Trump’s Payment to Porn Star — How to Properly Use an LLC for Anonymity

Last week, The Wall Street Journal broke the story that one of President Trump’s top lawyers, Michael Cohen, had arranged to pay $130,000 in hush money to a former porn star, Stephanie Clifford (stage name Stormy Daniels), in October 2016 as part of an agreement to stop her from publicly discussing an alleged sexual encounter with Mr. Trump.[1] Yesterday, the Journal followed up with another story detailing how the money was paid to Ms. Clifford.[2] The Journal reported that Mr. Cohen established a Delaware limited liability company, Essential Consultants LLC, on October 17, 2016, about three weeks before the presidential election. According to the Journal, Mr. Cohen then used a bank account linked to the LLC to send the payment to the client-trust account of Ms. Clifford’s lawyer.

But here’s where Mr. Cohen went wrong. Under Delaware law, a limited liability company is formed by the filing of a certificate of formation, which must be signed by an “authorized person.”[3] As we’ve noted before,[4] the principal owner of the company wishing to hide his identity need not be the “authorized person.” Instead, the “authorized person” is often the attorney hired to set up the LLC. In the case of a particularly high-profile individual wishing to cover his tracks and his well-known lawyer, however, it might be a good idea to hire another person to sign the certificate of formation.

But that’s not what happened with Essential Consultants LLC. The Wall Street Journal reviewed the company’s Certificate of Formation, and found that Mr. Cohen himself had signed as the “authorized person” for Essential Consultants LLC, “rather than hiring [another] lawyer or agent to serve in that role, which some company owners do to further obscure their identities.”[5] Given what was at stake, Mr. Cohen also could have taken the extra precaution of forming a second Delaware LLC to own and/or manage Essential Consultants LLC and having two different individuals sign the companies’ certificates of formation as “authorized person.”

In the end, Mr. Cohen had the right idea in looking to Delaware LLC law to try to shield his client’s identity from prying eyes, but the execution was, literally, wrong. For more information on how an investor can properly use a Delaware LLC for anonymity, see our articles on How To Use a Delaware LLC to Safeguard Identity and Using a Delaware LLC to Safeguard Identity for Legitimate Reasons: The Impact of FinCEN’s Reporting Requirements.

[1] See Michael Rothfeld & Joe Palazzolo, Trump Lawyer Arranged $130,000 Payment for Adult-Film Star’s Silence, The Wall Street Journal, Jan. 12, 2018.

[2] See Joe Palazzolo & Michael Rothfeld, Trump Lawyer Used Private Company, Pseudonyms to Pay Porn Star ‘Stormy Daniels,’ The Wall Street Journal, Jan. 19, 2018.

[3] See Del. Code Ann. tit. 6, §§ 18-201(a), -204(a).

[4] See How To Use a Delaware LLC to Safeguard Identity.

[5] See Palazzolo & Rothfeld, supra note 2.