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National Rifle Assn

NRA Leadership and Bankruptcy Assailed by U.S. Trustee

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The National Rifle Association’s hopes of end-running a legal challenge in New York were dealt a serious blow on Monday when a Justice Department official rebuked its leadership and called for the dismissal of its bankruptcy filing or the appointment of an outside monitor to oversee its finances.

Lisa L. Lambert, a lawyer in the United States Trustee’s office, which is part of the Justice Department, said the “evidentiary record clearly and convincingly establishes” that Wayne LaPierre, the longtime N.R.A. chief executive, “has failed to provide the proper oversight.” For a number of years, she added, “the record is unrefuted that Wayne LaPierre’s personal expenses were made to look like business expenses.”

Mr. LaPierre and the N.R.A. had filed for bankruptcy not because of any financial distress, but as a strategy to avoid litigation in New York, where the attorney general, Letitia James, is seeking to shut down the organization and claw back millions of dollars in allegedly misspent funds from Mr. LaPierre and three other current or former executives.

The N.R.A. was chartered in New York a century and a half ago, but it filed its bankruptcy case in federal court in Dallas and is seeking to move its charter to Texas, where politicians are far more favorable to the organization. But the position of the U.S. trustee’s office, which weighed in during closing arguments on the final day of the trial, is likely to weigh on the presiding judge, Harlin D. Hale, who said he will decide by early next week. The United States Trustee Program oversees the integrity of the nation’s bankruptcy courts.

underscored concerns about Mr. LaPierre’s oversight. Mr. LaPierre testified that he took the N.R.A. into bankruptcy without telling even his top lieutenants or most of his board. He testified that he didn’t know his former chief financial officer had received a $360,000-a-year consulting contract after leaving under a cloud, or that his personal travel agent, hired by the N.R.A., was charging a 10 percent booking fee for charter flights on top of a retainer that could reach $26,000 a month.

Mr. Garman said in his closing arguments that the wrongdoing of the organization, while “cringe-worthy,” was relatively minor and did not rise to the level of appointing outside oversight, like a trustee.

“I’ve had experience when there are foreign bank accounts, I’ve had experience when there is missing money appointing a trustee,” he said, adding that was not the case here. “The National Rifle Association has righted its ship.”

Ms. Lambert, the assistant U.S. trustee in Dallas, disagreed, laying out episodes of alleged corruption by Mr. LaPierre and other N.R.A. officials, a number of which were not disputed during the trial. She cited spending by the N.R.A. or its contractors on tailored Zegna suits for Mr. LaPierre, meals at a fancy Tuscan restaurant in Northern Virginia, and charter flights for him and his family, as well as a plan that was drawn up to buy a multimillion house for the use of Mr. LaPierre and his wife that was ultimately abandoned.

Regarding the charter flights, she said: “LaPierre says these are for security, but the evidence says he picked up family. The evidence says that extra stops were not to be noted in the booking records. And the testimony is unrefuted that no N.R.A. policy authorizes charter plane flights.”

Mr. LaPierre’s close aide, Millie Hallow, even diverted $40,000 for her son’s wedding, Ms. Lambert noted, but beyond repaying that amount after she was caught, she “otherwise has suffered no additional consequences.”

Mr. Garman said throughout the trial that there was a “line of demarcation” in 2018, when the N.R.A. undertook a self-audit and corrective measures. But Ms. Lambert said the evidence presented in the 12-day trial showed that “even after the self-described course correction the irregularities were not fixed,” noting that, among other things, Craig Spray, the former chief financial officer, refused to sign the N.R.A.’s 2019 tax filings.

“The N.R.A. has stated that it is seeking refuge from the New York attorney general’s actions and wishes to change its state of incorporation,” she added. “That can be done outside of bankruptcy. It is not a legitimate reason for filing bankruptcy.”

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N.R.A. Chief Takes the Stand, With Cracks in His Armor

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Mr. LaPierre is seeking to use bankruptcy to help reincorporate the N.R.A. in the more gun-friendly state of Texas, and has already repaid the N.R.A. about $300,000 as he seeks to hold on to his job. Asked if he was disciplined for misspending the money, he said, “Yes, I was disciplined, I paid it back,” suggesting that at the N.R.A., discipline sometimes amounts to paying back money after you are caught.

Whether his bankruptcy gambit will work remains to be seen. To persuade Judge Hale that the N.R.A.’s petition should be rejected during a trial that started last week, lawyers for the attorney general, Letitia James, and for a major creditor — the N.R.A.’s former advertising firm, Ackerman McQueen — presented evidence that they said showed that Mr. LaPierre had sought bankruptcy protection in bad faith.

Proving that a filing was made in bad faith can be difficult because it means showing intent. But Monica Connell, an assistant attorney general, argued that Mr. LaPierre lacked the authority to take the N.R.A. into bankruptcy on his own and had used a “convoluted” ploy to get its board of directors to unwittingly grant the necessary authorization.

Rather than putting a bankruptcy resolution before the board, Ms. Connell said, Mr. LaPierre’s team asked the board to vote on a new employment contract for him. It looked like a reform measure, since it reduced his golden parachute.

But the contract contained an inconspicuous provision giving Mr. LaPierre authority “without limitation” to “reorganize or restructure the affairs of the Association for purposes of cost-minimization, regulatory compliance or otherwise.”

The new contract was first presented to a committee of the N.R.A. board in a closed session on Jan. 7. There weren’t enough copies to go around, and no one could leave with a copy. N.R.A. officials said board members had ample time for review.

By that time, Mr. LaPierre’s main outside counsel, the law firm of William A. Brewer III, had spent months planning the bankruptcy, racking up millions of dollars in legal fees. But no one told the board about that. After the committee emerged from its closed session, the board approved the contract, with little inkling that they had conferred bankruptcy authority on Mr. LaPierre.

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N.R.A. Chief Kept Bankruptcy Filing Secret From Deputies

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But the organization remains a potent lobbying force that has reshaped the political landscape around guns. Its enduring influence was on display in the aftermath of two recent mass shootings, in Atlanta and Boulder, Colo., when calls for gun control ran up against stout Republican opposition and the realities of the Senate filibuster.

The bankruptcy, however, is a risky gambit for the N.R.A. and a sign of its desperation. Mr. LaPierre and his outside lawyer, William A. Brewer III, an architect of the filing, could lose control over the organization. One possible outcome, if the case is not dismissed outright, is that the judge, Harlin D. Hale, will appoint a trustee to take over the N.R.A.’s day-to-day operations, displacing the current management. The use of a trustee is rare in large company bankruptcies and usually happens only in cases of fraud, incompetence or gross mismanagement.

Gregory E. Garman, an N.R.A. lawyer, argued in court against such an outcome this week, saying “a trustee is in fact a death sentence.”

“The argument that a trustee assures the future of the N.R.A. beguiles our purpose and our role,” Mr. Garman said. “We don’t sell widgets.”

The N.R.A. has used the trial to argue that the group has reformed after making some modest blunders in oversight. “Compliance has become a way of life at the National Rifle Association,” Mr. Garman said, while acknowledging that there would be “moderately cringe-worthy” moments in the trial.

But those moments undercut claims of reform. Among the issues that have come up in the proceedings is that Mr. LaPierre’s longtime assistant, Millie Hallow, was kept on even after she diverted $40,000 from the N.R.A. for her personal use, including to help pay for her son’s wedding. (Before she was hired by the N.R.A., Ms. Hallow pleaded guilty to a felony related to the theft of money from an arts agency she ran.)

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