Donald Trump’s family business and its longtime chief financial officer, Allen Weisselberg, have been charged with criminal fraud by New York prosecutors for allegedly failing to pay tax on a host of perks from school tuition to free rent.

The charges were laid out in a 15-count indictment unsealed on Thursday in a Manhattan court, marking a decisive turn in an almost three-year investigation of Trump’s business by Cyrus Vance, the Manhattan district attorney, in tandem with New York state attorney-general Letitia James.

They allege that Weisselberg and other top Trump Organization executives arranged to conceal part of their income from the government by having the company pay their rent, tuition, car leases and other “off the books” benefits that were never reported to tax authorities.

According to prosecutors, Weisselberg netted $1.76m in such “indirect compensation” over a 16-year period, including monthly rent at a Trump apartment on Riverside Boulevard in Manhattan, two Mercedes cars, furniture for his vacation home and school fees for two grandchildren, among other expenses.

The alleged misreporting of income also allowed Weisselberg to claim $94,902 in federal tax refunds he was not due, and $38,222 in state refunds.

The scheme, they added, also allowed the Trump Organization to avoid paying certain payroll taxes. Carey Dunne, a prosecutor with the Manhattan DA’s office, called it a “sweeping and audacious illegal payment scheme”.

James said the charges were “an important marker” in a continuing criminal investigation of the Trump Organization.

Weisselberg, 73, who surrendered to authorities early on Thursday morning, was led into a crowded courtroom in handcuffs hours later, where he entered a plea of not guilty during a brief arraignment hearing. His lawyer said he would “fight these charges”.

Earlier in the day, the Trump Organization issued a blistering statement, accusing prosecutors of using Weisselberg — “a loving and devoted husband, father and grandfather” — as “a pawn in a scorched-earth attempt to harm the former president”.

Trump called the case a “political witch hunt by radical left Democrats”. Both Vance and James are Democrats.

The former president was not charged, nor were his three adult children who have served as senior executives at the company: Donald Jr, Ivanka and Eric. Yet prosecutors have noted that their inquiry continues.

Following the arraignment, Trump’s lawyer, Ronald Fischetti, called it “a sad day” for the Manhattan DA. “After years of investigation and the collection of millions of documents and devoting the resources of dozens of prosecutors and outside consultants, this is all they have?” he said.

A lawyer for the Trump Organization, Alan Futerfas, told reporters after the hearing that this type of case was typically resolved in a civil, not criminal, manner, and said it was unprecedented for a local prosecutor to “go after a president or his company”.

“It’s politically driven,” he said.

In recent months Weisselberg has become a focus of prosecutors, who hoped to convince the man who once described himself as Trump’s “eyes and ears” to aid their investigation into a private business that features hundreds of byzantine partnerships.

The former president’s business was already struggling, with revenue falling at some of its hotels and golf courses due to the pandemic. Some partners such as the Professional Golfers’ Association of America have cut ties in protest at his role in the January 6 insurrection at the US Capitol.

The Trump Organization has about $900m in debts coming due over the next four years, about a third of which are personally guaranteed by Trump.

Vance, who leaves office at the end of this year, will have to hand the case on to a successor. His inquiry has been overshadowed by criticism for dropping a previous investigation of the Trump Organization, in 2012, which stemmed from condominium-buyer complaints that Donald Jr and Ivanka had misled them. The parties later settled.

Vance launched the current investigation in 2018 in response to reports that Trump’s former fixer, Michael Cohen, had made hush-money payments to two women who claimed to have had extramarital affairs with the-then presidential candidate. Cohen later told Congress he arranged with Weisselberg to be reimbursed by the Trump Organization through monthly payments listed as legal fees.

The investigation expanded to consider possible bank and insurance fraud, according to court filings. Under examination is whether the Trump Organization inflated the value of certain properties to secure bank loans and insurance while minimising them for tax purposes, according to people briefed on the matter.

The investigation had been hampered by Trump’s refusal to hand over tax records. Vance prevailed in a legal fight that went to the US Supreme Court and ultimately took possession of the documents in February.