NRA Bankruptcy Would Mean ‘Haven for Wrongdoers,’ N.Y. Warns
(Bloomberg) -- The National Rifle Association’s bankruptcy filing should be dismissed because it was part of a brazen attempt to escape legitimate oversight in the NRA’s home state of New York, a lawyer for the state said in his closing argument in a trial on Monday.
An attorney for the gun rights group followed by accusing the state of attempting a political hit job. “We have the right to exist,” he told a federal bankruptcy judge in Dallas.
The judge is weighing requests to dismiss the NRA’s filing, appoint a trustee to run the NRA while it’s in bankruptcy or install an examiner to look into allegations of corruption and mismanagement made by New York Attorney General Letitia James.
The trial threatens the reign of Wayne LaPierre, who has overseen the group since 1991 and faces accusations of mismanagement and lavish personal spending while leading the NRA’s battle over Second Amendment rights. The group has enjoyed great influence in Washington for its defense of the firearms industry, but internal rifts and James’s claims have dented its image of invulnerability, and Donald Trump’s election loss has cost it an important ally.
The NRA’s Chapter 11 filing in January is a “poster child of bankruptcy filed in bad faith” that the court should reject to “prevent bankruptcy from becoming a haven for wrongdoers,” Gerrit Pronske, a lawyer for James’s office, told U.S. Bankruptcy Judge Harlin Hale.
New York says the bankruptcy filing is illegitimate on a number of grounds. They include filing to gain advantage in the separate fraud lawsuit James has brought against the NRA in New York, a lack of financial duress to justify a Chapter 11 case, a bid to seek a sympathetic venue and an internal process in which NRA management violated its own governance requirements, “intentionally deceiving” its board by keeping it in the dark about its plans for the filing.
The NRA never hid its desire to emerge from bankruptcy free of its New York home of 150 years and with a new charter in Texas, Pronske told Hale. On the day it filed for reorganization, it posted a letter on its website announcing that it was “DUMPING” the state. As further evidence, Pronske noted that the group set up a partnership called Sea Girt LLC as part of its efforts to reincorpoate in Texas, which he likened to “Decoy Duck LLC.”
First and Second Amendments
In its Jan. 15 filing, the NRA said that its finances were strong but that the restructuring would help it exit “a corrupt political and regulatory environment in New York.”
Gregory Garman, an attorney for the group, told Hale that the bankruptcy filing was the best legal path to protect the NRA against the existential threat of dissolution posed by James. He denied that the NRA was trying to thwart her lawsuit and said he expects it to continue during the bankruptcy reorganization.
Garman said New York Governor Andrew Cuomo and the state’s Department of Financial Services had politically targeted the NRA by urging banks and insurers to avoid dealing with it. That’s what prompted the NRA to seek a move to Texas, he said.
“This is a situation where our speech, our public policy speech, was under attack,” Garman said. “We have the right to exist. We have the right to live. We have the right to exert our First and Second Amendments.”
While he acknowledged “cringe-worthy facts” that came up during the trial, Garman said the NRA had embraced whistle-blowers and strengthened its internal controls.
The NRA says many of its problems have been resolved through a “course correction” begun in 2017. But it also outlined a plan on Monday to hire an expert to advise on nonprofit corporate governance and add a chief compliance officer.
In his closing for the state, Pronske directed some of his harshest comments at LaPierre, saying the leader had accepted trips from an NRA vendor without properly disclosing them and retaliated against anyone who objected. That included Craig Spray, then the chief financial officer, whose efforts to implement financial controls were overridden by a “Wayne says” rule, according to Pronske.
In his own testimony earlier in the trial, LaPierre cited what he said were legitimate reasons for some of the trips and expenses. As for other items, he said the actions taken since 2017 had resolved a number of governance problems and that “the controls are strong.”
Brian Mason, a lawyer for the NRA’s former ad agency Ackerman McQueen Inc., a creditor of the group, argued for dismissal of the bankruptcy case. Mason said there’s an “overwhelming amount of evidence” that the NRA is financially healthy.
An attorney for the U.S. Trustee in the bankruptcy, Lisa Lambert, also said the NRA lacked a legitimate reason to file. She added that LaPierre’s personal expenses, including $225,000 in apparel and charter flights for his family, were made to look like business costs.
At the end of the day, the judge said he’s retiring next year and that the case is one of the most important of his career.
The case is National Rifle Association of America, 21-bk-30085, U.S. Bankruptcy Court, Northern District of Texas (Dallas).
Read More: NRA Bankruptcy Plan Calls for Potential Governance Tweaks
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