Many Sacklers, Many Trusts: Why Purdue Pharma Wants a Settlement
(Bloomberg) -- For Purdue Pharma LP, the rationale behind a proposed $4.3 billion settlement with the members of the billionaire Sackler family that own the company comes down to uncertainty.
The bankrupt OxyContin maker -- as well as creditors seeking to hold Purdue and its owners accountable for the opioid crisis -- could use wide-ranging legal theories to try to extract billions of dollars from members of the Sackler family. But the endeavor would be convoluted, expensive, and could fail entirely, Purdue’s lawyers argue in new bankruptcy court papers.
Their argument comes as Purdue is seeking approval to collect creditor votes on its bankruptcy plan at a hearing scheduled for this week. Certain details of the settlement with its owners aren’t yet finalized, and more than 20 U.S. states still don’t support the plan.
The Sackler family is large, fragmented, and scattered across the globe. Its wealth -- recently estimated at $11 billion -- is concentrated in “dozens” of trusts in the U.S. and abroad, including islands off the coast of France, according to court papers.
To get to the money, the company and others would “have to separately sue, prevail, and collect against each of these individuals, and expend considerable resources in the process without any guarantee of success,” Purdue’s attorneys wrote.
Deal Theory
By contrast, Purdue has in hand the contours of a settlement that would see $4.3 billion in cash move from members of the Sackler family to cities, states and counties suing to recoup costs spent fighting to opioid crisis. In exchange, the family members would be released from legal claims concerning their alleged role in the opioid epidemic, including those brought by governments and private individuals.
If Purdue were to sue its owners instead of settling, it would likely argue the more than $10 billion siphoned out of the firm since 2008 were so-called fraudulent transfers, according to court papers. To win, the drugmaker would need to show that Purdue was insolvent at the time of the transfers, or that they were done to hurt creditors. Members of the Sackler family have denied both of those claims, and said the majority of the funds went toward taxes.
Without the settlement, thousands of individual creditors could “race to the courthouse” with lawsuits against Purdue’s owners alleging things like wrongful death and negligence. The problem, according to Purdue’s lawyers, is they would likely need to meet the difficult burden of proving that individual Sackler family members are liable for damages, since corporations are typically treated as legally separate from their owners.
And although about a dozen Sackler family members have had a hand in the drugmaker’s business, many “were not involved in Purdue Pharma at all,” other than as passive recipients of money, according to court papers. That means creditors “would be limited to recovering from members of the Sackler Families who are liable for misconduct, and not from the full quantum of the Sackler Families’ wealth.”
Members of the family have denied all wrongdoing. The Raymond Sackler wing of the family has said the goal of the settlement is to “deploy resources for communities and people in need” instead of paying for litigation. A representative for the Mortimer Sackler wing of the family declined to comment. One brother, Arthur Sackler, sold his shares in the company before OxyContin’s introduction.
Underpinning the plan is a deal with the U.S. Department of Justice. Purdue last year pled guilty to three felonies and agreed to a $2 billion judgment, most of which the DOJ agreed not to collect. But if a settlement with the Sackler family isn’t approved, Purdue may run afoul of the DOJ settlement, putting its entire bankruptcy plan at risk, the drugmaker’s lawyers wrote in court papers.
A representative for Purdue declined to comment beyond the court papers.
The bankruptcy case is Purdue Pharma LP, 19-23649, U.S. Bankruptcy Court for the Southern District of New York (White Plains).
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