New York Sues to Dissolve NRA, Claiming Massive Financial Fraud
A sprawling lawsuit filed alleges the NRA diverted charitable donations for years to enrich the organization’s top executives.
(Bloomberg) -- New York is seeking to dissolve the National Rifle Association as the state attorney general accused the gun rights group and its current and former senior officials of engaging in a massive fraud against donors.
A sprawling lawsuit filed Thursday by New York Attorney General Letitia James alleges the NRA diverted charitable donations for years 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 may pose one of the biggest legal threats the NRA has faced since its founding in New York in 1871. The turmoil began with a power struggle last year between former NRA president Oliver North and longtime leader Wayne 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.
“We are seeking an order to dissolve the NRA in its entirety,” James said at a press conference in Manhattan. The organization for years has been “operating as a breeding ground for greed, abuse and brazen illegality,” she said.
The lawsuit filed in state court in Manhattan cites the “NRA’s pattern of conducting its business in a persistently fraudulent or illegal manner, abusing its powers contrary to public policy of New York and its tax exempt status, and failing to provide for the proper administration of its trust assets and institutional funds.”
NRA President Carolyn Meadows called the lawsuit a baseless, premeditated attack on the Second Amendment that was timed to have maximum impact during the election cycle.
“It’s a transparent attempt to score political points and attack the leading voice in opposition to the leftist agenda,” Meadows said in a statement. “This has been a power grab by a political opportunist -- a desperate move that is part of a rank political vendetta. Our members won’t be intimidated or bullied in their defense of political and constitutional freedom.”
It’s far from clear the New York claims will mean the end of the NRA. James Fishman, a professor at Pace Law School, said the organization probably will try to resolve the suit by taking steps such as agreeing to be supervised by a monitor, instituting corporate governance reforms and getting rid of executives implicated in alleged misconduct. LaPierre and the others named by James “should be updating their resumes,” Fishman said.
This isn’t the first high-profile charity James has targeted. Donald Trump paid $2 million in damages last year after his charitable foundation reached a settlement with the attorney general, who accused the president and his children of rampantly violating nonprofit rules. Their alleged infractions included using foundation money to buy sports memorabilia, Champagne and a portrait of Trump. The president shuttered the charity and denied wrongdoing.
At the White House on Thursday, the president assailed the lawsuit as a “very terrible thing.” The NRA has been “absolutely decimated by the cost of that lawsuit, and it’s very sad,” Trump said. He urged the group to move to Texas. “It would be a great place for the NRA,” he said.
New York said in a statement that its investigation uncovered an array of wrongdoing, including the awarding of lucrative deals to family members and close associates and the awarding of “no show” contracts to former employees to “buy their silence and continued loyalty.”
North, who was interviewed by state investigators, had accused LaPierre of using the NRA to enrich himself. LaPierre denied the accusation, and North was ousted as the organization’s president.
The NRA has previously 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.”
North’s allegations weren’t just sour grapes, according to James. LaPierre, the group’s executive vice president, is accused in the lawsuit of exploiting the organization for years, squandering donations on extravagant personal expenses.
James alleges LaPierre spent hundreds of thousands of dollars of NRA funds for private plane trips for himself and his family, visited the Bahamas eight times in the last three years at a cost of nearly half a million dollars. He spent millions more on “unwarranted travel expenses” such as luxury black-car services, racking up more than $3 million in the last two years, James said.
‘Exploit Position’
“LaPierre has undertaken a series of actions to consolidate his position; to exploit that position for his personal benefit and that of his family; to continue, by use of a secret ‘poison pill contract,’ his employment even after removal and ensuring NRA income for life; and to intimidate, punish, and expel anyone at a senior level who raised concerns about his conduct,” according to the 164-page complaint alleging breach of duty and other claims.
“The effect has been to divert millions of dollars away from the charitable mission, imposing substantial reductions in its expenditures for core program services, including gun safety, education, training, member services and public affairs,” the state said.
The suit also names the NRA’s treasurer and chief financial officer, Wilson “Woody” Phillips; the former chief of staff and executive director of general operations, Joshua Powell; and Corporate Secretary and General Counsel John Frazer. They’re all accused of failing to manage the NRA’s funds properly.
‘Culture of Noncompliance’
Their actions “fostered a culture of noncompliance and disregard for internal controls that led to the waste and loss of millions in assets and contributed to the NRA reaching its current deteriorated financial state,” James said in her statement. The men created a culture of self-dealing “that was illegal, oppressive and fraudulent,” she said.
James alleges Ackerman McQueen used so-called pass-through arrangements to conceal the illegal expenditures by the executives, paying for their out-of-pocket expenses and then billing costs to the NRA.
In addition to dissolving the NRA, James said she’ll seek a court order for LaPierre and the others to pay penalties and make full restitution for unlawful profits and salaries. The AG also wants to have LaPierre and Frazer removed from the NRA’s leadership and to “ensure none of the four defendants can ever again serve on the board of a charity in New York,” according to the statement.
“The NRA has a long history of thwarting the rules that govern not-for-profits in New York state,” Governor Andrew Cuomo said on a media conference call. “The state has been very generous and somewhat lax in the number of not-for-profits that we have granted, and they forget that they are taxpayer subsidized.”
Also on Thursday, Washington D.C. Attorney General Karl Racine opened a second front, suing the NRA for allegedly misusing charitable funds to finance “improper, lavish spending” by NRA executives. The suit aims to recover those donated funds.
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