NRA Bankruptcy Lets Critics Peer Into Gun Lobby’s Inner Workings
(Bloomberg) -- The National Rifle Association may have handed ammunition to its critics when it filed bankruptcy as part of an effort to defend itself from New York regulators and others and reincorporate in Texas.
Sometime in the coming weeks, the group, known for its aggressive political and legal tactics in defense of gun rights, will be forced to release a detailed list of cash payments it has made to insiders in the last year and any unusual property transfers it has made to anyone within two years. And if the NRA had a stake in any other business of 5% or more in the last six years, that information must be made public as well.
Before then, the U.S. Trustee, an arm of the U.S. Department of Justice, will set up an official committee of unsecured creditors with the power to launch new investigations into the NRA’s spending.
“We have a technical term for it in the trade. It’s called the open kimono,” said Howard Seife, head of the bankruptcy practice at the Norton Rose Fulbright law firm.
Companies file bankruptcy for the chance to wipe away debt they can’t pay, but judges and lawyers often say the price of admission is transparency. That means creditors have a right to look at years of records, from spending and operating habits to, in some cases, internal management discussions.
The financial affairs statement is the start, lawyers said.
“Each bit of information in that filing can open the door for more inquiries and discovery,” Dallas bankruptcy attorney John Penn said.
Once a creditors committee is set up in the NRA’s case, its first action will be to hire lawyers, financial advisers and, most likely, a forensic accountant, Seife said.
“Any time you are considering filing for Chapter 11 and taking advantage of the protections of the bankruptcy code, you need to be prepared for tremendous scrutiny of your operations and financial conditions,” Seife said in an interview.
The NRA filed for bankruptcy last month as part of a strategy to resolve many of the lawsuits it faces in one location and to reincorporate in gun-friendly Texas. The association claims it is the subject of a political attack by regulators in New York.
Many details about the NRA’s spending habits are already public, thanks to regulatory filings and an investigation by New York Attorney General Letitia James. But recent payroll and expense information may be included in the bankruptcy statements.
“The NRA will provide the information required by the bankruptcy schedules without hesitation,” association lawyer William A. Brewer III said in an emailed statement, adding that the group has been transparent and has full confidence about its financial arrangements. “The truth is, most of its senior staff members, including CEO Wayne LaPierre, have no guarantees of future employment and have voluntarily taken pay reductions to help the NRA address the pandemic.”
One of the committee’s most powerful tools is the so-called rule 2004 examination. That’s a section of the bankruptcy code that lawyers say lets creditors go on an information fishing expedition.
Under that rule, the creditors committee is likely to force top NRA officials to testify under oath. One obvious target would be the powerful executive vice president, Wayne LaPierre who has run the association for decades and is a target of several lawsuits, bankruptcy lawyers said.
James is suing the NRA in New York to dissolve the organization and accusing LaPierre and three others of fleecing it. LaPierre has disputed New York’s allegations. LaPierre and the NRA face other lawsuits accusing them of spending improprieties.
A representative for James declined to comment.
Among the many claims in the lawsuit is that LaPierre’s family and other associates spent more than $1 million of NRA money on unauthorized flights on a private plane from 2015-2019. LaPierre is accused of accepting inappropriate gifts, including the use of a 108-foot yacht in the Bahamas owned by one of the NRA’s biggest contractors.
But the same legal powers that creditors can use are available to the NRA as well, allowing it to look for evidence to bolster its claims that James’ lawsuit is nothing more than a political attack.
“The NRA will utilize all tools at its disposal to highlight the motivations of the NYAG,” Brewer said. “Clearly, the NRA believes this was a politically motivated attack – fueled by the NYAG’s opposition to the NRA’s political point of view.”
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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