Other Developments

Published date01 October 2020
Date01 October 2020
October 2020 7
Bruce R. Hopkins’ Nonpr ofit Counsel DOI:10.10 02/n pc
personal benefit and that of his family; to continue, by
use of a secret ‘poison pill contract,’ his employment
even after removal and ensuring NRA income for life;
and to intimidate, punish, and expel anyone at a sen-
ior level who raised concerns about his conduct.” The
effect, the complaint continues, “has been to divert
millions of dollars away from the charitable mission [see
above], imposing substantial reductions in expenditures
for core program services, including gun safety, educa-
tion, training, member services and public affairs.”
This lawsuit is not only against the NRA but also four
individual NRA executives, including LaPierre. The com-
plaint states that LaPierre hired and retained these three
individuals, “despite their lack of skills or experience for
their respective roles and responsibilities.” The accusa-
tion is that these four “regularly ignored, overrode or
otherwise violated the bylaws and internal policies and
procedures that they were charged with enforcing,”
causing diversion of “charitable assets” to benefit “NRA
insiders and favored vendors.”
The complaint asserts that the former treasurer and
CFO of the NRA (one of the individual defendants), at
the direction of the CEO, “instituted a practice whereby
millions of dollars in entertainment and travel expenses
incurred by NRA executives were billed to the NRA as
disbursements by the NRA’s largest vendor.” This practice
is said to have “evaded both the NRA’s own accounting
and Board-established expense reimbursement process,
and IRS requirements for proper expense reimburse-
ment.” Three of these defendants are said to have “reg-
ularly used this pass-through arrangement to conceal
private travel and other costs that were largely personal
in nature, wasting substantial charitable resources and
exposing the NRA to millions of dollars in potential liabil-
ity for violation of IRS reporting requirements.”
The NRA general counsel (one of the individual
defendants), selected by LaPierre, is characterized as
“unprepared” to manage the NRA’s legal and regulatory
affairs. He is said to have “little apparent knowledge of
the requirements of New York law governing not-for-
profit corporations.” He stands accused of “fail[ing] to
maintain and enforce whistleblower and conflict of inter-
est policies that met the requirements of applicable law.”
The complaint asserts that the NRA, at the direc-
tion of the individual defendants and “with a series of
failures of required oversights by the Board,” has “per-
sistently engaged in illegal and unauthorized activities
in the conduct and transaction of its business.” These
defendants are said to have “routinely circumvented
internal controls; condoned or partook in expenditures
that were an inappropriate and wasteful use of charita-
ble assets; and concealed or misreported relevant infor-
mation, rendering the NRA’s annual reports filed with the
Attorney General materially false and misleading.”
The attorney general is seeking court dissolution of
the NRA (1) based on the organization’s “pattern of
conducting its business in a persistently fraudulent or
illegal manner, abusing its powers contrary to public
policy of New York and its tax exempt status, and failing
to provide for the proper administration of its trust assets
and institutional funds,” and/or (2) because “directors or
members in control of the NRA have looted or wasted
the corporation assets, have operated the NRA solely
for their personal benefit, or have otherwise acted in an
illegal, oppressive or fraudulent manner.”
The attorney general also seeks an order directing the
individual defendants to account, make restitution, and
pay penalties resulting from their “breach of fiduciary
duties and their misuse of charitable assets for their own
benefit and interests.” The attorney general also wants
LaPierre removed as a director and officer of the NRA,
similar removal of the general counsel, and an injunction
barring the individual defendants from future service in
connection with any New York nonprofit organization
or one that solicits charitable contributions in the state.
LaPierre issued a statement declaring that the lawsuit
is an “unconstitutional, premeditated attack aiming to
dismantle and destroy the NRA — the fiercest defender
of America’s freedom at the ballot box for decades.” He
added: “We’re ready for the fight. Bring it on.”
In an analytic piece/article, a writer in The New York
Times proclaimed that “[l]egally, nonprofits are required to
be independently managed by a board of directors.” No
one apparently ran that one by a lawyer — the statement
simply is not true. In his zeal to malign public universities
for “teaming up” with oft-criticized for-profit colleges,
this writer attempted to make the case that a nonprofit
corporation taking over the assets of a for-profit uni-
versity is illegally being controlled by the University of
Arizona. As the US Court of Appeals for the DC Circuit
once said, “Fiddlesticks” (see the August 2019 issue).
Nonprofit organizations, including charitable and educa-
tional ones, are controlled by other organizations all the
time — quite legally. Sometimes, the entities doing the
controlling are for-profit companies. [e.g., 29, 30]
The IRS has created an Enterprise Digitalization and
Case Management Office, intended to “spearhead IRS
efforts to empower taxpayers and IRS employees to
rapidly resolve issues in a simplified digital environment”
(IR-2020-166 (July 21)). This new stand-alone office “will
focus on enhancing the taxpayer experience by improv-
ing business processes and modernizing systems.” The
office “will apply agile, customer-centered thinking and
draw on leading industry test-and-learn practices to
rapidly identify what combination of business process
and technology works best for the IRS’s customers and
employees.” “In the digitalization space,” the IRS said,
a “portfolio-based approach [see last month’s issue]

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