NRA and LaPierre’s Fate Lies in Hands of Texas Bankruptcy Judge
(Bloomberg) -- The National Rifle Association, long a feared power broker, will learn its fate next week in a court ruling that could hobble the gun rights group and imperil the three-decade reign of its controversial boss, Wayne LaPierre.
The judge is weighing several options. He could let the NRA’s bankruptcy case go forward, giving the group a measure of refuge from a New York lawsuit that threatens its assets and even its existence. He could put the group under the control of a trustee, empowered to make decisions about its finances and its future. Or, in a highly unusual move, he could throw the NRA out of bankruptcy court altogether.
“There are land mines across the board here,” said Brian Mittendorf, an Ohio State University accounting professor who has looked closely at the NRA’s financial health.
For an organization that was until recently the most potent single-issue lobby in the U.S., none of the possible outcomes are great. The NRA has enjoyed enormous sway in Washington, beating back repeated attempts at stricter gun laws after mass shootings and building a fervent following closely tied to the Republican Party. It has spent millions of dollars to back candidates for president and Congress and on Supreme Court confirmation fights, and was the largest financial backer of Donald Trump’s successful 2016 campaign.
Now LaPierre, 71, is trying to use the bankruptcy process to escape what he claims is political persecution by New York’s elected leaders and reincorporate the group in gun-friendly Texas. In the New York lawsuit, filed last August seeking to dissolve the NRA, Attorney General Letitia James alleged that LaPierre has spent hundreds of thousands of dollars of NRA funds for private plane trips for himself and his family, among many other indulgences. If the bankruptcy case is dismissed, James would have an easier time seizing the group’s assets, should she win her lawsuit.
The NRA has called James’s suit a baseless attack on the Second Amendment timed to have maximum impact during the election cycle.
For more than two weeks, U.S. Bankruptcy Judge Harlin “Cooter” Hale in Dallas listened to testimony about palace intrigues, shredded notes and excessive personal spending. The dispute pits several entities against the NRA. Allied with James is the gun group’s former ad agency, Ackerman McQueen Inc., which claims the bankruptcy filing was made in bad faith and should be dismissed. Even the U.S. office that monitors bankruptcies said at the end of the trial that the NRA doesn’t belong in Hale’s court.
Meanwhile, a rebel NRA director has asked the judge to let the bankruptcy continue -- but start a new investigation of the group’s management and board.
No ‘Shred of Evidence’
The NRA responded to a request for comment on the case by referring to statements its attorney, Gregory Garman, made during the trial. In his closing arguments, Garman admitted that the testimony had included “cringe-worthy” evidence about the group, at one point saying, “Does anyone want to hear about your CFO taking the Fifth? Of course not.”
But he also asserted that there isn’t “a shred of evidence” to suggest the NRA’s leadership had failed to take its duties seriously. And he noted that in filing for bankruptcy protection, the organization hadn’t sought to freeze James’s lawsuit.
“We are a debtor who has reason to be here,” he told the court.
Hale offered few clues to how he was leaning during the trial. One came after testimony ended, when he posed a question: Can a financially healthy organization file for bankruptcy to protect itself from the risk that another court will find its dissolution “in the best interest of the public”?
That question means Hale is thinking seriously about whether the NRA should be allowed to shield itself against James’s fraud suit by remaining in bankruptcy proceedings, said David A. Skeel Jr., a University of Pennsylvania law professor.
“The question is consistent with the thought that he may be open to dismissing the case,” said Skeel, who wrote a book on the history of bankruptcy.
Testimony in the case has been vivid. Among the revelations: A top NRA official destroyed notes over concerns that they could become legal evidence. LaPierre came clean about receiving vendor favors over several years, filing disclosures about them only during the trial itself. And he and a few close associates kept the NRA’s own board, chief financial officer and general counsel in the dark about the January bankruptcy filing until it had been made.
The organization has gone through many personality changes during its 150 years. Founded after the Civil War by former Union Army officers appalled at their soldiers’ marksmanship, it evolved into an organization beloved by hunters and sport shooters. LaPierre took over in 1991 and fostered a burgeoning membership in sync with the GOP.
The group’s political clout peaked in 2016, when it spent $54.4 million on federal elections, including $31.2 million for Trump, according to the Center for Responsive Politics. Its spending fell to $29.4 million in 2020. Just 18% of its outlays went to winners last year, compared to 94% in 2016.
For years the group has received millions of dollars annually from its charitable arm, the NRA Foundation, whose donors get a tax deduction. The Covid-19 pandemic disrupted the grassroots fundraising events the foundation relied on. But even before the pandemic, the NRA’s fundraising had dropped. It raised $291 million in 2019 according to its federal tax return, the most recent year available, a 17% decrease from the year before.
LaPierre defended his reign in his testimony. He argued that any financial mismanagement has been corrected. Staying in bankruptcy would allow the NRA to relocate its corporate charter from New York to Texas, he said. The NRA has exulted in the proposed move, posting a letter on its website in January to announce it was “DUMPING” the eastern state.
NRA membership has remained fairly steady over the past few years, and is currently around 4.9 million, even as the group has become a political lightning rod staking out right-wing positions in America’s culture wars. During the trial, LaPierre said the organization speaks for most Americans, including on Second Amendment issues.
“If the NRA strays from the mainstream,” he told the court, “it starts losing its clout.”
The case is National Rifle Association of America, 21-bk-30085, U.S. Bankruptcy Court, Northern District of Texas (Dallas).
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