USA Gym­nas­tics files for bank­ruptcy af­ter sex-abuse scandal

Yuma Sun - - SUN SPORTS -

USA Gym­nas­tics is turn­ing to bank­ruptcy in an at­tempt to en­sure its sur­vival.

The em­bat­tled or­ga­ni­za­tion filed a Chap­ter 11 bank­ruptcy pe­ti­tion on Wed­nes­day in an ef­fort to reach set­tle­ments in the dozens of sex-abuse law­suits it faces and to avoid its po­ten­tial demise at the hands of the U.S. Olympic Com­mit­tee.

USA Gym­nas­tics filed the pe­ti­tion in In­di­anapo­lis, where it is based. It faces 100 law­suits rep­re­sent­ing over 350 ath­letes in var­i­ous courts across the coun­try who blame the group for fail­ing to su­per­vise Larry Nas­sar, a team doc­tor ac­cused of mo­lest­ing them. Nas­sar, 55, worked at USA Gym­nas­tics and Michi­gan State Univer­sity for decades. He is serv­ing ef­fec­tive life sen­tences for child porn pos­ses­sion and mo­lest­ing young women and girls un­der the guise of med­i­cal treat­ment.

Kathryn Car­son, the re­cently elected chair­woman of USA Gym­nas­tics’ board of di­rec­tors, said the or­ga­ni­za­tion’s goal is to speed things up af­ter me­di­a­tion at­tempts failed to gain trac­tion.

“Those dis­cus­sions were not mov­ing at any pace,” Car­son said. “We as a board felt this was a crit­i­cal im­per­a­tive and de­cided to take this ac­tion.”

The fil­ing does not af­fect the amount of money avail­able to vic­tims, which would come from pre­vi­ously pur­chased in­sur­ance cov­er­age, she said. Car­son said the in­sur­ance com­pa­nies “are aware we’re tak­ing this ac­tion and our ex­pec­ta­tion is they will come to the ta­ble and pay on our cov­er­age.”

Car­son added: “This is not a liq­ui­da­tion. This is a re­or­ga­ni­za­tion.”

John Manly, an at­tor­ney rep­re­sent­ing dozens of women who have pend­ing law­suits against USA Gym­nas­tics, chas­tised the or­ga­ni­za­tion for con­tin­u­ing to “in­flict unimag­in­able pain on sur­vivors” and en­cour­aged law en­force­ment of­fi­cials to “re­dou­ble” their in­ves­tiga­tive ef­forts.

“To­day’s 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,” Manly said in a state­ment. “The lead­er­ship of USA Gym­nas­tics has proven it­self to be both morally and fi­nan­cially bank­rupt.”

USA Gym­nas­tics in­sists that’s not the case, stress­ing that the fil­ing is based on le­gal ex­pe­di­ency, not fis­cal dis­tress.

While Car­son ac­knowl­edged that spon­sor­ship is down since the first women came for­ward against Nas­sar in the fall of 2016, she de­scribed the fi­nan­cial con­di­tion of USA Gym­nas­tics as “sta­ble.”

USA Gym­nas­tics re­ported as­sets in a range of $50 mil­lion to $100 mil­lion and a sim­i­lar range of li­a­bil­i­ties, with 1,000 to 5,000 cred­i­tors. The or­ga­ni­za­tion said its largest un­se­cured cred­i­tor is for­mer pres­i­dent and CEO Steve Penny, who is owed $339,999.96. USA Gym­nas­tics is dis­put­ing Penny’s claim, though at­tor­ney Cathy Steege de­clined to get into the spe­cific na­ture of the dis­pute.

Penny re­signed un­der pres­sure from the USOC in March 2017. Two other pres­i­dents — Kerry Perry and for­mer U.S. Rep. Mary Bono — have fol­lowed in what has be­come a re­volv­ing door amid the or­ga­ni­za­tion’s hi­er­ar­chy.

It’s that chaos at the top that led the USOC to ini­ti­ate the process of re­mov­ing USA Gym­nas­tics as the sport’s na­tional gov­ern­ing body at the Olympic level — a step that’s taken only un­der the most ex­treme cir­cum­stances.

In an open let­ter to the gym­nas­tics com­mu­nity in Novem­ber, USOC CEO Sarah Hir­sh­land said “you de­serve bet­ter,” and that the chal­lenges fac­ing USA Gym­nas­tics were more than it was ca­pa­ble of over­com­ing as cur­rently con­structed.

Car­son said the le­gal ma­neu­ver­ing Wed­nes­day de­lays the USOC’s ef­forts to strip its des­ig­na­tion as a na­tional gov­ern­ing body.

“We al­ways have a di­a­logue go­ing with them and in­tend to make it clear with them we have a lot to talk about and we want to keep that go­ing,” she said.

USOC spokesman Pa­trick San­dusky said the com­mit­tee is re­view­ing the fil­ing’s po­ten­tial ef­fect on de­cer­ti­fi­ca­tion. “Fi­nan­cial sta­bil­ity and vi­a­bil­ity are es­sen­tial for a na­tional gov­ern­ing body to op­er­ate in the best in­ter­ests of the ath­letes,” San­dusky said.

USA Gym­nas­tics be­lieves bank­ruptcy pro­tects it from hav­ing op­por­tu­ni­ties or as­sets taken away by a debtor. Car­son ac­knowl­edged that be­ing a na­tional gov­ern­ing body “is a big part of how we raise our rev­enue.”

Car­son, who re­placed Karen Golz as chair­woman last week, said she ac­cepted the po­si­tion be­cause she be­lieves in the di­rec­tion of USA Gym­nas­tics, which she said doesn’t need money but rather time.

“We think we’re chang­ing the dy­namic and we cer­tainly be­lieve that we will try to re­main the NGB,” Car­son said. “To be clear, it is our lawyers’ firm be­lief that the bank­ruptcy will au­to­mat­i­cally stay (de­cer­ti­fi­ca­tion) ... and we will work with the USOC to re­gain cred­i­bil­ity.”

Ni­cholas Ge­or­gakopou­los, a bank­ruptcy ex­pert and law pro­fes­sor at the In­di­ana Univer­sity’s In­di­anapo­lis cam­pus, said USA Gym­nas­tics is “hop­ing for a mir­a­cle” with its le­gal ma­neu­ver­ing.

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