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The legal pressures facing
are growing in a wide-ranging investigation of his personal business affairs and his work on behalf of his former client, President Trump.
In previously unreported developments, federal prosecutors in New York are examining whether Mr. Cohen committed tax fraud, people familiar with the investigation said.
Federal authorities are assessing whether Mr. Cohen’s income from his taxi-medallion business was underreported in federal tax returns, one of the people said. That income included hundreds of thousands of dollars received in cash and other payments over the last five years, the person said.
Prosecutors also are looking into whether any bank employees improperly allowed Mr. Cohen to obtain loans for which he didn’t provide adequate documentation, people familiar with the matter said. In particular, federal investigators are looking closely at Mr. Cohen’s relationship with Sterling National Bank—which provided financing for Mr. Cohen’s taxi-medallion business—including whether Mr. Cohen inflated the value of any of his assets as collateral for loans, according to people familiar with the matter.
Convictions for federal tax- and bank-fraud may carry potentially significant prison sentences, which could put additional pressure on Mr. Cohen to cooperate with prosecutors if he is charged with those crimes, according to former federal prosecutors.
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As part of the inquiry into Mr. Cohen’s relationships with banks, federal authorities have been investigating whether Mr. Cohen made misrepresentations or false statements on loan applications, people familiar with the matter said.
Meantime, federal prosecutors subpoenaed Mr. Cohen’s former accountant, Jeffrey A. Getzel, who was responsible for preparing many of Mr. Cohen’s financial statements submitted to banks, people familiar with the matter said. Mr. Getzel also served as an accountant for Evgeny “Gene” Freidman, a taxi-medallion manager who worked with Mr. Cohen, according to public court records. Mr. Freidman is cooperating with federal prosecutors in the investigation, according to people familiar with the matter.
Mr. Cohen’s lawyer, Lanny Davis, declined to comment “out of respect for the ongoing investigation.” Mr. Cohen has previously denied any wrongdoing.
A lawyer for Mr. Freidman, Patrick J. Egan, said, “In Mr. Freidman’s interest, I cannot make any public statement regarding an ongoing criminal investigation.”
WSJ’s Michael Rothfeld and Joe Palazzolo explain the events involving President Trump, Michael Cohen and Stormy Daniels. Photo: Getty Images
A spokesman for the Manhattan U.S. attorney’s office declined to comment. A spokesman for Sterling declined to comment, as did a lawyer for Mr. Getzel.
The Federal Bureau of Investigation and the Manhattan U.S. attorney’s office have been investigating Mr. Cohen for bank fraud, campaign-finance violations and other possible crimes related to his personal business interests and his efforts to conceal negative information about Mr. Trump, including claims by two women who have said they had sexual encounters with Mr. Trump, The Wall Street Journal has previously reported.
Mr. Trump has denied having sex with either woman, former Playboy model Karen McDougal and Stephanie Clifford, a former adult-film star known as Stormy Daniels.
Mr. Cohen began to work with Mr. Trump more than a decade ago and once described himself as the president’s “fixer.” In addition to his work for Mr. Trump, Mr. Cohen pursued his own business interests, including ventures in real estate, personal loans and investments in taxi medallions.
As of April 2018, Mr. Cohen owned 22 medallions in Chicago, and either he or his wife, Laura, controlled 32 medallions in New York City, some of which were also owned at least partly by family members and others, according to public records.
As recently as 2014, taxi medallions were considered a rock-solid investment. The medallions, issued by a city agency and required for running a taxi, are bought and sold on a secondary market. Some licenses for taxi medallions in New York sold for an average $1.25 million per medallion in 2013 and 2014, according to bankruptcy filings.
But in recent years, their value has plummeted amid competition from ride-sharing services such as Uber and Lyft. In a filing for a federal bankruptcy case in June 2017, Mr. Freidman said the estimated value of each medallion had dropped to approximately $200,000 to $225,000.
Even as Mr. Cohen is being investigated for possibly underreporting his income to evade federal taxes, prosecutors are also looking at whether he overstated his income in loan applications and refinancing efforts, according to people familiar with the matter.
In April, less than two weeks after federal investigators raided his home, office and hotel, Mr. Cohen pledged his personal residence—through a $9 million mortgage on his apartment at Trump Park Avenue—to supplement the collateral against millions of dollars in loans from Sterling National Bank that he and his wife took out in 2014 against their taxi business.
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Sterling, a midsize Rockland County, N.Y., bank with about $30 billion in assets as of March 2018, backed the companies through which Mr. Cohen owns the New York medallions, according to the 2018 mortgage documents.
It couldn’t be determined whether investigators have identified a person within the bank, or connected to the bank, who may have helped get Mr. Cohen’s loans approved.
Mr. Freidman, known as the “Taxi King,” began in around 2012 and 2013 to manage Mr. Cohen’s 32 medallions in New York, paying Mr. Cohen a fixed monthly rate and keeping the profit—or suffering any loss—from each medallion, according to a person familiar with their business relationship.
The person said Mr. Freidman would sometimes pay Mr. Cohen a portion of that monthly rate—at times tens of thousands of dollars—in cash. Mr. Freidman also made other payments to Mr. Cohen in connection with the business, the person said.
Mr. Freidman pleaded guilty earlier this year to a count of criminal tax fraud stemming from his taxi businesses.
—Joe Palazzolo, Mark Maremont and Rebecca Ballhaus contributed to this article.