National Rifle Association Files for Bankruptcy and Plans to Move to Texas 

(Bloomberg) -- The National Rifle Association of America, the gun-rights group feared for its lobbying clout but now threatened with dissolution by the state of New York, filed Friday for Chapter 11 bankruptcy with plans to regroup in Texas.

Restructuring in federal court will help the NRA exit “a corrupt political and regulatory environment in New York,” according to a statement on its website. The NRA’s petition filed in Dallas listed assets and liabilities of as much as $500 million each.

The filing marked another dramatic twist in months of infighting and external legal pressure that have battered the New York-based NRA, one of the most powerful influencers in American politics. New York has been at the forefront of pursuing the NRA in court, with Attorney General Letitia James suing to dissolve the organization and accusing leader Wayne LaPierre and three others of fleecing it.

Chapter 11 bankruptcy allows entities to continue operating while working on a plan to repay creditors and pauses pending litigation. Besides James’s case, Washington D.C. Attorney General Karl Racine has filed a separate lawsuit against the NRA’s charitable arm, accusing it of misusing donor funds.

Whether the NRA’s maneuver will succeed in halting those cases isn’t certain. “Bankruptcy normally stays all litigation, but there is an exception for regulatory authorities like the New York attorney general,” said Eric Snyder, chairman of the bankruptcy practice at the law firm Wilk Auslander. “There will be a battle over whether the state’s regulatory power is an exception to the federal stay.”

Moving Out

The NRA struck a defiant tone Friday, asserting that it is in “its strongest financial condition in years” and is “not insolvent” on a question-and-answer web page about the bankruptcy filing.

“The plan can be summed up quite simply: We are DUMPING New York, and we are pursuing plans to reincorporate the NRA in Texas,” LaPierre, the group’s executive vice president, wrote in a letter on its website, citing “costly, distracting and unprincipled attacks” by politicians.

James retorted in her own statement, saying, “The NRA’s claimed financial status has finally met its moral status: bankrupt.” She said New York would “not allow the NRA to use this or any other tactic to evade accountability and my office’s oversight.”

The NRA has enjoyed enormous sway in Washington for its full-throated defense of the firearms industry and gun rights, beating back repeated attempts for stricter laws in the wake of mass shootings, especially since the 2012 Sandy Hook school massacre in Connecticut. But the internal rifts and James’s lawsuit dented the group’s image of invulnerability, and President Donald Trump’s impending departure is poised to remove one more NRA ally in Washington’s power structure.

For years, the NRA has received millions of dollars annually from the NRA Foundation, whose donors get a tax deduction -- until the Covid-19 pandemic disrupted the group’s successful grassroots fund-raisers.

A report detailing alleged lavish spending under LaPierre, published in April 2019 by The Trace, led James to open a probe into the NRA’s nonprofit status. After former NRA President Oliver North complained about financial misconduct at the gun association, LaPierre pushed him out of his unpaid post. The NRA sued North in an attempt to bar him from seeking legal fees, and North countersued.

James filed suit in August, alleging the NRA for years diverted millions of dollars in charitable donations to enrich the organization’s top executives in violation of laws governing nonprofits. James also is demanding millions of dollars in restitution and penalties. The case immediately posed one of the biggest legal threats the NRA faced since its founding in New York in 1871.

No Letup

The NRA countersued James in federal court, accusing her of violating its First Amendment rights. The organization also accused her of weaponizing her regulatory and legal power under the guise of protecting state residents. James said Friday she will continue to pursue the NRA despite the case in Texas.

“We filed suit against the NRA because basically they were diverting funds from this charitable organization for their own personal use,” she said during a virtual town hall session on Friday hosted by Rep. Alexandria Ocasio-Cortez, the New York Democrat. “We will continue our effort because this organization has gone unchecked for years and it’s critically important that we continue to hold them accountable, even in bankruptcy court.”

The NRA’s turmoil began with a power struggle in 2019 between North and LaPierre, which included allegations of self dealing. A subsequent state probe found wrongdoing blamed for more than $64 million in losses in the last three years alone, James said when she filed her suit.

As part of litigation arising from the power struggle, the NRA claimed that North plotted with its former ad agency, Ackerman McQueen Inc., to smear LaPierre by leaking details of his spending. North and Ackerman denied the claims. The NRA has also accused James of trying to circumvent the organization’s legal rights by demanding information about its members as part of a “political witch hunt.”

The case is National Rifle Association of America, 21-30085-11, U.S. Bankruptcy Court for the Northern District of Texas (Dallas).

(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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