The National Rifle Association’s hopes of end-running a legal challenge in New York were dealt a serious blow on Monday when a Justice Department official rebuked its leadership and called for the dismissal of its bankruptcy filing or the appointment of an outside monitor to oversee its finances.
Lisa L. Lambert, a lawyer in the United States Trustee’s office, which is part of the Justice Department, said the “evidentiary record clearly and convincingly establishes” that Wayne LaPierre, the longtime N.R.A. chief executive, “has failed to provide the proper oversight.” For a number of years, she added, “the record is unrefuted that Wayne LaPierre’s personal expenses were made to look like business expenses.”
Mr. LaPierre and the N.R.A. had filed for bankruptcy not because of any financial distress, but as a strategy to avoid litigation in New York, where the attorney general, Letitia James, is seeking to shut down the organization and claw back millions of dollars in allegedly misspent funds from Mr. LaPierre and three other current or former executives.
The N.R.A. was chartered in New York a century and a half ago, but it filed its bankruptcy case in federal court in Dallas and is seeking to move its charter to Texas, where politicians are far more favorable to the organization. But the position of the U.S. trustee’s office, which weighed in during closing arguments on the final day of the trial, is likely to weigh on the presiding judge, Harlin D. Hale, who said he will decide by early next week. The United States Trustee Program oversees the integrity of the nation’s bankruptcy courts.
The N.R.A.’s lawyer, Gregory Garman, appeared somewhat flustered by the U.S. Trustee’s weighing in on the last day of the trial. While he said “I respect immensely” the office he also suggested politics might be at play, even though the critics of the N.R.A.’s management are growing on the right, and include the N.R.A.’s former president, Oliver L. North.
“I’m disappointed that I hear for the first time in closing arguments that the United States Trustee has now taken a position for which I’m expected to respond in real time, but that is what it is,” Mr. Garman said. “Your honor, we have natural enemies. This Department of Justice may not see eye to eye with the National Rifle Association, but so be it, we have done the right thing.”
Bankruptcy experts said the U.S. Trustee’s move was a rare one.
“The N.R.A. is in real trouble,” said Adam J. Levitin, a professor specializing in bankruptcy at Georgetown University. “The U.S. Trustee rarely gets involved in this sort of motion, much less urges dismissal, a trustee or an examiner. I cannot see an outcome where the N.R.A. comes out unscathed. I think the real issue is what remedy the judge grants.”
John Pottow, who teaches bankruptcy at the University of Michigan Law School, called the trustee’s intervention “a glaring signal of profound dysfunction” at the N.R.A., adding that such an intervention by the trustee “doesn’t happen very often.”
The trial has underscored concerns about Mr. LaPierre’s oversight. Mr. LaPierre testified that he took the N.R.A. into bankruptcy without telling even his top lieutenants or most of his board. He testified that he didn’t know his former chief financial officer had received a $360,000-a-year consulting contract after leaving under a cloud, or that his personal travel agent, hired by the N.R.A., was charging a 10 percent booking fee for charter flights on top of a retainer that could reach $26,000 a month.
Mr. Garman said in his closing arguments that the wrongdoing of the organization, while “cringe-worthy,” was relatively minor and did not rise to the level of appointing outside oversight, like a trustee.
“I’ve had experience when there are foreign bank accounts, I’ve had experience when there is missing money appointing a trustee,” he said, adding that was not the case here. “The National Rifle Association has righted its ship.”
Ms. Lambert, the assistant U.S. trustee in Dallas, disagreed, laying out episodes of alleged corruption by Mr. LaPierre and other N.R.A. officials, a number of which were not disputed during the trial. She cited spending by the N.R.A. or its contractors on tailored Zegna suits for Mr. LaPierre, meals at a fancy Tuscan restaurant in Northern Virginia, and charter flights for him and his family, as well as a plan that was drawn up to buy a multimillion-dollar house for the use of Mr. LaPierre and his wife that was ultimately abandoned.
Regarding the charter flights, she said: “LaPierre says these are for security, but the evidence says he picked up family. The evidence says that extra stops were not to be noted in the booking records. And the testimony is unrefuted that no N.R.A. policy authorizes charter plane flights.”
Mr. LaPierre’s close aide, Millie Hallow, even diverted $40,000 for her son’s wedding, Ms. Lambert noted, but beyond repaying that amount after she was caught, she “otherwise has suffered no additional consequences.”
Mr. Garman said throughout the trial that there was a “line of demarcation” in 2018, when the N.R.A. undertook a self-audit and corrective measures. But Ms. Lambert said the evidence presented in the 12-day trial showed that “even after the self-described course correction the irregularities were not fixed,” noting that, among other things, Craig Spray, the former chief financial officer, refused to sign the N.R.A.’s 2019 tax filings.
“The N.R.A. has stated that it is seeking refuge from the New York attorney general’s actions and wishes to change its state of incorporation,” she added. “That can be done outside of bankruptcy. It is not a legitimate reason for filing bankruptcy.”