Former NRA Director Seeks Examiner Probe for Bankruptcy Case

Fraud allegations against the National Rifle Association should be investigated by a bankruptcy examiner before the group is allowed to reorganize, a former director for the organization argued in an unusual request to the federal court overseeing the case.

Phillip Journey, a Kansas judge and former state legislator, asked a Texas bankruptcy judge to appoint an independent investigator to determine the truth of claims made by New York regulators in a lawsuit.

“Former and current board members have grave concerns about the overall propriety and oversight that the NRA’s board used to exercise,” Journey said in the filing Monday. The board of directors “to this day, has reduced its role to merely that as a ‘figure head.’”

Journey served on the NRA’s board of directors from 1995 to 1998, according to the filing. He also spent more than 20 years on the Kansas State Rifle Association’s board.

Examiner Investigation

Under the U.S. Bankruptcy Code, a judge can appoint an examiner with broad powers to investigate a bankrupt corporation, including actions taken by its employees. Examiners typically file detailed reports that creditors use to file lawsuits, and judges consult to decide thorny legal questions.

The company may also face a separate investigation by the official committee of unsecured creditors, which was appointed by the U.S. Trustee last week. That committee includes one of the NRA’s main opponents, Ackerman McQueen Inc., the ad agency that has traded accusations with the long-time head of the NRA, Wayne LaPierre. The gun group is suing Ackerman, claiming the company conspired with a former NRA president to smear LaPierre by leaking details of his spending.

In most big corporate bankruptcies, the unsecured creditors’ committee investigates potential wrongdoing and files lawsuits if it finds questionable conduct. Bankruptcy experts predict the NRA will face a high level of scrutiny.

Journey based much of his request on the lawsuit brought by officials in New York and other cases filed around the country. New York Attorney General Letitia James is seeking to dissolve the NRA, arguing misappropriation of money and breach of fiduciary duty.

Resolve Lawsuits

The NRA filed bankruptcy last month in an effort to resolve the many lawsuits its faces. The group said it wants to move its corporate charter to Texas because James’s lawsuit is a political attack and its new home is friendlier to gun rights.

Allowing the NRA to reorganize without learning the truth of the allegations would be a mistake, Journey said in his request.

At least one former NRA director has knowledge about managers ignoring the nonprofit group’s bylaws, Journey said. For example, the NRA didn’t tell the board of directors that it intended to file for bankruptcy, Journey said in court papers.

“In fact, one or more board members only became aware of this case through media outlets,” according to Journey’s filing.

‘Full Compliance’

The NRA disputed the claim that it didn’t follow its own rules when it filed bankruptcy. It didn’t directly address the question of whether an examiner should be appointed.

“This plan was undertaken in full compliance with NRA policy,” NRA lawyer William A. Brewer III said in an email to Bloomberg. “The plan has been widely endorsed by NRA board members, NRA members, elected officials and other key stakeholders.”

A bankruptcy court examination would be good for the future of the NRA, Journey argued.

“The best path to ensure that the NRA seizes upon the opportunity before it to recommit to its most historical ideals is to appoint an independent examiner to add transparency and confidence to the bankruptcy process,” Journey said in court papers.

The case is National Rifle Association of America, 21-30085, U.S. Bankruptcy Court for the Northern District of Texas (Dallas). To view the docket on Bloomberg Law, click here. Michael R. Bloomberg, founder of Bloomberg News parent Bloomberg LP, is a donor to candidates and groups that support gun control, including Everytown for Gun Safety.

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