The New York attorney general’s office on Thursday took exception to a $175 million bond that Donald J. Trump recently posted in his civil fraud case, questioning the qualifications of the California company that provided it.
The dispute stems from a $454 million judgment Mr. Trump is facing in the case, which the attorney general’s office brought against the former president and his family business. The attorney general, Letitia James, accused Mr. Trump of fraudulently inflating his net worth, leading to a monthslong trial last year that ended with a judge imposing the huge penalty.
Mr. Trump had to obtain the bond as a financial guarantee while he appeals the penalty — or else open himself up to the possibility that Ms. James would collect. Without a bond in place, she could have frozen his bank accounts and begun the complicated process of trying to seize some of his New York properties.
Mr. Trump appeared to stave off this calamity on Monday when he posted the $175 million bond from the California firm, Knight Specialty Insurance Company. Although he was originally required to secure a guarantee for the full $454 million judgment, an appeals court recently granted him a break, allowing him to post the smaller bond.
By providing the bond — which is a legal document, not an actual transfer of money — Knight essentially promises New York’s court system that it will cover $175 million of the judgment against Mr. Trump if he loses his appeal and fails to pay. In return, Mr. Trump pays a fee to Knight, and pledges it a significant amount of cash as collateral.
Now, however, Ms. James is raising questions that could imperil the deal with Knight, which is owned by Don Hankey, a billionaire who made his fortune with subprime loans. And the judge in the case, Arthur F. Engoron, has tentatively scheduled a hearing for April 22 to discuss the bond.
In a court filing on Thursday, Ms. James noted that Knight was not registered to issue appeal bonds in New York, and so she demanded that the company or Mr. Trump’s lawyers file paperwork to “justify” the bond within 10 days. Ms. James is seeking to clarify whether Knight, which had never posted a similar court bond before aiding Mr. Trump, is financially capable of fulfilling its obligation to pay the $175 million if Mr. Trump defaults.
Even if Knight lacks the funds itself, the company should be able to tap the collateral Mr. Trump pledged.
In an interview this week, Mr. Hankey said that Mr. Trump pledged $175 million in cash as collateral that was being handled by a brokerage firm. Mr. Trump, in the meantime, is able to earn interest on the money.
In a statement on Thursday, a lawyer for Mr. Trump, Christopher M. Kise, slammed Ms. James, calling her case a “baseless and vindictive political crusade” and her objections to the bond an effort “to stir up some equally baseless public quarrel in a desperate effort to regain relevance.”
Mr. Hankey and Amit Shah, the chief executive of Knight Insurance Group, the parent company of Knight Specialty Insurance Company, did not immediately return requests for comment on Thursday. Mr. Shah told CBS News that Knight had the authority to issue the bond through Excess Line Association of New York, a nonprofit created by New York State that serves as a facilitator between brokers and regulators.
In the earlier interview, Mr. Hankey said he had made contact with representatives of Mr. Trump after a New York judge in February imposed a $454 million judgment in the former president’s civil fraud case and offered to help him post bond. Mr. Hankey said his motivation was business, not politics.
Knight Insurance Group is one of eight companies under the Hankey Group, all based in Southern California. Mr. Hankey earned a reputation as a provider of risky and lucrative loans, specifically collateral-based debt that can be arranged more quickly than conventional loans and requires borrowers to pledge valuable assets.
His companies are known for relentlessly calling people who miss payments by a day, and repossessing vehicles from delinquent borrowers, according to news accounts and regulators.
Mr. Hankey said representatives of Mr. Trump called him after the appeals court lowered the bond to $175 million and asked if his company could arrange the bond.
“I said, ‘We’d be happy to,’” Mr. Hankey said on Wednesday. “I would have done this for Donald Trump. I would have done it for a Democrat.”
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