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Fraud Case Targeting Trump U. Gets New Life

MANHATTAN (CN) - A state appeals court Tuesday gave New York Attorney General Eric Schneiderman more time to argue fraud claims against Donald Trump's Trump University.

The four-judge panel of the Appellate Division's First Department said the "bait and switch" tactics alleged against the Trump-owned program were subject to a six-year statute of limitations, not three.

Schneiderman sued the Republican presidential frontrunner, associate Michael Sexton, various Trump business entities, and Trump University, a New York limited liability company, for allegedly operating an unlicensed and illegal educational institution.

The complaint grew from a 2011 investigation by Schneiderman into for-profit universities and trade schools operating in the state, according to court documents.

Two years later, the attorney general named Trump and the other defendants in a complaint seeking injunctive relief, restitution and disgorgement, as well as damages and civil penalties.

The complaint alleged that between 2005 and 2011, more than 5,000 students nationwide, including some 600 in New York, were misled by Trump's program, which promised to reveal secrets to real estate investing that would make them rich.

The program offered a free seminar to start, but drew participants into increasingly expensive classes that culminated in "Trump mentorship packages" costing as much as $35,000, according to Schneiderman.

The attorney general described a pattern of "bait and switch" that was used to lure students into ever-more-expensive programs that offered the real secret to wealth.

Schneiderman also alleged that advertising for the seminars promised instruction by real estate experts hand-picked by Trump when in fact "only one of the live event speakers for Trump University had even ever met Donald Trump," according to court documents. In reality, the instructors had little or no real estate investing experience, the attorney general claimed.

Schneiderman brought claims of fraud, deceptive business practices and false advertising against Trump and the other defendants, along with charges of violating state education law.

The latter relate to notices sent in 2005, 2009 and 2010 by the state Education Department informing Trump that he could not use the word "university" in connection with the seminars because his program was not chartered by the state as a university.

The department also said Trump needed a license to offer instruction or training in the state.

Schneiderman's complaint contends Sexton, the associate who oversaw the real estate seminars and reported to Trump and his lieutenants, told the Education Department in 2005 that Trump University would cease holding live seminars in New York. But the agency learned through newspaper advertisement in 2009 that was not the case, and the program still had no license to offer student instruction, according to court documents.

In 2010, Trump University changed its name to The Trump Entrepreneur Initiative. Alerted again to the need for a license, Schneiderman says Sexton told the Education Department in October that year that the Entrepreneur Initiative had ceased operations.

The defendants sought to dismiss the action, arguing the claims were subject to a three-year statute of limitations. In January 2014, Manhattan Supreme Court Justice Cynthia Kern denied dismissal but agreed on the statute of limitations. She also threw out the state's claim of using the word "university" without being so chartered.

The attorney general re-filed the action and sought summary judgment on the remaining claims.

That was denied in October 2014, except on the claim that the defendants ran an unlicensed school. But the court granted defendants' request to dismiss Schneiderman's fraud claim under a section of executive law that allows an attorney general to seek a court injunction to stop business activities that are seen as persistently fraudulent or illegal.

The court cited a 2013 case, People v. Charles Schwab, which it said did not let the attorney general bring an independent cause of action for fraud rather than seeking injunctive relief.

The Appellate Division found that to be a misunderstanding of Schwab and other precedent, ruling that such action was allowed.

The panel then found that a fraud claim brought by the attorney general under executive law was not subject to the usual three-year statute of limitations "but rather is subject to the residual six-year statute of limitation."

But the panel declined to grant Schneiderman summary judgment on the fraud claims, saying that material issues of fact still need to be resolved.

Comprising the panel were Justices Angela Mazzarelli, Dianne Renwick, David Saxe and Karla Moskowitz.

Schneiderman issued a statement Tuesday touting the decision as "a clear victory."

"We look forward to demonstrating in a court of law that Donald Trump and his sham for-profit college defrauded more than 5,000 consumers out of millions of dollars," he stated.

Jeffrey Goldman of Belkin Burden Wenig & Goldman in Manhattan represented the defendants. He told the Albany Times Union that his clients planned to appeal the ruling.

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