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USA Gymnastics Files For Bankruptcy In Wake Of Larry Nassar Scandal

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USA Gymnastics filed for bankruptcy under Chapter 11 on Wednesday, December 5, in a move the national governing body hopes will help resolve 100 sexual abuse lawsuits.

How Will Bankruptcy Impact Sexual Abuse Lawsuits?

As is common, filing for bankruptcy will stay the myriad claims against USA Gymnastics, forcing sexual abuse survivors to work through the bankruptcy court.

Currently, lawsuits against the organization are pending in multiple courts across the country. As such, the bankruptcy filing is a way to centralize the claims in a single court for more efficient proceedings. In the meantime, proceedings in active cases will be paused for a time. Thus depositions of key USA Gymnastics officials will be stalled for a time.

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USA Gymnastics also hopes to stall a Section 8 complaint filed by the US Olympic Committee, which has moved to strip USA Gymnastics of its national governing body status.

Filing under Chapter 11 of the Bankruptcy Code allows USA Gymnastics the time to reorganize itself in accordance with a new mission, that of protecting young athletes. This is not the sort of bankruptcy in which an organization’s assets are liquidated to pay off creditors.

Also see: Fort Worth Gymnastics Coach “Skip” Crawley Arrested On Child Sexual Abuse Charges

As Mediation Stalls, USAG Searches For Solutions

“Our board has been talking about this bankruptcy strategy for a while now – well before the Section 8 complaint was filed,” says Kathryn Carson, chair of the USA Gymnastics board of directors. USA Gymnastics has been participating in mediation with plaintiffs’ attorneys, but says the settlement talks have stalled. “Those discussions were not moving at any pace at the current time,” Carson continued, according to USA Today.

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In financial statements filed last month, USA Gymnastics estimated that it would cost between $75 million and $100 million to settle the survivors’ lawsuits. The claims will be paid out through USA Gymnastics’ insurance providers, and Carson notes that the national governing body doesn’t have the kind of financial assets that would make a dent in the settlement proceedings. The bankruptcy filing claims between $500 million and $100 million in assets, as well as between $500 million and $100 million in liabilities.

Among the creditors is Steve Penny, the former USA Gymnastics president who was indicted on charges of evidence tampering in October. The bankruptcy filing shows that Penny is still owed $340,000 in severance pay, but USA Gymnastics is disputing the obligation.

Insurers To Cover Claims, Spokeswoman Says

The bankruptcy filing should not have any effect on the ability of USA Gymnastics’ insurers to pay out the claims, once a settlement is reached. Carson says the board is still negotiating with their insurance companies to determine the limits of coverage, but notes that the insurers have been “cooperative.” The insurance funds will not be affected by bankruptcy.

“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,” Carson added. “At the same time, the filing will allow us to continue the important work of supporting our outstanding gymnasts at all levels, including the current and next generation of Olympic hopefuls.”

Plaintiffs’ attorney John Manly, who is representing many of the survivors in their cases, has a far more pessimistic take on the bankruptcy filing, saying it is the “inevitable result of the inability of this organization to meet its core responsibility of protecting its athlete members from abuse. The leadership of USA Gymnastics has proven itself to be both morally and financially bankrupt.”

USOC Looks To Strip USA Gymnastics Of Status

In November, the US Olympic Committee took the extraordinary step of moving to rescind USA Gymnastics’ national governing body status. USA Gymnastics is working to change the Olympic Committee’s mind, and hopes that the bankruptcy filing, which will stay all pending actions against the organization, will buy more time to reorganize things in-house.

Since Steve Penny stepped down in March, USA Gymnastics has seen two interim presidents – Kerry Perry and Mary Bono – step down. Mary Bono was forced out after a social media post critical of football player Colin Kaepernick’s protest received strong criticism from members of the gymnastics community, including world champion Simone Biles, CNN reports.

If revoked, the loss of national governing body status would likely lead to the end of USA Gymnastics. Athletes and member coaches would simply move to whatever organization becomes the new national governing body.

“Our ability to be the NGB is a very big part of how we raise our revenue and how we inspire athletes,” Kathryn Carson says. “I think it’s pretty critical to our continued existence.”

Representatives for the USOC are currently reviewing the bankruptcy filing to see how it could affect the Section 8 matter. Spokesperson Patrick Sandusky said the Olympic Committee had already appointed a three-member panel to hear the complaint against USA Gymnastics, but no hearing date had yet been set.

Survivors Say USAG Failed To Prevent Abuse

USA Gymnastics is reeling under the weight of at least 100 lawsuits filed on behalf of nearly 350 survivors of the sexual abuse perpetrated by Larry Nassar, a Michigan State doctor who molested hundreds of girls under the guise of providing medical care. Nassar served for decades as the national medical coordinator for USA Gymnastics. His abuse was revealed in a series of shocking media stories nearly two years ago.

In January, Nassar was sentenced to between 40 and 175 years in prison for his abuse. Michigan State has already agreed to pay out $500 million in compensation to settle the lawsuits filed by sexual abuse survivors, who accused key University officials of looking the other way, even as Nassar abused hundreds of children and young adults.

The case against USA Gymnastics is similar. Survivors accuse the national governing body of failing to prevent the systematic abuse of young athletes.

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