficult choices.
Every international operative who blurs the lines needs to keep some wealth in reserve in case the authorities get involved — and it’s good to keep everything else at arm’s length.
Otherwise, you may find yourself literally upside down, with assets turned into liabilities instead of helping you buy your way out of the trap.
Empty loans, too much debt
Whatever the prosecutors end up doing with Manafort remains to be seen. The FBI has been building a case for money laundering on behalf of Russian entities for years now.
Even if those activities didn’t bleed into the Trump campaign, it’s serious stuff for him personally. Unfortunately, the structures he used to move the money around weren’t foolproof enough to hide from the federal government — at best, he only created a temporary smokescreen.
Once those transactions were traced back to his accounts, he was in trouble. There are rules for accepting cash from foreign governments. He doesn’t appear to have followed them.
Apparently he received at least $17-$27 million over the years through loans from Russian-controlled Cyprus banks. While he might be eager to pay them back, their presence on the balance sheet at all raises questions of how much leverage they represent and whether there’s a tacit quid pro quo involved.
But when it comes to paying them back, there’s another problem. Manafort also borrowed a lot of money on a few New York properties he bought with his hotshot son-in-law at the time. At least $6 million of that debt comes due in January.
The son-in-law, meanwhile, has filed for bankruptcy protection on other ventures in Los Angeles that have $4 million in debt owed back to Manafort on their books.
I know it’s convoluted. All the money cycling through the system is probably one of the things the feds spent so much time tracking. More will undoubtedly come out in the foreseeable future.
For our purposes, the critical factor is the way churning those millions — pulling equity out of one property, pushing it back into another — opens up vulnerabilities with every uptick in complexity. There’s just too much to juggle if any of the moving parts breaks.
When the son-in-law bankrupted one set of properties, the system shuddered. The court has put them up for public auction to discharge their debts, which means that if Manafort can’t make the high bid, he loses the money he’s sunk into these houses.
He’s admitted he can’t come up with the cash. And in that event, it’s unlikely he can keep the New York lenders happy either. That side of his “empire” will probably implode too, short of a miracle.
Maybe he was hoping to recoup the money from Los Angeles to repay the New York loan but now he’s stuck.
The worst-case scenario
Either way, the moral is as simple as the structures were complex: don’t get too fancy and don’t take on leverage until you really need it.
The equity he had in those ventures would have made a great emergency cushion until he deflated it for no apparent purpose beyond keeping the money circulating. Now he’s already deep underwater and can’t buy his way out on either end.
And with big legal bills on the table, it would have been nice to have that cushion. It’s a hard choice to liquidate in an emergency. It’s even harder to miss the payments and lose it all.
Maybe Manafort has a lot of unencumbered assets hidden away from the federal investigators. That would be the smart move, but I’m not seeing it here.
The way he kept rolling the debt, I get the sense every asset he could get his hands on was in play. Leaving something out of the system would have been out of character.
And the way he left the transactions with foreign banks in plain sight, I doubt there’s a note of calculated genius going on in the background. The feds have traced and cracked a lot of his shells. Sooner or later they’ll get them all.
Don’t let your clients end up like this. If nothing else, they may not be able to pay you.
