New York's attorney general is suing Donald Trump for US$40 million, saying the real estate mogul helped run a phoney "Trump University" that promised to make students rich but instead steered them into expensive and mostly useless seminars.
Trump has shot back that the Democrat's lawsuit is false and politically motivated.
Attorney General Eric Schneiderman says many of the 5,000 students who paid up to US$35,000 thought they would at least meet Trump but instead all they got was their picture taken in front of a life-size picture of The Apprentice TV star.
"Trump University engaged in deception at every stage of the consumers' advancement through costly programmes and caused real financial harm," Schneiderman said. "Trump University, with Donald Trump's knowledge and participation, relied on Trump's name recognition and celebrity status to take advantage of consumers who believed in the Trump brand."
But Trump's lawyer accused Schneiderman of trying to extort campaign contributions from the real estate mogul through his investigation of Trump. Lawyer Michael Cohen said that Schneiderman's lawsuit was filled with falsehoods. Cohen said Trump and his university never defrauded anyone.
He said Trump University provided nearly 11,000 testimonials to Schneiderman from students praising the programme and said 98 per cent of students in a survey termed the programme "excellent".
"The attorney general has been angry because he felt that Mr Trump and his various companies should have done much more for him in terms of fundraising," Cohen said.
"This entire investigation is politically motivated and it is a tremendous waste of taxpayers' money."
State Board of Elections records show Trump has spent more than US$136,000 on New York campaigns since 2010. He contributed US$12,500 to Schneiderman in October 2010, when Schneiderman was running for attorney general, records show. An outspoken conservative, Trump himself flirted with a presidential run last year.
"Donald Trump will not sit back and be extorted by anyone, including the attorney general," Cohen said.
The lawsuit says many of the wannabe moguls were unable to land even one real estate deal and were left far worse off than before the lessons, facing thousands of dollars in debt for the seminar programme once billed as a top quality university with Trump's "hand-picked" instructors.
Schneiderman is suing the programme, Trump as the university chairman and the former president of the university in a case to be handled in the state supreme court in Manhattan. He accuses them of engaging in persistent fraud, illegal and deceptive conduct and violating federal consumer protection law. The US$40 million he seeks is mostly to pay restitution to consumers.
He dismissed Trump's claim of a political motive.
State Education Department officials had told Trump to change the name of his enterprise years ago, saying it lacked a licence and didn't meet the legal definitions of a university. In 2011 it was renamed the Trump Entrepreneur Institute, but it has been dogged since by complaints from consumers.