WASHINGTON — The attorney general for the District of Columbia on Wednesday sued President Donald Trump's official inaugural committee, as well as the Trump Organization and the Trump International Hotel in Washington, alleging they worked together to illegally enrich the Trump family business.
The suit claims that the nonprofit inaugural committee violated laws barring the use of charitable funds to enrich private individuals when it agreed to pay Trump's hotel more than $1 million for the use of ballroom space during the January 2017 inaugural festivities.
The lawsuit alleges that the Trump inaugural committee knowingly misused its funds when it paid $175,000 per day to reserve the ballroom of the Trump hotel for four days during the president's inauguration week but held only two events there, one of which was only for Trump's adult children and their guests.
"District law requires nonprofits to use their funds for their stated public purpose, not to benefit private individuals or companies," said District of Columbia Attorney General Karl Racine in a statement Wednesday. "In this case, we are seeking to recover the nonprofit funds that were improperly funneled directly to the Trump family business."
According to the legal complaint, the contract the Presidential Inaugural Committee, or PIC, had with the Trump Hotel for event space "violated the PIC's articles of incorporation by causing the PIC to pay amounts to the Trump Hotel that were unfair, unreasonable and unjustified and that acted ultimately to confer improper private benefit on the Trump Entities."
"District nonprofit law required the PIC to seek out and pay reasonable fair market value for services rendered. The PIC did not do so, instead choosing to host its events at the Trump Hotel and pay far more than market value, ultimately for the private benefit of the Trump Entities," the lawsuit alleged.
The inaugural committee responded by calling the allegations "baseless."
"The facts will show that the PIC operated in compliance with the law and this suit is without merit," a spokesman for the committee told CNBC on Wednesday. He also noted that the committee had received no communications from the attorney general's office since the summer of last year, and questioned whether or not the lawsuit's timing was linked to the current impeachment trial in the Senate.
A spokeswoman for Trump Hotels defended the pricing, saying in a statement that "the rates charged by the hotel were completely in line with what anyone else would have been charged for an unprecedented event of this enormous magnitude."
Much of the lawsuit appears to hinge on the question of whether the Trump inaugural committee agreed to book a block of rooms at the Trump hotel. According to the lawsuit, "it was the Trump Hotel's usual policy to provide event space for free or at reduced rates when a group agreed to rent out a large block of rooms."
This policy is consistent with hotel industry practices, and with the terms of contracts that Trump's inaugural committee inked with other luxury hotels during the inauguration.
According to emails contained in the legal filings, the inaugural committee's director, Rick Gates, verbally agreed in meetings with the Trump hotel's manager that the committee would be responsible for filling up 80% of the guest rooms in the hotel during the days when they were renting event space.
Yet despite Gates' agreement to fill a block of rooms, the Trump Hotel still charged, and the inaugural committee paid, event space fees of $175,000 per day for ballroom space.
A spokeswoman for Trump Hotels defended the pricing, saying in a statement that "the rates charged by the hotel were completely in line with what anyone else would have been charged for an unprecedented event of this enormous magnitude."
The lawsuit also contained two contracts that the inaugural committee had signed with comparable Washington hotels during the same week in early 2017. They showed that the inaugural committee had reserved blocks of rooms, and in exchange, the hotels had either waved event rental fees altogether, or charged only $20,000 for an event space.
The Trump Hotel's final contract with the inaugural committee, however, contained no mention of the room block that the Gates had agreed to reserve, even though it was referred to in emails.
The lawsuit is merely the latest in a series of controversies surrounding how the Trump inaugural committee raised and spent its funds in late 2016 and early 2017.
Trump's inaugural committee raised more private money for inaugural events than any president in modern history, around $107 million. But it put on significantly fewer official events than Trump's predecessor. In 2008, Barack Obama raised and spent just over $50 million on 10 official inaugural balls. Eight years later, Trump's committee raised more than $100 million, and spent it on just three official inaugural balls.
Questions about the cost overruns have dogged the Trump inaugural committee for years, although aides who worked on the events say the money was spent in good faith, and everything was just very expensive.
Emails contained in Wednesday's lawsuit support these claims and show that inaugural event planners strenuously objected to how much the Trump hotel was charging for space.
In one email from Gates to Ivanka Trump in mid-December, he told the president's eldest daughter, who was an executive at the Trump Organization, that both he and the chief event planner had "concerns" about the price the Trump hotel had quoted for the event space.
"First, the cost itself seems quite high compared to other property. Second, I am a bit worried about the optics of PIC paying Trump Hotel a high fee and the media making a big story out of it," Gates wrote.
Now, three years later, the inaugural committee has been disbanded, and its last remaining funds have been donated to charity. In place of funds from the committee, the District of Columbia is asking the judge to make the Trump Organization and its Washington hotel turn over the amount that the inaugural committee spent on event space, $1,033,757, and that it be given to charity.
— CNBC's Kevin Breuninger contributed to this report.