NRA Fraud Case Will Hurt But Won’t Kill Gun-Rights Behemoth (1)

Though it ticks off detailed examples of wrongdoing, the New York lawsuit claiming donors to the National Rifle Association have been ripped off for years is likely to be settled without the gun-rights group being forced to dissolve, legal experts said.

In a sweeping 164-page complaint on Thursday, New York Attorney General Letitia James said the NRA must be disbanded because of the “breadth and depth” of the frauds carried out by four current and former officials accused of squandering the non-profit’s cash on corrupt personal expenses.

But that drastic measure is just a starting point that could serve to push the NRA to make major personnel concessions and pay steep fines to avoid the risk of going to trial or being forced to shutter the organization.

“Dissolving a nonprofit corporation is a big deal, especially one as prominent as the NRA,” said Eric Chaffee, a professor at University of Toledo College of Law who has advised charities.

Seeking dissolution of a charity isn’t unheard of. President Donald Trump shuttered his charitable foundation and paid $2 million in damages last year after reaching a settlement with the attorney general, who accused the president and his children of rampantly violating nonprofit rules. Even after Trump admitted to errors under the deal, he continued to deny wrongdoing.

The suit filed against the NRA in Manhattan alleges the New York-chartered group was duped out of more than $60 million in the last three years alone as a result of financial sleights of hand by four current and former officials, including the NRA’s embattled longtime leader and public face Wayne LaPierre.

James is seeking an injunction that would bar the four men from ever serving as fiduciaries of nonprofits. She said they got inflated salaries, used NRA assets for extravagant spending and arranged no-show contracts for insiders -- claims the NRA vehemently denies.

Read More: New York Sues to Dissolve NRA, Claiming Massive Financial Fraud

“We will aggressively defend this organization and its members,” William A. Brewer, the NRA’s lawyer, said in a statement. “The truth is, the transactions in question have been reviewed, vetted and approved -- and every dollar spent by the NRA has been in furtherance of its mission to defend constitutional freedom.”

The NRA counter-sued James in federal court, accusing her of violating its First Amendment rights. In a statement, the NRA accused James -- who vowed to “target the NRA” while running for office in 2018 -- of weaponizing her regulatory and legal power under the guise of protecting state residents.

James Tierney, a lecturer at Harvard Law School who has taught courses on the role of state attorneys general, said the NRA’s suit is “foolish” and that the New York case is an “appropriate” response to the NRA’s refusal to cooperate.

“This case has been developed by highly sophisticated people who’ve been in the business of charities regulation since long before Tish James,” said Tierney, who served as attorney general of Maine for a decade until 1990. “These people have gone through thousands of pages of documents and they’re accountants -- they’ve tracked all the numbers over the years.”

James’s case, triggered in part by a power struggle between LaPierre and former NRA president Oliver North, may pose one of the biggest legal threats to the NRA since its founding in New York in 1871. But the nonprofit’s fate is far from certain, said Cindy Lott, an associate professor of professional practice at Columbia University.

“There is a spectrum of remedies available,” said Lott, who previously served as executive director to the national state attorneys general program at Columbia Law School, specializing in charities regulation. One option is to seek a “reset” without the current leadership, she said.

“It’s a wildly popular nonprofit that does a lot of work for a lot of people,” Lott said. “It’s not all or nothing.”

James Fishman, author of a book on New York nonprofit law, said the NRA could save itself by parting ways with LaPierre and other alleged offenders accused of breach-of-duty.

“What the NRA will have to do is make a clean sweep of this,” said Fishman, a professor at Pace Law School in New York.

Outside Monitor

In a settlement, the NRA could agree to an outside monitor, institute corporate governance reforms and bring in new people who can be trusted to enforce New York’s strict laws governing charities, Fishman said. A trial would cost millions of dollars at a time when the NRA seems to be hurting for money, he said.

When the case is over, the NRA could move out of New York to Texas or some other friendly state, as Trump suggested Thursday. Even so, any state eyed by the NRA would still look at the findings in New York before determining whether to allow it to set up shop, Chaffee said.

All that assumes James will prevail, or at least offer compelling proof -- and the NRA insists she lacks that.

“It’s a transparent attempt to score political points,” NRA President Carolyn Meadows said in a statement.

To force dissolution under New York law, the state must show that NRA wrongdoing was “pervasive, not isolated conduct that’s substantial, over a substantial period of time,” Chaffee said.

With her lawsuit Thursday, New York’s attorney general seeks to do just that.

Read More: Private Planes for Family: NRA Spending That Drew Scrutiny

(Updates to include NRA countersuit filed against New York)

To contact the reporters on this story:
Erik Larson in New York at elarson4@bloomberg.net;
Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Steve Stroth

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