NY Expert Witness Report

It’s by Jeffrey Tenenbaum, an attorney in nonprofit law. He’s an expert witness hired by NY, so don’t expect him to impartial, but it gives us an idea of what NY will be arguing at trial. It gets lively on p. 29. It starts off with David McKenzie, owner of MMP and other NRA vendors.

“Between 2014 and 2020, the MMP Entities have received approximately $100 million from the NRA. The evidence shows that at least approximately $44.8 million of that sum was not contemplated under the terms of the original written agreements. LaPierre was involved in negotiating with the MMP Entities and managing their performance. At the same time, LaPierre had a close personal relationship with McKenzie, as Phillips knew. LaPierre and his family were receiving lavish gifts from McKenzie, including multiple trips on his yachts and luxury vacations to other destinations.”

“LaPierre testified that he personally suggested to David McKenzie to acquire PM Consulting, the predecessor firm to the MMP Entities where LaPierre’s wife had worked, around the year 2011. McKenzie then acquired PM Consulting and created the MMP Entities to take over its business operations. It was shortly thereafter in December of 2011 that the NRA entered into its first contracts with the MMP Entities, which were signed by LaPierre and Phillips. Since that time, the NRA’s payments to the MMP Entities have grown, with the amounts being paid to the entities increasing based upon verbal approvals given by Wayne LaPierre and Wilson Phillips.

LaPierre testified that between 2013 and 2018, he and his wife took multiple trips with David McKenzie and his wife, which were paid for by the McKenzies, in London, Monaco, Montenegro, China, and India. On several occasions, the McKenzies paid the airfare for LaPierre and his wife – sometimes on a commercial airline and sometimes to fly on a private chartered flight – and either paid for the LaPierre’s lodging on land or provided free lodging on one of their two yachts – the Illusions, the McKenzie’s yacht located in the Bahamas, and the Grand Illusions, their yacht located in Europe.”

“LaPierre also testified that during that same time period, he and his wife took at least six vacations to the Bahamas where they stayed on the Illusions. For these trips, the NRA paid for the LaPierres’ private charter travel to the Bahamas. According to LaPierre ‘s testimony, on one of these trips, members of LaPierre’s family also stayed on the Illusions yacht to attend the wedding of LaPierre ‘s niece. LaPierre also testified that his wife and her friends vacationed on the Illusions, without charge, at least two or three times without LaPierre present. On all of these trips, meals were prepared by a private chef aboard the yacht.”

The NRA recently disclosed that it has renegotiated its contractual relationship with the MMP Entities, and now has a single contract with Allegiance that covers the services previously performed by the three MMP Entities. LaPierre, Rowling, and Frazer all testified that LaPierre recused himself from participating in any negotiations regarding this new contract. But a memorandum of understanding between the NRA and Allegiance that was signed prior to the finalized contract bears LaPierre’s signature, and LaPierre is named as the “responsible executive” on the signature review sheet for the new contract. To this day, there is no evidence that the NRA’s Audit Committee has reviewed the relationship between LaPierre and the McKenzies, and the Audit Committee did not review the new Allegiance contract ahead of its signing.”

There are other things set out in the report:

“Between 2015 and the present, between 20 and 30 related party and conflict of interest transactions have been identified in the reports of the Audit Committee. Based on my experience, this is an extraordinary number of conflict of interest and related party transactions for any nonprofit organization.”

“Between 2015 to the present, the vast majority of the NRA’ s related party and conflict of interest transactions were reviewed by the NRA’ s Audit Committee after the fact – the NRA had already entered into the agreements and/or made payments to the related parties by the time the transactions were reviewed and approved.”

“On December 7, 2017, the NRA’s Audit Committee purported to approve payments to Hammer for the upcoming year from three different sources: (1) $50,000 from the NRA’s Institute for Legislative Action, (2) $84,000 from LaPierre’s personal budget, and (3) $216,000 to be paid in grants to Unified Sportsmen of Florida, an entity that Ms. Hammer heads. This was after Mr. LaPierre alleges that he began the NRA’s “course correction” in the fall of 2017.

A few weeks after the Audit Committee meeting, LaPierre signed a new contract with Ms. [Marion] Hammer, good through December 31, 2019, increasing her compensation from LaPierre’s EVP budget to $168,000 annually. LaPierre testified that he did not get the approval of the NRA’s Audit Committee prior to entering into the new agreement with Ms. Hammer, in violation of the NRA’s Conflict of Interest and Related Party Transaction Policy. LaPierre also did not obtain signatures of the President or a Vice President in violation of the NRA’s Procurement Policy. Then, months later, in April of 2018, LaPierre signed a second, ten-year-long contract with Ms. Hammer increasing her compensation to $220,000 annually out of LaPierre’s budget. There is no evidence that this contract was approved by the Audit Committee in advance, or that it had the appropriate signatures.”

The report goes into NRA’s policies on whistleblowers, which are that they should be well-protected, but on p. 47 lays out what was done to whistle-blowing directors and officers.

“North was not the only individual who was raising concerns over financial improprieties. As noted below, such concerns were also raised by Richard Childress, Esther Schneider, Sean Maloney, Timothy Knight, Allen West, and others. The apparent conflict that caused the NRA to view North as disingenuous did not apply to these other individuals, offering the NRA no excuse to ignore these concerns on account of alleged “bad faith.””

“West and/or Schneider drafted a “Resolution of NRA Board of Directors Points of Concern and Legal Exposure” that highlighted the following concerns:

• Withholding of financial information, specifically concerning “areas of risk” discussed in Finance and Audit Committee meetings;
• The unilateral decision by LaPierre to “suspend” the attorney to the NRA Board of Directors;
• Failure to inform the NRA Board of Directors of a pending lawsuit against one of its largest vendors, Ackerman-McQueen;
• The employment of NRA spokespersons through Ackerman-McQueen;
• Lack of consultation on certain programs (e.g., the Carry Guard program);
• Conflicts of interest between NRA employees and vendors (e.g., Josh Powell’swife hired as a consultant by an NRA vendor; past NRA President Pete Brownell’s ownership of a company that had a $3.1 million contract with the NRA; former NRA executive Wayne Sheet’s retirement from the NRA with an arrangement as a consultant for over $1 million);
• Ability of the NRA to make payroll; and
• Lack of internal audit controls within the NRA.

All three individuals who raised questions – Esther Schneider, Sean Maloney, and Timothy Knight – were denied or stripped of their NRA committee assignments following their whistleblower complaints. They were also subject to a letter issued by then-NRA President Carolyn Meadows to the entire board including members of the Audit Committee. . . . For example, [Willis] Lee stated in an email discussing the topic of committee assignments that” [t]he three [i.e., Schneider, Maloney, and Knight] should get zero committee chair nor VC. Zero… ‘If you shoot at the king, you better kill him.’ Wayne is still the king.””

“In regard to the NRA’s filing for bankruptcy, board member Judge Philip Journey filed an application seeking appointment of an examiner to review the finances of the NRA. Judge Journey was publicly disparaged and maligned through a letter issued by then-President Carolyn Meadows to the whole board with the help of John Frazer. He testified that his character was impugned by NRA leadership and an attorney for the NRA implied at a Board meeting that he was an enemy of the NRA and that he was not permitted to speak at the Board meeting although he was a Director.”

The report also goes into Craig Spray, NRA’s (honest) former treasurer:

“For example, in November 2020, then-CFO Craig Spray began questioning certain aspects of the NRA’s finances, specifically excess benefit transactions it was suddenly (and contrary to prior drafts) reporting on its 2019 IRS Form 990 information return. Specifically, Mr. Spray asked to review backup documentation regarding excess benefit transactions that were being disclosed, but was denied. Shortly thereafter, Mr. Spray was excluded from communications with NRA officers, and not included in planning for the bankruptcy or even informed that the NRA would be filing for bankruptcy. On or about January 28, 2021, LaPierre informed Spray that Spray was being terminated.”

It then goes into LaPierre’s use of chartered jets, which it states cost the NRA $4 million. “Because of the expense, private travel on chartered flights is very uncommon for nonprofit executives to use in the absence of extenuating circumstances warranting such an excessive expense. . . . LaPierre has flown almost exclusively by private charter for a decade.”

“Furthermore, LaPierre has caused the NRA to pay for private travel for his friends and relatives where no security or business justification exists. For example, LaPierre caused the NRA to pay for private travel for his niece and her daughter on multiple occasions without LaPierre present. And LaPierre would sometimes add extra stops to his own private air travel for the purpose of picking up or dropping off friends and family members.  LaPierre’s abuse of the NRA’s funds for personal travel for his friends and family violated his fiduciary duties to the NRA- and is something virtually unheard of in the nonprofit community, in my experience.“

And then there’s the use by high NRA officials of Ackerman McQueen credit cards, billed back to NRA. “Rather than using the NRA’s existing expense reimbursement process, NRA executives using the Ackerman credit cards or through direct Ackerman payments, were able to charge expenses to Ackerman with little or no accountability. These executive’s expenses were reimbursed by the NRA to Ackerman as expenses under the contract between the NRA and Ackerman.”

“Even more problematic, this scheme with Ackerman enabled NRA executives to convert the assets of the NRA and use them for their own personal benefit. Indeed, LaPierre recently repaid the NRA $100,563.55 that consisted in large part of excess benefits he received from Ackerman via this passthrough arrangement.”

The NRA’s response: “Rather than have the Audit Committee engage independent counsel, numerous witnesses testified that the Financial Service Division whistleblowers’ complaints were referred to Brewer to be addressed. The Brewer firm was similarly relied upon to address various other aspects of the NRA’s purported course correction. However, the Brewer firm lacked the independence necessary to conduct an appropriate investigation. The firm was (and still is) outside litigation counsel to the NRA and took direction from LaPierre, with whom the Brewer firm had a relationship in which it had a vested interest in maintaining. Indeed, the Brewer firm, shortly after being retained by the NRA in March 2018, became one of the NRA’s highest-paid vendors in 2019 and 2020 according to the NRA’s last two IRS Forms 990.”

“In light of the numerous breaches of their fiduciary duties and the applicable standard of care as set forth above, in my judgment, Wayne LaPierre and John Frazer should be dismissed. The Board and current NRA officers seem intent on avoiding any change that would affect LaPierre’s leadership. But they have demonstrated an inability to take appropriate action to address governance and finance issues. In the nonprofit world, this is often referred to as “founder’s syndrome,” in which the identity and interests of the founder/chief executive and of the organization are conflated.”

The report cites the NRA’s bankruptcy filing as an example of how its leadership have not changed their ways: “LaPierre breached his duty of care and loyalty to the organization, placing his own interests above the interests ofthe NRA. LaPierre’s action in excluding the Board and senior executives from the decision to enter into bankruptcy was, in my opinion, unprecedented, irresponsible and a breach of his fiduciary duty. His actions cost the NRA tens of millions of dollars and had other unintended negative side effects.”

It sounds like the NY Attorney General has a very strong case. Misconduct everywhere, costing the organization tens of millions, whistle-blower policies discarded and anyone (including directors and its treasurer) who dares speak out punished, a “course correction” that is nothing but a paper sham. Plus, a board too frightened to speak out, even when they know their organization is being looted and ruined.