A New York appeals court on Thursday overturned the nearly USD 500 million civil fraud penalty against US President Donald Trump, marking a major twist in the high-profile case brought by the state attorney general. While the divided ruling voided the hefty fine, the judges upheld Trump’s liability for fraud, sending the case back for further appellate review.

The five-judge panel deemed the disgorgement order, which directed Trump and the Trump Organisation to pay nearly half a billion dollars, disproportionate and unconstitutional. Judge Engoron’s ruling had originally pegged the penalty at USD 355 million, but with interest, it ballooned to more than USD 500 million. The appeals judges, while agreeing that Trump committed fraud, said the scale of the financial punishment violated protections under the US Constitution against excessive penalties.

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Why Was Trump Facing Such Large Penalty?

The civil fraud case was filed in 2022 by New York Attorney General Letitia James, who accused Trump, members of his family, and senior Trump Organisation executives of artificially inflating asset values to secure favourable bank loans and insurance terms. Properties such as Trump Tower and other high-profile holdings were allegedly overvalued to boost Trump’s financial image and leverage.

Judge Engoron found Trump guilty of fraud and imposed a USD 355 million penalty. With interest, the figure rose to over USD 515 million, while penalties against his sons Eric and Donald Jr., as well as other executives, pushed the total beyond USD 527 million.

The trial court determined that Trump “flagrantly padded” his financial statements, misleading lenders and insurers about his true wealth. Engoron’s penalty aimed to strip Trump of what prosecutors described as ill-got gains from the fraudulent valuations.

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The appeals court disagreed with the severity of that punishment, noting that while fraud was proven, the financial sanction was excessive in proportion to the misconduct. The ruling resets the case for additional appellate proceedings, leaving Trump’s liability intact but removing the crushing financial burden, at least for now.