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

(Updated Jan 20, 2021)

“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.

January 2021 Update:

The NRA filed for Chapter 11 bankruptcy protection on January 15, 2021. A related press release of the same date available on the NRA website states: “The National Rifle Association of America (‘NRA’) today announced it will restructure the Association as a Texas nonprofit to exit what it believes is a corrupt political and regulatory environment in New York.” The “plan,” the statement describes, “involves utilizing the protection of the bankruptcy court.”

CharityWatch has reissued “?” ratings for both the NRA and NRA Foundation in January 2021. The “?” ratings are based on our concerns related to the pending litigation matters against the organizations, NRA’s bankruptcy filing, and the governance practices of the organizations. See the NRA and NRA Foundation rating pages for additional information.