Foundation Allowed NRA to Raid Its Coffers Through Multi-Million-Dollar Loans and Unjustified Fees
WASHINGTON, D.C. – Attorney General Karl A. Racine today filed a lawsuit against the NRA Foundation and the National Rifle Association (NRA) for misusing charitable funds to support wasteful spending by the NRA and its executives. In its lawsuit, the Office of the Attorney General (OAG) alleges that the NRA Foundation violated District 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. OAG also alleges that the Foundation’s Board of Directors was controlled by the NRA and allowed the NRA to exploit it through risky multi-million-dollar loans—including a $5 million loan that the NRA has never repaid. Additionally, the Foundation agreed to pay the NRA millions of dollars in fees without documentation of the work the NRA was performing or how it supported the Foundation’s charitable purposes. With this lawsuit, OAG is seeking to return the charitable funds improperly wasted on the NRA to the Foundation and a court order imposing changes to the Foundation to ensure it is operated independently and fulfills its charitable purposes.
“Charitable organizations function as public trusts—and District law requires them to use their funds to benefit the public, not to support political campaigns, lobbying, or private interests,” said AG Racine. “With this lawsuit, we aim to recover donated funds that the NRA Foundation wasted. District nonprofits should be on notice that the Office of the Attorney General will file suit if we find evidence of illegal behavior.”
The NRA Foundation is a 501(c)(3) charitable organization incorporated in the District of Columbia. While the Foundation is affiliated with the NRA, it operates independently. The Foundation collects tax-deductible contributions to be used for charitable, educational, and scientific purposes related to firearms, firearm safety, hunting safety, firearm history, and marksmanship, and it provides grants and sponsorships to organizations across the country related to these purposes. While the Foundation can provide financial support to the NRA, it can only fund NRA activities consistent with its own charitable purposes. The NRA is a 501(c)(4) social welfare organization incorporated in New York and registered to do business in the District. As a social welfare organization, the NRA can engage in political campaign activity, and donations to the NRA are not tax-deductible.
OAG investigation
In recent years, low membership and lavish spending left the NRA with financial problems. OAG’s investigation found that as the NRA struggled to pay its bills, it attempted to exploit the Foundation. Because the Foundation’s Board of Trustees and executives were controlled by the NRA, they ignored their obligations to the Foundation and prioritized the NRA’s interests.
In 2017, the NRA Foundation’s board approved a $5 million loan request from the NRA, despite awareness of the NRA’s financial problems. In 2018, the NRA requested a second $5 million loan, which the Foundation’s Board also approved. Later, the Board also granted repeated requests to extend and modify loan terms in ways that benefitted the NRA and harmed the Foundation—including a change that allowed the NRA to repay other debt before it repaid the Foundation. As of August 2020, the NRA still owes the Foundation $5 million.
OAG also found that the Foundation agreed to huge unjustified increases in the fees it paid the NRA to run the organization. Instead of employing staff to run daily operations, the Foundation pays the NRA to provide those services. In 2018, the NRA increased the Foundation’s “management fees” by nearly $5.9 million, including a $4 million “catch up fee” to be paid immediately. The Foundation did not receive documentation from the NRA showing that these payments were being used for charitable purposes, rather than for unrelated NRA work or prohibited political activities. Nevertheless, after a meeting lasting less than 50 minutes, the Foundation’s board approved the fee increase and the $4 million payment.
Lawsuit
OAG oversees nonprofit business activities in the District of Columbia. In its complaint, OAG alleges that the NRA Foundation’s trustees and officers violated the District’s Nonprofit Corporations Act by:
- Allowing charitable funds to be used for non-charitable purposes: The Foundation failed to provide the oversight necessary to ensure that fees it paid the NRA were being used to support its charitable purposes. In fact, OAG’s investigation revealed that the NRA wasted fees paid by the Foundation on, for example, lavish consulting agreements with individuals who provided no discernible benefit to the Foundation and its charitable purposes.
- Failing to uphold their fiduciary duty: Contrary to its fiduciary duties, the Foundation’s Board made financial decisions based on what was good for the NRA, not the Foundation. The Board approved multi-million-dollar loans to the NRA with the knowledge that the NRA had financial problems, and the Foundation might not be repaid. The Board also agreed to pay millions more in fees to the NRA without any apparent benefit to the Foundation.
- Abandoning the Foundation’s charitable purpose: The Foundation awards national grants and sponsorships to organizations across the country that meet its charitable purpose. These programs are funded from contributions made to the Foundation. By approving the two loans and the increase in management fees to the NRA, the Foundation undermined its own ability to make grants between 2017 and 2019.
- Placing the interests of the NRA above those of the Foundation: Under District law, the Foundation must have a Board of Trustees that acts independently and protects the Foundation’s interests. However, the NRA controls the election of Foundation trustees and the appointment of officers and there is a significant overlap between the membership of the Foundation’s Board and the NRA’s Board. As a result, the majority of the Foundation’s board did whatever the NRA requested without question, investigation, or inquiry into the best interest of the Foundation. Trustees typically voted in favor of NRA demands, even when those demands harmed the Foundation.
A copy of the complaint is available at: https://oag.dc.gov/sites/default/files/2020-08/NRA-Foundation-Complaint-Redacted.pdf
OAG is asking the court to impose a constructive trust over the amount improperly diverted to the NRA. OAG is seeking a modification of Foundation policies to ensure proper independence from the NRA and an order requiring nonprofit governance training for all Foundation officers and board members. The office is also seeking a court-appointed monitor to supervise financial decisions and transactions and ensure required policy changes are made.
OAG’s Nonprofit Enforcement Work
This lawsuit is OAG’s latest effort to ensure that nonprofits operating in the District spend their money for purposes that benefit the public, and to hold these organizations accountable when they break District law. Under AG Racine’s leadership, OAG has invested resources to expand this nonprofit enforcement capacity. Already, OAG has litigated and resolved actions against several District charter schools, and the president of a nonprofit that owned an affordable housing building, for mismanagement of nonprofit funds. The office has also sued the 58th Presidential Inaugural Committee for misusing funds for private enrichment, and took action against Howard Theatre Restoration, Inc. for failing to properly obtain financial audits. Several additional investigations remain open.
If you suspect that a nonprofit doing business in the District of Columbia is violating District law, please contact the Office the Attorney General at (202) 727-3400.