USA Gymnastics filed for bankruptcy Wednesday as the sports national governing body continues to reel in the wake of the Larry Nassar sexual abuse scandal.
The decision to file for Chapter 11 protection in U.S. Bankruptcy Courts Southern District of Indiana comes as the U.S. Olympic Committee continues with proceedings to strip USA Gymnastics of its national governing body status.
The bankruptcy filing, however, could provide at least some temporary relief for an organization facing legal challenges on several fronts. In addition to being under investigation by the Justice Department and law enforcement agencies in Texas, Indiana and Colorado, USA Gymnastics is facing dozens of lawsuits related to Nassar in several states.
The Chapter 11 filing should lead to an automatic stay on all legal proceedings and litigation, including discovery, against USA Gymnastics. The bankruptcy filing could also establish a bar date in which future claims against the organization could not be filed after a certain window.
“We owe it to the survivors to resolve, fully and finally, claims based on the horrific acts of the past and, through this process, seek to expedite resolution and help them move forward,” Kathryn Carson, USA Gymnastics new board chairman, said in a statement. “Our sport is safer and stronger thanks to the bravery of these women. The Chapter 11 filing and the expedited resolution of these claims are critical first steps in rebuilding the communitys trust.
The filing is the latest embarrassment for USA Gymnastics which has seen the Nassar scandal and top officials alleged attempts to cover up his decades of sexual abuse cast a shadow over Team USAs domination of global womens gymnastics this decade.
USA Gymnastics chief executive Steve Penny was forced to resign under pressure from the USOC in March 2017. He was arrested in October after a Walker County, Texas grand jury indicted him on felony evidence tampering charges. The indictment alleges Penny was involved in the removal and destroying and/or hiding of medical records from the Karolyi Ranch in central Texas, the longtime training site of the U.S. womens national and Olympic team.
USA Gymnastics national teams manager Amy White, on Pennys orders, removed several boxes of medical records and other documents relevant to the Nassar investigation from the Karolyi Ranch, according to a sworn deposition by Rhonda Faehn, the former USA Gymnastics vice president for the womens program.
Kerry Perry, Pennys replacement, was forced out of those positions in September after nine scandal-plagued months on the job. Perrys removal came just four days after USA Gymnastics asked veteran coach Mary Lee Tracy to resign as the organizations elite development coordinator after just three days on the job.
Tracys forced resignation came after USA Gymnastics officials said she improperly contacted Olympic champion Aly Raisman, who is suing the organization. Raisman, who was sexually abused by Nassar, had criticized Tracys appointment because Tracys support of Nassar when allegations of his sexual misconduct first began to surface.
Former congresswoman Mary Bono resigned as USA Gymnastics CEO in October after just four days on the job. Bono has generated more than $1.5 million in lobbying fees over the past three years for a firm that played an initial role in USA Gymnastics alleged cover up of the Nassars sexual abuse.
“Todays bankruptcy filing by USA Gymnastics was the inevitable result of the inability of this organization to meet its core responsibility of protecting its athlete members from abuse,” John Manly, an attorney for several Nassar survivors, said. “The leadership of USA Gymnastics has proven itself to be both morally and financially bankrupt.They have inflicted and continue to inflict unimaginable pain on survivors and their families. They are incapable of meeting their obligations as an Olympic governing body.
“The bankruptcy filing follows more than two years of organizational chaos and attempts to cover-up the Larry Nassar scandal by destroying key documents, issuing false statements to the public, obstructing criminal investigations and attempting to silence victims of child sexual abuse.”
USA Gymnastics, which has tax exempt non-profit status, reported $34.47 million in revenue for the fiscal year 2016, according to filings with the Internal Revenue Service. The organization also reported $11.8 million in assets, $8.7 million in liabilities.
The National Gymnastics Foundation Inc., created to support charitable and educational programs for USA Gymnastics, listed $16.27 million in assets in 2016 with only $788 in liabilities.
Michigan State reached a $500 million settlement with more than 300 of Nassars survivors in May. Nassar was a longtime member of the universitys sport medicine staff. Under the terms of the settlement $425 million was paid to 332 known Nassar survivors with an additional $75 million placed in a trust fund for future claimants.
USA Gymnastics said the survivors claims against the organization are covered by insurance previously purchased by USA Gymnastics. The the amount of available insurance proceeds is not affected by the Chapter 11 filing, the organization said. USA Gymnastics said other than these insurance proceeds it has “no other significant assets that could be used to pay claims.” “USA Gymnastics believes that the Bankruptcy Court is the best forum in which to implement appropriate procedures to equitably determine and allocate the insurance proceeds among claimants, allowing compensation to survivors to proceed more quickly than litigation filed in multiple courts around the country,” the statement said.
The Chapter 11 filing could also help the USA Gymnastics head off, at least temporarily, the USOCs decertification process.
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“If I was USAG and I wanted to stop decertification by the USOC I would go (to bankruptcy court) because it prohibits you from proceeding,” said attorney Jim Stang, who has written extensively on bankruptcy issues and served on the creditors committee in 13 child sexual abuse cases. “The bankruptcy court judge is like a traffic cop. Should I allow this decertification to continue? Or should I let it go for now or just stop it or keep the red light on? Is there something that can be worked out to keep USAGs value (to raise funds to pay creditors)? What is the value if USAG is decertified?”
The move could also enable the USOC as a related party to obtain a channeling injunction against future claims even without actually declaring bankruptcy itself.
Under this scenario the USOC would contribute to a settlement fund in exchange for being released from future claims. Channeling injunctions have been issued in all 13 child sex abuse cases Stang has been involved with since 2004.
“This bankruptcy filing will suspend all lawsuits by Nassar survivors and their ongoing efforts to discover the truth about who at USA Gymnastics and the US Olympic Committee knew about Nassars criminal conduct and failed to stop it,” Manly said.
USA Gymnastics said that by staying all actions against the organization the “Chapter 11 filing also allows USA Gymnastics to work with the United States Olympic Committee to determine the best path forward for the sport of gymnastics.” “We look forward to future conversations with the USOC to demonstrate our commitment at all levels to strengthening the organization and making gymnastics the best it can be for athletes at all levels,” Carson said. “USA Gymnastics will continue with its day-to-day operations of directing and managing the sports business and implementing initiatives that put the safety and well-being of the athletes at the forefront.”
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