New York Attorney General Eric Schneiderman filed the lawsuit in New York State Supreme Court in August a year ago, charging Trump with fraud.
Trump opened the school in 2004 with partner Michael Sexton, who served as president.
Judge Cynthia Kern ruled in the case that Trump knew that the school’s continued operation was against the law, yet he continued to operate it anyway.
The judge also dismissed Trump’s counterclaim against Schneiderman alleging malicious prosecution, according to Courthouse News Service.
More than 5,000 customers bought courses to learn the Trump’s so-called “real estate investing secrets and techniques,” according to court papers.
Schneiderman claimed that Trump Entrepreneur Initiative, previously known as Trump University, cheated students out of $40 million through bogus programs.
Trump sold the programs by guaranteeing: “Just copy exactly what I’ve done and get rich.”
“This was a bait and switch in the hardest economic times, preying on people who could not afford to buy these programs,” Schneiderman said after filing the suit. “Mr. Trump used his celebrity status to lure people in.”
The school suffered a legal blow in 2010 after New York State charged that it was operating an educational institution without a license. Trump merely renamed the program and stopped calling it a university.
For his part, the developer lambasted New York’s top cop.
After the case was filed, he called the action a “frivolous suit” and “thug politics” by a “lightweight” and “political hack,” in a Fox News interview.
Although Schneiderman is a Democrat and Trump is a Republican, dissatisfied students filed a similar suit against Trump in California federal court alleging similar claims.
The judge is withholding a decision on damages until other outstanding claims in the case are resolved.
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