USA Gymnastics is running up millions in legal fees while in bankruptcy

Maggie Nichols was one of the breakout stars at the 2015 World Championships in Glasgow.

Nichols, who turned 18 only a month earlier, played a critical role in the U.S. winning the gold medal in the team competition; the only American to compete in all four events in the team final, she posted the highest individual all-around score for the round. She later came back to claim an individual bronze medal in the floor exercise.

Nichols’ performance is all the more impressive when considering it came just months after she became the first Team USA member to tell then USA Gymnastics CEO Steve Penny and other top officials that she had been sexually abused by Olympic and national team physician Larry Nassar, a revelation the organization, the U.S. Olympic and Paralympic Committee and the FBI concealed from the public, including other victims and potential future victims, for more than a year.

The distraction of USA Gymnastics’ reaction to the Nassar situation wasn’t the only obstacle Nichols faced in Scotland. U.S. national team director Martha Karolyi and her staff had limited Nichols’ and her teammates’ access to food to such a degree that parents had to resort to smuggling their daughters snacks, fruit and other items during the competition.

“They would meet me in the stairwell to give me food,” Nichols said.

Nichols recalled those clandestine meetings with her parents earlier this month when she was informed that attorneys for Jenner & Block, a Chicago-based law firm hired by USA Gymnastics to handle its bankruptcy case, charged $22,332.61 worth of meals over a three-day period in July 2019 to the organization.

“It about makes you physically ill,” said John Nichols, Maggie’s father.

USA Gymnastics in the two years since it filed for Chapter 11 protection in U.S. Bankruptcy Court’s Southern District of Indiana has rang up at least $13.6 million in legal fees, according to hundreds of pages of invoices and other documents related to the bankruptcy reviewed by the Southern California News Group.

USA Gymnastics has used the services of at least eight law firms, paying three of them at least $1.6 million, in the 25 months since the sport’s Indianapolis-based national governing body declared bankruptcy.

“I’m not really surprised,” Jamie Dantzscher, a 2000 Olympic medalist who was sexually abused by Nassar, said of the legal fees. “It’s just more evidence of how much money and medals matter to the institution and athletes do not.

“It’s just more evidence of their corrupt culture.”

The organization’s legal bills have continued to mount against the backdrop of stalled negotiations between USA Gymnastics and attorneys for the more than 500 survivors of Nassar and other high profile coaches’ alleged sexual abuse, a roundly rejected and controversial proposed settlement agreement, relentless criticism from former Olympians, national team members, and the public, increased Congressional scrutiny and largely unsuccessful attempts by USA Gymnastics to distance itself from the Nassar controversy which continues to loom over the sport and Olympic movement nearly six years since Nichols first confronted Penny.

“They continue to fail us,” Maggie Nichols said referring to USA Gymnastics. “It’s been six years and there’s really been no progress, just attorneys doing the wrong thing getting paid a lot of money.”

USA Gymnastics has compiled $5.7 million in fees with Jenner & Block, the firm representing the NGB in the bankruptcy case whose related stay continues to freeze all legal proceedings against the organization including the USOPC’s decertification of the NGB, and all actions related to hundreds of civil lawsuits and potential suits against USA Gymnastics and the USOPC related to alleged sexual abuse by Nassar, former Olympic and national team coaches Don Peters and Marvin Sharp.

Miller Johnson, a Michigan firm that handles much of USA Gymnastics’ non-bankruptcy legal issues has billed the organization $1.6 million since December 2018. Plews, Shadley, Racher & Braun, a firm specializing in insurance law, has billed $2.7 million during the same period. Pachulski, Stang, Ziehl & Jones has billed $2.4 million.

USA Gymnastics reported $107.8 million in assets, including $75 million in insurance, according to a 2017 audit, the last year before the organization filed for Chapter 11 protection.

“Bankruptcy puts up a force field that shuts down everything else,” John Nichols said. “There’s no discovery. It’s all frozen by the bankruptcy. It also puts up a roadblock to rebuild USAG and it also protects the USOC.”

The invoices and other financial records, former Olympic and national team athletes and their supporters maintain, also reveal USA Gymnastics’ priorities.

This 2019 photo provided by USA Gymnastics shows Li Li Leung. USA Gymnastics is turning to Leung, a former NBA executive, to help turn the embattled program around. (Wendy Barrows Photography/USA Gymnastics via AP)

During a period in which current USA Gymnastics CEO Li Li Leung has repeatedly said athlete safety is a priority for the organization, USA Gymnastics since filing for bankruptcy in December 2019 has accumulated $11.5 million more in legal fees than it has spent on its Safe Sport program ($1.84 million). USA Gymnastics spent just $900 on SafeSport in February 2020 or $692 less than a Jenner & Block attorney billed the organization for attending a 78 minute meeting that same month regarding a disclosure statement, according to invoices and financial statements. USA Gymnastics spent $408,890 on Safe Sport in October 2019 but in 17 of the 24 months covered by the invoices, the organization spent between $41,756 and $66,119 on the program. In eleven of those months the NGB spent less than $60,000 on Safe Sport.

Maggie Nichols estimates she received between $15,000 to $20,000 from USA Gymnastics for making the 2015 World Championship squad, helping the U.S. capture the team gold, and winning her individual bronze medal.

USA Gymnastics spent a total of $1.02 million on direct support to 73 elite athletes in 2019, the most recent year for which financial records are available. That’s an average of $14,014 in annual funding per gymnast. Three Jenner & Block attorneys—Catherine L. Steege, Melissa M. Root, Dean N. Panos—individually charged USA Gymnastics for more than $80,000 in monthly fees 10 times in 2019. Steege charged USA Gymnastics $120,785 in billable hours for January 2020.

Steege has an hourly rate of $1,100. She has billed USA Gymnastics $1.48 million since December 2018. Root, with an hourly rate of $890, has billed $1.39 million. Panos, whose rate is $1,050, has billed $909,700.

“They’re spending millions of dollars in bankruptcy to avoid paying damages to the survivors,” Dantzscher said. “It’s pretty disgusting actually.

“Obviously we’re dealing with a group of individuals that don’t care about athletes or what they went through. The numbers show it’s still business as usual for (USA Gymnastics). The numbers don’t lie.”

The invoices and financial documents also reveal USA Gymnastics’ preoccupation with image and branding.

There are invoices for negotiations with Nike and NBC, for communication plans, for legal advice on USA Gymnastics’ February 2019 announcement of Leung’s hiring, and a subsequent analysis by Miller Johnson of media reports on the hiring. Attorneys were retained to analyze articles in the Orange County Register and Wall Street Journal. USA Gymnastics even sought legal advice from Miller Johnson on a draft of a statement dealing with the “marketing” of the “rebranding of Safe Sport,” according to an invoice. Leslie King, then USA Gymnastics vice president for communications, routinely cleared press releases and other communication with Miller Johnson attorneys in 2019 and 2020. King contacted Miller Johnson attorneys as often as 16 times in a single month, invoices show.

The invoices also provide a road map of potential legal obstacles for USA Gymnastics.

The organization received a grand jury subpoena in April 2019, according to an invoice. The document does not indicate the jurisdiction of the grand jury.

The invoices also reveal multiple requests for documents from the U.S. Department of Justice Office of Inspector General and communication with an FBI agent who has frequently worked with the OIG.

The OIG since at least August 2018 has been investigating the FBI’s handling of the Nassar case, according to interviews and documents related to the case obtained by SCNG.

Between August and October 2018, OIG investigators and FBI agents from local field offices interviewed Nichols, Olympic champions Aly Raisman, McKayla Maroney and Jordyn Wieber, and their parents about the FBI’s investigation of Nassar, according to interviews and documents.

An OIG investigators’ report had been forwarded to the Justice Department’s Public Integrity Section, according to an attorney involved in the case. The Justice Department, however, has not released the OIG report. An OIG spokesperson said the report will be released upon completion of the investigation.

Penny was in regular contact with W. Jay Abbott, special agent in charge of the FBI’s Indianapolis office, from July 27, 2015 when the national governing body first contacted the FBI with allegations that Nassar had sexually assaulted Nichols and other Team USA gymnasts under the guise of performing medical treatment.

Penny not only kept Abbott and other FBI officials updated on the availability of potential victims to be interviewed by the FBI, and developments with Nassar, but also asked Abbott and other agents for advice and help in managing Nassar and the media, and in some cases for favors in how the FBI presented and handled the case, according to emails. The favors included Penny asking agents to withhold information from potential victims, according to emails.

During the FBI’s initial steps in investigating Nassar, Penny and Abbott also discussed on multiple occasions the possibility of Abbott becoming the U.S. Olympic Committee’s chief of security after his retirement from the bureau, an idea first floated by Penny, according to emails. Penny recommended Abbott to USOC officials during this same time period.

Nassar, according to court documents, sexually abused at least 40 young athletes between USA Gymnastics CEO Steve Penny’s first contact with the FBI agent in charge of the bureau’s Indianapolis office in July 2015 and September 2016, when Nassar’s abuse became public. The number of victims in that window could actually surpass 100, according to persons familiar with dozens of Nassar-related lawsuits.

Nassar is serving a 60-year federal prison sentence on child pornography charges. He was also sentenced in Ingham County, Michigan to 40 to 175 years for child sexual assault and 40-125 years in Eaton County, Michigan, on similar charges.

USA Gymnastics was also billed for updates on Texas litigation. The invoices do not include specifics of the litigation.

Former USA Gymnastics president Steve Penny invokes his right under the Fifth Amendment not to answer questions during a Senate Subcommittee on Consumer Protection, Product Safety, Insurance in 2018.(AP Photo/Carolyn Kaster, File)

Penny was arrested in October 2018 after a Texas grand jury indicted him on felony evidence tampering charges. The indictment alleges Penny ordered the removal of documents from the Karolyi Ranch related to Nassar’s activities.

Penny was fired as USA Gymnastics CEO and president in March 2017 under pressure from the USOPC. He has denied any wrongdoing.

Penny has filed a claim with the bankruptcy court for $602,890 in compensation, according to records.

Jenner & Block billed USA Gymnastics $51,342 for a March 2020 meeting with the Indiana attorney general as well as meetings, and calls related to the meeting, and discussions of “talking points” for the meeting, according to invoices.

“As part of our commitment to cooperation and transparency, representatives of USA Gymnastics periodically meet with the Indiana Attorney General’s Office to update them on the organization’s progress and answer any questions they may have,” USA Gymnastics said in a statement.

Michigan State police requested USA Gymnastics in April 2019 provide documents related a police investigation into a “Safe Sport” matter, according to a Miller Johnson invoice. Nassar continued to work with young athletes as a member of the Michigan State sports medicine staff for 16 months after Penny was first notified about the physician’s abuse of Nichols.

Child protective services agencies in at least 17 states have requested USA Gymnastics turn over documents, according to Miller Johnson invoices.

USA Gymnastics also had Miller Johnson analyze 2019 correspondence between Sen. Chuck Grassley (R-Iowa), then chairman of the Senate finance committee, and the USOPC, a letter from the USOPC to the Senate.

There are also invoices for dealing with Senate and House sub-committee requests for documents for Congressional investigations that would lay the groundwork for the passage of the Empowering Olympic, Paralympic, and Amateur Athletes Act last year. The landmark legislation that places the USOPC under Congressional scrutiny and is designed to eradicate a culture  within American Olympic sports that enabled and ignored decades of sexual abuse of young athletes became law in October, giving Congress mechanisms to dissolve the USOPC’s board of directors and decertify NGBs.

“USA Gymnastics has fully cooperated with all independent investigations led by several congressional committees, law enforcement, and other investigatory bodies; and we will continue to cooperate,” the NGB said in its statement. “We are deeply committed to learning from their findings so that we can better protect athletes in the future.”

Miller Johnson also reviewed for USA Gymnastics proposed legislation in Maryland that would strengthen safety standards for organizations and businesses involved in youth sports.

The invoices include frequent conference calls with Leung on strategy related to both the bankruptcy proceedings and other litigation. There was also an April 2019 Miller Johnson review of a Senate committee report to provide “recommendations” for Leung to “make to the committee.”

The documents also detail frequent calls, sometimes as many as 25 a month, between Mark Busby, USA Gymnastics general counsel, and attorneys at outside firms.

Busby resigned his position on January 15 after less than three years on the job amid widespread criticism of his and USA Gymnastics handling of a series of high profile abuse cases. Busby received $175,958 in total compensation in 2019, according to a filing with the Internal Revenue Service. That compensation is not included in figures generated by the invoices.

“They continue to give the impression that they have no funds, no assets,” John Nichols said. “They say they’re not able to settle, they’re not able to go to mediation. But they’re willing to spend any amount of money to protect themselves. They’ll definitely spend money to protect the brand, protect their image. But they have total disregard for the athletes, victims, survivors.

“They’re spending a lot of money to not do the right thing. They’re doing everything they can not to do the right thing.”

USA Gymnastics proposed a $217 million settlement with survivors as part of a reorganization plan filed with the bankruptcy court in early 2020. A disclosure statement filed with the court outlined a tiered pay-out plan where USA Gymnastics would pay $1.25 million to former Olympic and World Championships team members who were abused by Nassar but $82,550 to others.

Other proposed terms are just as significant for survivors.

The settlement agreement also called for the release of the USOPC, Penny and former national team directors Bela and Martha Karolyi, Peters and others from all claims, without a requirement that USA Gymnastics or the USOPC release documents that would address the extent to which USA Gymnastics and USOPC officials were aware of the predatory behavior of Nassar and others and what steps they allegedly took to conceal that sexual abuse from unknowing potential victims.

The 77-page filing specifically states that if they approve the settlement agreement, the 517 Nassar survivors would agree to release “any and all claims arising from or related to Abuse Claims or Future Claims.”

“USA Gymnastics, we gave our blood and sweat and time to try and win medals for them and they treat us like trash,” said Jeanette Antolin, a former U.S. national team member and Nassar survivor who has been one of the fiercest critics of USA Gymnastics.

“Money does not fix things. Money doesn’t fix anything. I don’t care if they offer $1 million or $10 million. We want justice. There are people who belong behind bars for what they did.

“I had moved on. The last thing I wanted to do was go back there. I gave up all that a long time ago. It’s about the future lives and children who are going to be in this sport.”

Attorneys for 512 of the 517 survivors who said they were sexually abused by Nassar and other USOPC and USA Gymnastics national team coaches and officials told SCNG last March that none of their clients would vote to accept the proposed settlement.

Nearly a year later the case continues and USA Gymnastics legal bills continue to mount.

“The knife has been stuck in us and it keeps getting twisted year after year after year,” John Nichols said. “We’re to the point where you think, where do we go from here? You feel helpless, hopeless.”

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