NRA and NRA Foundation Facing Lawsuits—NY AG Seeks to Shutter NRA; DC AG Accuses NRA Foundation of Misusing Charitable Funds to Support NRA’s Wasteful Spending
Aug 07, 2020
“The NRA’s influence has been so powerful that the organization went unchecked for decades while top executives funneled millions into their own pockets,” said New York’s Attorney General (NY AG) in an August 6, 2020 press release announcing the filing of a lawsuit that seeks to dissolve the National Rifle Association (NRA). On the same day, the Attorney General for the District of Columbia (DC AG) announced a lawsuit against both the NRA and NRA Foundation alleging the misuse of charitable funds to support wasteful spending by the NRA and its executives.
Although related entities, the NRA is incorporated in New York as a 501(c)(4) tax-exempt, social welfare organization while the NRA Foundation is incorporated in the District of Columbia as a 501(c)(3) public charity. As a 501(c)(4) organization, the NRA is allowed to engage in lobbying and some partisan political activity, but donations to the NRA are not tax-deductible. As a 501(c)(3) public charity, contributions to the Foundation are tax-deductible, but those funds are required by law to be used “to benefit the public, not to support political campaigns, lobbying, or private interests,” as noted in the DC AG press release. The press release further states: “While the Foundation can provide financial support to the NRA, it can only fund NRA activities consistent with its own charitable purposes.”
NY AG Lawsuit: “Years of Illegal Self-Dealing…Funded Lavish Lifestyle of NRA Leaders”
The NY AG complaint charges the NRA “with illegal conduct because of their diversion of millions of dollars away from the charitable mission of the organization for personal use by senior leadership, awarding contracts to the financial gain of close associates and family, and appearing to dole out lucrative no-show contracts to former employees in order to buy their silence and continued loyalty,” according to the press release. The NRA is alleged by the NY AG to have fostered a culture of self-dealing, mismanagement, and negligence. Along with the NRA, the complaint charges four individuals—Wayne LaPierre, Executive Vice President; Wilson Phillips, former Treasurer and Chief Financial Officer; Joshua Powell, former Chief of Staff and Executive Director of General Operations; and John Frazer, Corporate Secretary and General Counsel—with “failing to manage the NRA’s funds and failing to follow numerous state and federal laws, contributing to the loss of more than $64 million” for the NRA over a period of only three years.
The press release describes that LaPierre, Phillips, Powell, and Frazer allegedly “overrode and evaded internal controls to allow themselves, their families, favored board members, employees, and vendors to benefit through reimbursed expenses, related party transactions, excess compensation, side deals, and waste of charitable assets without regard to the NRA’s best interests.” Some examples asserted in the 164-page complaint and noted in the press release include:
- LaPierre, without board approval, secured a post-employment contract for himself with the NRA that is currently valued at more than $17 million.
- LaPierre allegedly spent more than $3.6 million on unwarranted travel consultants, including for the booking of luxury black car services, in the last two years alone.
- LaPierre received more than $1.2 million in expense reimbursements in just a four-year period for expenditures that included gifts for favored friends and vendors; travel expenses for himself and his family; and membership fees at golf clubs, hotels, and other member clubs.
- Phillips, just before his retirement in 2018, obtained a contract for himself worth $1.8 million to purportedly provide monthly consulting services to the incoming treasurer, even though the current treasurer knew nothing about the contract and confirmed Phillips never consulted for him.
- Phillips set up a deal worth more than $1 million that benefited his girlfriend while failing to disclose the personal relationship on his conflict of interest disclosure forms.
- Powell received “sudden and substantial salary increases almost immediately after starting his position.” After a little over two years, his salary “more than tripled from the original $250,000 to $800,000, despite numerous complaints of abusive behavior and evidence of illegal conduct and inappropriate spending,” according to the press release.
- Frazer repeatedly failed to ensure that related party transactions were being addressed by NRA officers and directors and failed to enforce compliance with the NRA’s conflict of interest policy.
As a result of the allegations in the complaint, in addition to seeking a shut down of the NRA, the NY AG is, among other things, asking the court to order LaPierre, Phillips, Powell, and Frazer to make full restitution to the NRA for the waste and misuse of its charitable assets, including the return of salary received while breaching their fiduciary duties; pay penalties; and permanently bar each of them from serving as officers, directors, or trustees of any charitable organization in New York.
In response to the NY AG lawsuit, the NRA filed its own civil suit against the NY AG, Letitia James, on August 6th. The suit accuses James of defamation and violating the NRA’s rights to free speech. It alleges that James “‘made the political prosecution of the NRA a central campaign theme’ when she was running for the AG’s office in 2018, and has not treated the association fairly since,” according to August 6, 2020 reporting by Fox News.
DC AG Lawsuit: “Foundation Allowed NRA to Raid Its Coffers…”
The DC AG complaint alleges that the NRA Foundation violated DC laws “by allowing charitable funds to be used for noncharitable purposes, failing to operate independently, and placing the NRA’s interests ahead of its own charitable purposes,” according to an August 6, 2020 press release announcing the lawsuit. The complaint asserts that the Foundation’s board of directors was controlled by the NRA, and that contrary to its fiduciary duties, the Foundation’s board made financial decisions based on what was good for the NRA, not the Foundation. These financial decisions included the approval of multi-million-dollar loans to the NRA, even with the knowledge that the loans might not be repaid due to the NRA’s cash flow problems, and agreeing to pay the NRA millions of dollars in management fees without supporting documentation.
Specifically noted in the complaint are two $5 million dollar loans the NRA “demanded” from the Foundation in 2017 and 2018. The second loan, which after being in default for nearly three months in January 2020, had its maturity date extended for a second time to October 2020, has not yet been repaid by the NRA. The complaint also describes how the NRA has used annual management fees from the Foundation in recent years “to siphon off Foundation funds to cover the NRA’s misspending.” The Foundation, which does not employ its own staff, pays the NRA management fees to provide the services necessary to run its daily operations. In 2018, however, the NRA nearly doubled the Foundation’s “management fees” with an increase totaling over $5.8 million, including a “catch up fee” of nearly $4 million to be paid immediately. Despite being surprised by the NRA’s “determination to increase the management fees,” the Foundation’s board approved the increase and the $4 million immediate payment without receiving any documentation or assurances from the NRA that it was receiving fair value for its payments to the NRA or that the Foundation funds were being used exclusively for the Foundation’s charitable purposes, according to the complaint.
The DC AG is seeking to return the improperly wasted charitable funds back to the NRA Foundation. In addition, the complaint asks for the court to modify the Foundation’s governance policies to ensure proper independence from the NRA, and that the court require all current Foundation Board of Trustees and Officers to partake in charitable nonprofit corporate governance training.
Due to concerns related to their governance practices and the potential impact of those practices on the reliability of their financial reporting, CharityWatch issued a “?” rating for the both the NRA and NRA Foundation in February 2019 after reading reports of the respective investigations being conducted by the NY and DC attorneys general. In light of the allegations included in the lawsuits that have resulted from those investigations, CharityWatch warns donors that any contributions to the NRA or NRA Foundation at this time carry a significant risk of not being used for the purposes of fulfilling the NRA’s mission.