Purdue Creditors Zero In on Sackler Messages From a Decade Ago
(Bloomberg) -- Bankruptcy creditors are pointing to a trove of decade-old documents as they probe whether members of the billionaire Sackler family improperly took funds out of Purdue Pharma LP, the maker of OxyContin, to keep the assets away from victims of the U.S. opioid epidemic.
Creditors including U.S. states, cities and counties cite recently unsealed memos and emails involving the Sacklers, whose company has twice pleaded guilty to illegally marketing OxyContin painkillers. Creditors say the documents are among “powerful circumstantial evidence” that the Sacklers were worried as early as 2007 about being sued personally and discussed ways to protect their fortunes.
“Ask yourself how long it will take these lawyers to figure out that we might settle with them if they can freeze our assets and threaten us,” David Sackler, son of one of the company’s co-owners, said in a May 2007 email included in the unsealed files. The company’s first guilty plea came that same month.
“We’re rich?” wrote Sackler, then a 27-year-old money manager who wasn’t employed at the company and didn’t then have a say in strategy. “For how long? Until which suits get through to the family?”
Family representatives say the Sacklers didn’t do anything improper. If creditors succeed in showing the Sacklers made what the creditors claim were “improper transfers,” a judge could order them to make repayments.
The documents -- made public this month in Purdue’s bankruptcy case -- are part of an ongoing fight between more than 20 state attorneys general and Sackler family members over $10 billion the creditors said was improperly moved out of Purdue in the decade following 2007, and whether opioid victims should get some of those funds. The Sacklers are offering to turn over control of the drugmaker to state and local governments and personally pay $3 billion. Creditors say that’s not enough.
Purdue filed for bankruptcy last year, citing lawsuits from state and local governments. Creditors scour bankrupt companies for certain pre-filing transfers because owners aren’t allowed to take valuable assets if they think the firm may seek bankruptcy protection. Civil claims of “fraudulent conveyance” are commonly leveled in Chapter 11 cases.
Purdue’s creditors argue in court filings that family members ramped up their efforts to draw money out of the drugmaker after the company’s 2007 plea, amounting to “more than $10.3 billion over the next 10 years -- more than 90% of Purdue’s total free cash flow,” according to creditors’ filings.
Family representatives say the transfers were legal, and not all members sought to extract large amounts of funds from Purdue. Some of the documents unsealed on Dec. 18 prove those points, they say.
One of the newly public files shows the Raymond Sackler side of the family focused on reinvesting in Purdue rather than taking cash, and pushing to keep funds in reserve. Some files show a majority of Purdue directors voted to keep “vast amounts of cash in its coffers every year –- including more than $1 billion each year from 2014 on,” according to the Sacklers’ unsealed filings. (These filings are part of another fight over whether creditors can access other confidential records.)
Daniel Connolly, a lawyer for the Raymond Sackler wing of the family, said the unsealed records show the transfers were appropriate. “The fraudulent conveyance arguments are without merit, and the documents now being released demonstrate that,” he said in a statement.
A representative for the Mortimer Sackler wing said that “members of the Sackler family who served on Purdue’s board of directors acted ethically and lawfully in every regard.” (Another brother, Arthur Sackler, sold his shares in the company before OxyContin’s introduction.)
Last month, the U.S. and some members of the family settled civil allegations over the painkiller’s marketing. The Sacklers didn’t acknowledge any wrongdoing and denied acting improperly. The U.S. also struck an $8.3 billion settlement with Purdue to resolve a probe of its handling of OxyContin. The company again pleaded guilty, this time to three felonies.
Creditors point to a three-page memo from July 24, 2007, about two months after Purdue’s first plea, in which Peter Boer, a retired W.R. Grace executive and informal family adviser, reviewed the process for selling and valuing Purdue. Writing to co-owner Jonathan Sackler, Boer noted that lawyers may be discouraged from suing if the family held “overseas assets with limited transparency and jurisdictional shielding.”
Matt Herrington, a lawyer for Boer, an engineer who later joined the Purdue board, said in an interview that his client offered “his thoughts” in the memo, but didn’t cause “a change in how Purdue was structured.” Among other things, lawyers for the Raymond Sackler wing said in court papers that Boer offered a “generic reference to overseas assets” and that Boer “was an outsider who had no actual knowledge” of the company’s operations or the Sacklers’ finances.
Lawyers for the Sacklers say their clients didn’t take steps in response to Boer’s comments and that the states “cherry-picked” documents to make a case. Some of the unsealed files contradict other claims that the family improperly siphoned funds, the lawyers argue.
The May 2007 message from David Sackler said the family was at risk from opioid suits. “This is the land of the free and the home of the blameless,” he wrote, according to the unsealed files. “We will be sued.”
David Sackler joined Purdue’s board in 2012. He subsequently explained his earlier email, testifying that he “really didn’t know much about what was happening” with the company’s 2007 guilty plea and “wasn’t involved in any of the legal side.” In response to his 2007 email, Jonathan Sackler wrote at the time that there was no basis for suits against the family, according to the filings.
Other filings show the family was divided in 2007 and 2008 over selling the drugmaker, potentially to rival Sepracor Inc. Sumitomo Dainippon Pharma Co. Ltd bought Sepracor for $2.6 billion in 2009.
Mortimer Sackler, who died in 2010, urged the family in a 2008 memo to sell “prudently, but also quickly,” citing fears about Purdue’s declining cash flow and market value, along with rising risks.
“We should be able to achieve a very large number,” he wrote. “While things are looking better again now, I would not count out the possibility that times will get much more difficult again in the future, and probably much sooner than we expect.”
The case is Purdue Pharma, 19-23649, U.S. Bankruptcy Court, Southern District of New York (White Plains).
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