The NRA’s Fraudulent Bankruptcy Tossed Out; New York AG Can Now Dissolve The NRA

Update to U.S. Bankruptcy Trustee And New York AG Blow Up The NRA’s Fraudulent Bankruptcy.

Just as I anticipated, the Federal judge denies NRA attempt to declare bankruptcy in win for New York state attorney general:

A federal judge Tuesday denied an effort by the National Rifle Association to file for bankruptcy protection, ruling that the gun rights group had filed the case in a bad-faith attempt to fend off a lawsuit by the New York attorney general.

“The Court finds, based on the totality of the circumstances, that the NRA’s bankruptcy petition was not filed in good faith but instead was filed as an effort to gain an unfair litigation advantage in the NYAG Enforcement Action and as an effort to avoid a regulatory scheme,” Judge Harlin Hale wrote in a 37-page decision.

The decision was a victory for New York Attorney General Letitia James, who filed a far-reaching civil suit against the group last August accusing top officials of fraud and self-dealing. NRA chief Wayne LaPierre and his legal team had contended that the lawsuit was a political act intended to destroy the organization.

“The NRA does not get to dictate when and where it will be held accountable,” James told reporters after the ruling. “This decision sends a loud and clear message that no one is above the law — not even one of the most powerful lobbying organizations in the country.”

In January, the @NRA filed for bankruptcy in an attempt to evade accountability in New York, despite claiming to have plenty of financial reserves.

We sued the @NRA to put an end to its fraud and abuse, and now we will continue our work to hold the organization accountable.

— NY AG James (@NewYorkStateAG) May 11, 2021

Adam Levitin, who teaches bankruptcy law at Georgetown University Law Center, said the ruling was not surprising, calling the NRA’s petition “a poster child for a bad-faith filing.”

He said he did not think the organization had good arguments for appeal, noting that LaPierre’s position as head of the organization could be at risk in such a move.

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In his decision Tuesday, Hale cited “lingering issues of secrecy and a lack of transparency” in the management of the nonprofit. But he said he was most troubled by “the surreptitious manner in which Mr. LaPierre obtained and exercised authority to file bankruptcy for the NRA,” noting that the NRA chief had not informed the majority of the board of directors, the chief financial officer or the general counsel.

However, the judge declined to appoint a trustee or independent examiner to oversee the group’s finances, saying that testimony during the hearing suggested the organization had improved its internal controls and “that the NRA now understands the importance of compliance.”

OK, this is surprising. A Justice Department lawyer who protects taxpayers’ interests in bankruptcy proceedings had called for the rejection of the NRA’s petition or appointment of an independent trustee or an examiner.

Lisa Lambert, a lawyer with the U.S. trustee’s office, told the court that the evidence presented in the hearing showed that the nonprofit group lacked proper management and inappropriately paid for LaPierre’s personal expenses, including private jet travel and expensive suits from an exclusive Beverly Hills boutique.

James’s office had argued that the NRA’s bid for bankruptcy was an attempt to duck serious allegations of wrongdoing. Several other parties, including the NRA’s longtime public relations firm, joined the attorney general’s office in opposing the petition or seeking independent oversight of the group.

After Hale’s ruling, opponents of the NRA said that the group’s attempt to seek bankruptcy protection only made it more vulnerable to legal scrutiny.

“Today’s disastrous decision for the NRA shows that they can’t even file for bankruptcy correctly, which doesn’t bode well for the many lawsuits and investigations they must now face,” John Feinblatt, president of Everytown for Gun Safety, a nonprofit group that advocates for gun control, said in a statement. “The NRA was forced to hang its dirty laundry out for the world to see, and has nothing to show for it but another stack of legal bills.”

Shannon Watts, founder of Moms Demand Action, said in a statement that “the testimony, evidence, and resolution of the trial have further damaged what little is left of the NRA’s reputation, painting the clearest picture yet of a non-profit organization that prioritized extravagant perks and insider payments to its executives at the expense of its rank-and-file members.”

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Bankruptcy experts said that the evidence presented during the hearing made it difficult for the judge to allow the bankruptcy to proceed.

“The bankruptcy filing was a not too covert attempt to shield the NRA from the NY AG litigation and the Bankruptcy Court made it clear that it would not protect the NRA from New York’s regulatory power utilizing the Bankruptcy Code as a shield,” Eric Snyder, chair of the restructuring department of the Wilk Auslander law firm, said in an email.

The judge himself noted the unusual nature of the case last week, asking participants during the trial’s final arguments whether they thought the bankruptcy code permits a financially strong organization to file for bankruptcy to protect itself from actions taken in the public interest by another court.

Lawyers for the NRA acknowledged what one described as “cringeworthy” activities by NRA officials in the past but argued that management improvements had been instituted effectively.

However, a group of dissident members of the NRA board intervened in the case, saying most of the board and top organization officials were not informed in advance of LaPierre’s plan to file for bankruptcy and move to Texas. Some of them sought the appointment of an independent examiner to review the group’s financial management.

Wayne LaPierre is going to be made to pay restitution for all the skimming of NRA funds he has engaged in to support his lavish lifestyle over the years.

Thoughts and prayers for @NRA after it’s scam bankruptcy plan died today.

— David Cay Johnston (@DavidCayJ) May 11, 2021

BREAKING: A Texas bankruptcy judge granted an order seeking the dismissal of the Chapter 11 case of the NRA Tuesday afternoon, agreeing with the Office of the New York Attorney General and others that the case filed in bad faith. #nrabankruptcytrial https://t.co/R8O0EWn0bw

— Shannon Watts (@shannonrwatts) May 11, 2021

BREAKING: A federal judge has denied the NRA's ploy to declare bankruptcy, potentially paving the way for the New York attorney general to seize the organization's blood money and its enormous stockpile of both thoughts and prayers.

— Rex Huppke (@RexHuppke) May 11, 2021