A Justice Department lawyer said that National Rifle Association leader Wayne LaPierre has failed to provide adequate oversight of the gun-rights organization and that management should be removed or curtailed if a bankruptcy judge allows the NRA to remain in chapter 11.
The government lawyer’s criticism of NRA management came at the conclusion of a monthlong trial over the bankruptcy, supporting New York Attorney General Letitia James’s argument that Mr. LaPierre put the NRA into chapter 11 to try to evade accountability for spending abuses, which he and the NRA have denied.
Ms. James sued to dissolve the NRA in August and is seeking to either have the chapter 11 case thrown out or to bring in an independent trustee to take charge of the NRA in bankruptcy.
The trial concluded Monday with closing arguments in the U.S. Bankruptcy Court in Dallas that outlined vastly different visions on what should happen to the 150-year-old group. New York and federal authorities as well as the NRA’s former ad agency contend the not-for-profit is badly mismanaged and an independent fiduciary is needed to reign in Mr. LaPierre.
The NRA, meanwhile, said Mr. LaPierre and his prodigious fundraising are its most valuable asset, that its board is independent and that it has a plan to bolster its corporate governance and restructure its affairs through chapter 11, setting up operations in what it says is the friendlier jurisdiction of Texas.
U.S. Bankruptcy Judge Harlin Hale now will decide which path the NRA will take and said Monday it is one of the most important cases he will rule on during his judicial career. Judge Hale said he intends to retire next year.
“I found the matters that are being concluded today to be awfully hard,” Judge Hale said.
Assistant U.S. Trustee Lisa Lambert, part of the Justice Department unit overseeing the nation’s bankruptcy courts, said that NRA management hasn’t been accountable for lavish spending and financial irregularities that date back years before its January bankruptcy filing and persisted even during the chapter 11 case.
Ms. Lambert said evidence presented at trial showed that before 2018, Mr. LaPierre’s personal expenses were made to look like business expenses and went through a separate approval process. Mr. LaPierre, the group’s chief executive and executive vice president, also took charter flights that weren’t expressly allowed under NRA policy and some stops he made on those flights weren’t recorded in business records, she said.
“This evidentiary record clearly and convincingly established that Executive Vice President Wayne LaPierre has failed to provide the proper oversight,” Ms. Lambert said.
In response, NRA lawyer Greg Garman said the allegations made by the U.S. trustee and New York authorities weren’t supported by evidence presented at trial and called claims of wrongdoing hyperbole. Mr. Garman said the testimony shows the NRA is a growing organization—a sign its membership trusts Mr. LaPierre. The NRA has just under 5 million members, Mr. LaPierre testified.
“We are safe, we are secure, we are a well-run organization. We have responsible new parties in place,” Mr. Garman said.
The NRA’s fate is now in the hands of Judge Hale, who could rule to appoint an independent trustee to take charge of the organization in chapter 11 or allow the group to move ahead with its current management team intact and reorganize in Texas. Judge Hale also could appoint an independent examiner to investigate New York authorities’ allegations, a proposal supported by a handful of NRA board members.
Before Monday’s closing arguments, the NRA filed a proposed chapter 11 plan of reorganization that, if approved, would create a chief compliance officer position at the organization. The NRA also is seeking to hire a chief restructuring officer with the support of a committee representing its vendors and other unsecured creditors. The proposed plan would pay NRA creditors in full, Mr. Garman said.
A New York registered organization since 1871, the NRA said when it filed for bankruptcy that it was seeking to “exit what it believes is a corrupt political and regulatory environment in New York.” The bankruptcy filing came months after Ms. James sued to dissolve the NRA, accusing insiders including Mr. LaPierre and former CFO Wilson “Woody” Philips of violating New York nonprofit laws by illegally diverting tens of millions of dollars from the group through contracts that benefited relatives or close associates.
Mr. Philips has denied wrongdoing.
During the trial, witnesses testified that NRA board members, its top lawyer and its then CFO Craig Spray weren’t informed of the bankruptcy until after it was filed. Gerrit Pronske, a lawyer representing the New York attorney general’s office, accused the NRA on Monday of deceiving the board by adding language to Mr. LaPierre’s employment contract shortly before the chapter 11 filing that the gun-rights group claims gave him authority to file the bankruptcy.
The NRA and Mr. LaPierre have said the chapter 11 filing was properly filed.
“This is as shocking as it is completely dishonest,” Mr. Pronske said. “It is nothing less than fraud and recklessly put the NRA in the horrible position that its entire bankruptcy would be questioned.”
Judge Hale said he intends to issue a ruling early next week.
https://www.wsj.com/articles/justic...087839?mod=searchresults_pos1&page=1
