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NRA Leadership and Bankruptcy Assailed by U.S. Trustee

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The National Rifle Association’s hopes of ending a legal challenge in New York were hit hard on Monday when a Justice Department official rebuked his leadership, calling for his bankruptcy petition to be dismissed or for an outside monitor to be appointed to oversee his finances.

Lisa L. Lambert, an attorney in the US Trustee’s office, which is part of the Department of Justice, said the “evidence is clear and convincing” that Wayne LaPierre, longtime chief executive of the NRA, “failed to ensure proper oversight. For several years she added, “The record is beyond dispute that Wayne LaPierre’s personal expenses look like business expenses.”

Mr LaPierre and the NRA had filed for bankruptcy, not because of financial difficulties, but as a litigation avoidance strategy in New York, where Attorney General Letitia James is trying to shut down the organization and reclaim millions of dollars in allegedly misdirected funds from Mr LaPierre and three others current or former executives.

The NRA was chartered in New York a century and a half ago, but has filed for bankruptcy in federal court in Dallas and tried to move its charter to Texas, where politicians are far more affordable to the organization. However, the position of the US Trustee’s office, which was reflected during the final skirmish on the final day of the trial, is likely to weigh on Presiding Judge Harlin D. Hale, who said he would rule by early next week. The United States Trustee Program oversees the integrity of the country’s bankruptcy courts.

NRA attorney Gregory Garman appeared a little nervous as the U.S. trustee weighed in on the final day of the trial. While saying, “I respect immensely,” he also suggested that politics might be at play, though critics of the NRA’s management are growing to the right, including former NRA President Oliver L. North.

“I’m disappointed to hear for the first time in closing arguments that the United States Trustee has now taken a position that I expect to respond to in real time, but that is exactly it,” Garman said. “Your Honor, we have natural enemies. This Justice Department may not see the National Rifle Association on an equal footing, but we did the right thing. “

Bankruptcy experts said the U.S. trustee’s move was rare.

“The NRA is in real trouble,” said Adam J. Levitin, a bankruptcy professor at Georgetown University. “The US trustee is rarely involved in this type of application, much less pushing for dismissal, a trustee or an auditor. I can’t see a result that leaves the NRA unscathed. I think the real problem is what remedy the judge grants. “

John Pottow, who teaches bankruptcy at the University of Michigan Law School, described the trustee’s intervention as “a blatant signal of a profound malfunction” at the NRA, adding that such trustee intervention “is not very common.”

The process has highlighted concerns about the oversight of Mr LaPierre. Mr. LaPierre testified that he had bankrupted the NRA without telling even his top lieutenants or most of its board of directors. He testified that he did not know that his former CFO had received a $ 360,000 a year consulting contract after leaving under a cloud, or that his personal travel agent, hired by the NRA, had a 10 percent booking fee chartered flights on a holder that could reach US $ 26,000 per month.

Mr. Garman said in his closing arguments that the organization’s misconduct, while “horrific,” was relatively minor and did not result in the appointment of an outside oversight like a trustee.

“I have experience with overseas bank accounts. I have experience with a lack of funds in appointing a trustee,” he said, adding that this is not the case here. “The National Rifle Association has set up their ship.”

Ms. Lambert, the U.S. Assistant Trustee in Dallas, disagreed, exposing episodes of alleged corruption by Mr. LaPierre and other NRA officials, some of which were undisputed during the trial. She cited spending by the NRA or its contractors on bespoke Zegna suits for Mr LaPierre, meals at a posh Tuscan restaurant in Northern Virginia and charter flights for him and his family, as well as a plan being worked out for the purchase of a multimillion-dollar house for the use of Mr. LaPierre and his wife, which was ultimately abandoned.

Regarding the charter flights, she said, “LaPierre says this is for safety but the evidence says he picked up the family. The evidence indicates that additional stopovers were not recorded on the accounting records. And the testimony is undisputed that no NRA policy allows charter flights. “

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

Mr Garman said throughout the process that there was a “demarcation line” in 2018 when the NRA carried out a self-assessment and corrective action. Ms. Lambert said, however, that the evidence presented at the 12-day trial showed that “even after the self-described course correction, the irregularities were not resolved,” and that Craig Spray, the former CFO, among others, refused to sign the tax returns NRA for 2019.

“The NRA has stated that it is seeking refuge from the actions of the New York attorney general and that it wishes to change its founding state,” she added. “That can happen outside of bankruptcy. It is not a legitimate reason for bankruptcy. “

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Robert Dunfee