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Explained: Why has the US National Rifle Association filed for bankruptcy?

In August 2020, New York Attorney General Letitia James, a Democrat, sued the NRA based on allegations that the association’s top executives diverted millions of dollars for their personal trips.

Written by Mehr Gill , Edited by Explained Desk | New Delhi |
Updated: January 18, 2021 11:43:11 am
A general view shows the National Rifle Association (NRA) headquarters, in Fairfax, Virginia, US, August 6, 2020. (Source: Reuters/File Photo)

On Friday, the US National Rifle Association (NRA), the most powerful gun lobbyist in the country, filed for bankruptcy in an effort to avoid being investigated by New York’s Attorney General.

The association, which will now reincorporate in Texas, voluntarily filed for bankruptcy under Chapter 11 of the bankruptcy code along with a subsidiary in the US Bankruptcy Court for the Northern District of Texas, Dallas Division. A bankruptcy filed under Chapter 11 is often referred to as “reorganisation” bankruptcy and allows businesses to stay alive and pay their creditors over time, as per a US government website.

What is the NRA?

The NRA is a non-profit organisation that was formed by two civil war veterans Col. William C. Church and Gen. George Wingate in 1871 in order to “promote and encourage rifle shooting on a scientific basis”, the NRA website mentions. It is the largest and most influential pro-gun organisation in the US and is considered by critics as an enabler of gun violence in the country.

According to the association’s magazine American Rifleman, the state is home to more than 400,000 NRA members and is also the site of NRA’s 150th annual meeting. In a statement, NRA’s Executive Vice President Wayne LaPierre said, “The plan aims to streamline costs and expenses, proceed with pending litigation in a coordinated and structured manner, and realize many financial and strategic advantages.”

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“We are leaving the state of an attorney general who, just a few months ago, vowed to put us out of business through an abuse of legal and regulatory power,” he added.

Why is New York’s attorney general investigating the NRA?

In August 2020, New York Attorney General Letitia James, a Democrat, sued the NRA based on allegations that the association’s top executives diverted millions of dollars for their personal trips.

James opened an investigation into the NRA in 2019 in an attempt to dissolve the association. The NRA, which has been operational for over 149 years, has operated as a New York not-for-profit, charitable membership corporation. As a New York charity, it is legally required to serve the interests of its members and advance its charitable mission, and is subject to New York law in the governance of its internal affairs. This means that the attorney general of the state is responsible for overseeing the activities of New York not-for-profit corporations and the conduct of their offices and directors.

Before this, the NRA sued the state of New York in April 2020 over its decision to deem gun retailers as non-essential businesses that were subject to closure during the Covid-19 induced lockdown.

What is the lawsuit against the NRA about? With the lawsuit, James sought that it be dissolved over charges of illegal conduct and diversion of millions of dollars for personal use by its senior leadership.

The lawsuit charges the whole of NRA, including LaPierre, former Treasurer and Chief Financial Officer Wilson “Woody” Phillips, former Chief of Staff and the Executive Director of General Operations Joshua Powell and Corporate Secretary and General Counsel John Frazer, for failing to manage the body’s funds and failing to follow numerous state and federal laws, which has contributed to the loss of more than $63 million in three years for the organisation.

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A report published in the BBC in August quoted NRA’s President Carolyn Meadows as saying, “…this was a baseless, premeditated attack on our organisation and the Second Amendment freedoms it fights to defend.” In the US, the Second Amendment protects the right of the people to keep and bear arms for the protection of their life and liberty.

What does the complaint say against the four senior executives?

LaPierre: LaPierre has served as NRA’s CEO for nearly three decades, and the complaint alleges he exploited the organisation for his financial benefit, “the benefit of a close circle of NRA staff, board members and vendors.” The complaint also mentions a “poison pill contract” through which he has managed to continue his employment with the NRA even after his removal, and thereby ensuring NRA income for life, and to “intimidate, punish, and expel anyone at a senior level who raised concerns about his conduct.”

Further, he has been charged with handpicking Phillips, Frazer and Powell to facilitate the misuse of charitable assets. The complaint goes on to mention that LaPierre has used millions of dollars of the NRA’s charitable assets for private plane trips for himself and his family, adding that in the last five years, LaPierre and his family have visited the Bahamas by private air charter on more than eight occasions, at a cost of more than $500,000.

Phillips: Phillips served as the treasurer of the NRA from 1992-2018, during which he always reported to LaPierre. He has been accused of diverting millions of dollars towards entertainment and travelling expenses.

Powell: Powell served as the chief of staff and executive director of general operations, and was fired in January 2020 for misappropriating funds. When Powell first joined the NRA in 2016, his salary was set at $250,000, which was increased to $500,000 within a month by LaPierre and Phillips. Powell’s predecessor, who served as the chief of staff for 35 years, had a base salary of approximately $350,000 at the time of her retirement. Powell was also reimbursed over $130,000 as rent towards his residence in Virginia.

Frazer: The complaint mentions that LaPierre hired Frazer as General Counsel in 2015 without reviewing his qualifications or “determining whether he had sufficient legal expertise and experience for the role.”

“Frazer permitted the NRA to secretly pay millions of dollars to several board members through consulting arrangements that were neither disclosed to, nor approved by, the NRA Board,” the lawsuit states.

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First published on: 16-01-2021 at 06:35:20 pm
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