U.S. trustee opposes NRA bankruptcy petition

The recommendation bolstered the arguments of New York Attorney General Letitia James, a Democrat, whose office has fought the NRA's attempts to relocate from New York to Texas, and came after senior NRA executives acknowledged in court testimony that they received lavish perks.

Linda Lambert, a lawyer with the U.S. trustee's office - which participates in bankruptcy cases to protect taxpayer interests and enforce bankruptcy laws - told the court that the evidence presented in the hearing showed that the nonprofit organization lacked proper oversight and that personal expenses were masked as business costs.

Adam Levitin, a bankruptcy expert at the Georgetown University Law Center, said the position of the trustee - a Justice Department official who typically remains neutral in a bankruptcy proceeding - does not bode well for the NRA.

"I don't see how the NRA pulls off a win here," he said, adding: "I think it's pretty clear that the NRA loses. The real question is what the remedy will be."

In court on Monday, NRA attorney Greg Garman expressed disappointment in Lambert's comments, saying: "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."

The NRA began considering bankruptcy last year after James filed a lawsuit seeking to dissolve the gun organization, alleging that senior NRA executives used the organization to benefit themselves and their friends.

The NRA responded by accusing the attorney general of pursuing a political agenda. The group announced in January that it was declaring bankruptcy and moving from New York, where it was founded in 1871, to Texas, where the state attorney general and other officials offered a warm welcome.

On Monday, Gerrit Pronske, an attorney for New York state, called the gun lobby's attempted move "a circus sideshow" designed to avoid legal accountability, warning that approving its reorganization plan risked turning bankruptcy courts into "a haven for wrongdoers."

Garman countered that the bankruptcy plan was vital to the survival and future success of what he termed "an irreplaceable" civil rights organization.

"There is no one who stands in the breach to defend the Second Amendment other than the NRA," Garman said in his closing arguments Monday afternoon.

The NRA has said it is in sound financial condition but needs to file for Chapter 11 bankruptcy protection because of the existential threat presented by James's lawsuit.

Judge Harlin Hale is considering the complex case from his Dallas courtroom, hearing requests through videoconference from New York state and other parties to dismiss the NRA bankruptcy petition and, if that fails, to appoint a trustee to run the organization while it is in bankruptcy.

Hale has said he expects to issue a decision in about a week.

The hearing called renewed attention to the inner workings of the long-powerful gun lobby as President Joe Biden and congressional Democrats have called for new gun regulations after a rash of deadly shootings across the country.

The NRA submitted a reorganization plan Monday that calls for payment of outstanding debts and leaving in place the current management - including longtime NRA chief Wayne LaPierre. The plan was approved Sunday in a closed-door meeting of the NRA board, according to a person familiar with the vote, who spoke on the condition of anonymity because he was not authorized to discuss the session.

NRA lawyers argued throughout the bankruptcy hearing that LaPierre has been an effective manager and a fundraising powerhouse for the group, which says it has more than 5 million members. The lawyers said LaPierre has imposed more rigorous fiscal management in recent years and noted that the reorganization plan calls for a compliance officer, a new position in the organization.

Under questioning from New York state's attorneys, LaPierre acknowledged that he did not disclose receiving lavish perks, including access to luxurious yachts and $300,000 in suits from an exclusive Beverly Hills boutique.

The hearing also pulled back the curtain on the internal actions of top NRA officials.

Several witnesses testified that LaPierre did not inform the full NRA board or its general counsel of plans to declare bankruptcy before announcing it publicly.

The NRA's current president, Carolyn Meadows, acknowledged in testimony read into the record that she destroyed notes and records in advance of subpoena from the New York attorney general. Meadows testified that the records that were discarded included medical information.

Attorneys for the NRA acknowledged during the hearing that "cringeworthy activity" had occurred in the past - but they maintained that governance had improved under LaPierre, who they said showed a willingness to fire NRA executives who had misused their positions.

"It is very, very true that we don't run from what happened before 2018, but, your honor, we are safe, we are secure, we are a well-run organization," Garman said Monday. "We have responsible new parties in place to ensure that the transparency, the trustworthiness that the court and the parties require is here."