DC AG Complaint Against NRA and NRA Foundation
As the regulator of charities in the District of Columbia, the Washington D.C. Attorney General (“DCAG”) filed a complaint against the NRA and NRA Foundation in D.C. Superior Court on August 6, 2020. The NRA Foundation, which is a 501(c)(3) organization of the NRA, is chartered in Washington D.C. The DCAG’s complaint contains five causes of action against the defendants, including that the NRA Foundation exceeded and abused the authority of the charity, and that the Foundation acted contrary to the non-profit purpose of the NRA Foundation. The DCAG alleges that the NRA controlled the Board of Directors of the NRA Foundation and caused the Foundation to undertake actions not in the best interest of the NRA Foundation.
The crux of the allegations by the DCAG are that “in recent years, the NRA has experienced financial problems related, in large part, to low membership and the NRA’s decision to continue to waste funds on improper, lavish spending. To plug holes caused by its own poor management, the NRA turned to the Foundation’s funds.” (para. 2)
The DCAG is asking the Court to impose a constructive trust over the Foundation’s funds improperly diverted to the NRA, as well as seeking changes to the Foundation’s policies to ensure future independence from the NRA (p.23). Further, the complaint seeks an “independent receiver” appointed by the Court to “monitor all [NRA] Foundation decisions and transactions.”
The complaint contains the following factual allegations:
- The DCAG alleges “the Foundation has been operated as a wholly controlled subsidiary of the NRA, without independence or a separate identity from the NRA. The Foundation Board of Trustees, contrary to its fiduciary duties, repeatedly chose to serve the interests of the NRA above those of the charitable nonprofit purposes of the Foundation.” (para. 28)
- According to the complaint,. “[t]he NRA used its control over the Foundation to raid the Foundation’s funds. For instance, in October 2017, the NRA requested a $5 million loan from the Foundation’s Investment Committee.” When the NRA Foundation agreed to provide this loan, it did not “maintain any semblance of (or actual) independence from the NRA.” (para. 38-39)
- While the publicly available version of the complaint redacts what the NRA agreed the loaned funds would be used for (para. 41), the DCAG notes that the “loaned funds were intermingled into the NRA’s general financial accounts and neither the NRA nor the Foundation tracked how the funds were used.”
- The NRA requested a second $5 million loan from the NRA Foundation in 2018. (para. 45). By October 2018, the NRA Foundation realized “that the NRA was in default of a separate loan it had with a large national bank. As a result of the NRA’s default with the bank, the NRA needed the Foundation to drastically alter the terms of the Foundation’s second loan.” (para. 46)
- The maturity date on the second $5 million loan “came and went, and the NRA did not pay off the loan.” (para. 49). The Foundation agreed to an extension. According to the complaint, “in approving the first and second loans, including all extensions, the Foundation’s Investment Committee improperly abdicated operational control to the NRA, ignored their independent fiduciary duties to the Foundation, and permitted the NRA to divert the Foundation’s charitable funds for noncharitable purposes with dubious assurances that the loan would be repaid.” (para. 51)
- The complaint also focuses on the management fees paid by the NRA Foundation to the NRA (the NRA Foundation does not have its own employees and relies on the NRA to provide services to it). In September 2019, the NRA Treasurer told the NRA Foundation Board of Trustees that a “study” had determined these management fees should increase by over $5.8 million. (para. 53). The Board of Trustees was surprised by this request as it nearly doubled the Foundation’s management fees – yet the NRA Foundation voted to approve the increase and “the vote was taken without further investigation or negotiation, in a closed session meeting that lasted less than 50 minutes.” (para 56)
- After this increase in fees paid to the NRA, there was some move to investigate how management fees were determined by the NRA Foundation Board of Trustees. (para. 61). This included a request that “the Foundation engage an outside firm to conduct audits of the NRA-related quarterly funding and management fees…” (para. 62). After this request was made, Wayne Lapierre attended the next NRA Foundation Investment Committee meeting and said “it was not a good time to hire any sort of outside auditor or conduct any of the requested research.” (para. 63). No action was taken by the NRA Foundation.
- The DCAG points out the NRA Foundation’s Bylaws mandate “a majority of the members of Foundation Board of Trustees must also be Directors of the NRA, and all remaining members must be outstanding members of the NRA.” (para. 30). If that was not enough, the Bylaws further provide that the NRA President and NRA Executive Vice President (currently Wayne LaPierre), are automatically “ex officio” members of the NRA Foundation Board of Trustees with “full powers.” (para. 31). Finally, the NRA Foundation’s Executive Director is not selected by the Foundation’s Board, but instead by the NRA’s Executive Director of Advancement. (para. 33).