ISKCON opened its first gurukula, a residential school for the children of devotees, in Dallas in 1972. Similar schools followed in the United States and India over the next two decades. In 2000, attorney Windle Turley filed a $400 million federal lawsuit in Texas on behalf of former students, alleging children at these schools had been subjected to sexual, physical and emotional abuse by teachers and staff from 1972 into roughly 1990. The suit named ISKCON itself, fifteen affiliated corporations, seventeen members of its governing board, and the estate of founder A.C. Bhaktivedanta Swami Prabhupada.
The litigation took an unusual legal turn early on. Turley included a RICO claim, racketeering allegations rarely if ever brought against a religious organization before, arguing the ISKCON entities functioned as a single enterprise rather than separate corporations. A federal judge dismissed the RICO claim in 2001 on the ground that each ISKCON entity was in fact separately incorporated. Before the plaintiffs could refile, ISKCON filed for Chapter 11 bankruptcy protection in 2002, a move that consolidated the growing number of claims into a single proceeding rather than dozens of separate suits.
The bankruptcy process itself widened the case considerably. Where the original suit had named several dozen plaintiffs, almost six hundred more former students came forward once the bankruptcy created a formal claims process, describing abuse the original filing had not covered at all. A US bankruptcy court ultimately ordered a $9.5 million settlement fund, announced in May 2005, distributed to roughly 450 claimants at amounts of $2,500 to $50,000 depending on the abuse alleged, with distribution continuing for several years afterward. The closure of ISKCON's US gurukulas by the mid-1980s had already ended the practice the litigation was about; the settlement, arriving nearly two decades later, was the financial and legal accounting for it.