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The Sacklers’ Last Poison Pill
A trapdoor in the Justice Department deal with the family’s company might enable them to escape a full accounting of their part in the opioid epidemic.
By Jonathan C. Lipson and
Jonathan C. Lipson is a law professor. Gerald Posner is an author and investigative journalist.
The opioid crisis remains one of America’s deadliest public health disasters. Victims demand answers about how it happened and who was responsible.
The House Committee on Oversight and Reform seemed poised to address a facet of the crisis with a hearing this coming Tuesday on the role of Purdue Pharma and its owners, the Sackler family, “in fueling the opioid epidemic.” The committee invited Purdue’s president and chief executive, Craig Landau, and four members of the Sackler family who were longtime company directors and were, according to the committee, “closely involved in Purdue’s efforts to grow the market share for OxyContin and other opioids.”
Now, we have learned that the committee, pressured by the Sackler legal team, has postponed the hearing to January. But January may be too late. By waiting, the House Oversight Committee may miss the opportunity to weigh in before advances in Purdue’s bankruptcy case possibly allow the Sacklers — one of America’s richest families, who took in billions in revenue from sales of OxyContin — to escape with little public scrutiny or accountability.
By then, a bankruptcy plan to reorganize Purdue will probably have been proposed. If, as expected, the plan seeks to release the Sacklers from liability, it will become practically impossible to uncover the full truth about the Sacklers’ role in the opioid crisis.
Purdue pleaded guilty on Nov. 24 to felony counts that included defrauding the federal government and paying illegal kickbacks to physicians to bolster dispensing of OxyContin. As part of that plea, Purdue agreed to pay $8 billion to the United States. The Sacklers, who served on the board of directors and were characterized as Purdue’s “de facto C.E.O.” by a company executive, agreed to pay $225 million in civil penalties, estimated to be about 2 percent of their wealth.
Before the settlement with the Justice Department, the Sacklers had offered to pay $3 billion to creditors in exchange for comprehensive liability releases. Creditors were split on this, and it was unclear if a majority would eventually support complete immunity for the Sacklers. But although the Purdue settlement with the Justice Department, approved by the Bankruptcy Court in November, does not require that the Sacklers be released from liability, that may be its practical effect.
This is because the settlement contains a largely overlooked poison-pill provision: If the Justice Department is unsatisfied with any reorganization plan proposed for Purdue, it can walk away from the settlement. That could more than double its claims to $18 billion, and allow it to use its civil forfeiture powers to seize Purdue’s assets. Nothing might then be left for opioid victims and other creditors.
The poison pill has made the Sacklers’ offer one creditors cannot refuse.
Is $3 billion enough? Do the Sacklers even deserve to be released from liability? Without timely House Oversight Committee hearings, those seemingly fundamental questions may not be answered in Purdue’s bankruptcy reorganization.
If the poison pill results in a plan that releases the Sacklers, then it also means that the case will probably be resolved without an independent investigation and a thorough public report about the many serious allegations against the Sacklers that have attracted the interest of the oversight committee.
Although reorganization plans include disclosures about a corporate debtor, Purdue Pharma, not the Sacklers, is the debtor. While Purdue has committed to releasing its documents after bankruptcy, the Sacklers have not. Nevertheless, the Bankruptcy Court has given the Sacklers broad protection, including an injunction shielding them from lawsuits that would produce evidence of their guilt or innocence. A plan approved in this case would thus make their protection permanent.
Such an outcome would be disastrous not only for victims, who demand transparency and accountability, but also for the bankruptcy system itself. The plan that creditors would have to accept would reinforce a widely held perception that if a party has enough money to manipulate the legal system, it is possible to purchase silence and immunity for even the most egregious misconduct. It would also set a dangerous precedent in bankruptcy: Purdue’s may be the only major bankruptcy involving allegations of serious criminal misconduct in which the principals were not charged. The chief executives of Enron, WorldCom and Refco — as well as the opioid maker Insys — all served (or will be serving) time in prison.
There are, however, two potential antidotes.
First, creditors should ask the Bankruptcy Court to immediately appoint an independent examiner. The creditors’ committee is conducting its own investigation, but it is facing resistance from the Sacklers. Moreover, with the support of the Justice Department, that investigation is proceeding in complete secrecy. Examiners, who can be appointed in cases where the debtor owes over $5 million, performed a vital public function by investigating and reporting on high-profile bankruptcies such as those of Enron, WorldCom and Lehman Brothers.
The presiding judge in the Purdue bankruptcy case, Robert D. Drain, may resist appointing an independent examiner, perhaps for fear that it could scare away the Sacklers and their $3 billion offer. Before the Justice Department’s deal, creditors could do little about that. Although all the parties knew Purdue’s debts were huge, the exact amount was uncertain. By putting a number ($8 billion) on what the company owes, the statutory debt threshold is now satisfied. Judge Drain may still refuse to appoint an examiner, but an appellate court may see things differently.
Some creditors may also worry that an examiner would scare the Sacklers away. Because an examiner is not a creditor, however, he or she would not be intimidated by the poison pill. The Sacklers might fend off an examiner by offering more money and being more transparent, a better outcome for creditors and the public interest.
A second possible remedy is a criminal prosecution of some of the Sacklers, since the Justice Department settlement does not release family members from such liability. Unless the Sacklers or their lawyers commit under oath to the oversight committee that they will be much more transparent about their finances and their role in contributing to the opioid crisis, the committee should consider passing a nonbinding resolution asking the incoming Biden administration’s Justice Department to explore charges.
But time is short. Once Purdue Pharma proposes a reorganization plan that implements the Sacklers’ offer — which seems imminent — the pressure for creditors to approve it will be strong, spurred by the poison pill. If, as seems likely, the plan is approved later this winter, it will then be impossible to appoint an examiner and politically infeasible for the Justice Department to scuttle a deal by charging the Sacklers with crimes.
Judge Drain understands this. At the close of the Nov. 17 hearing in which he approved the Justice-Purdue deal, he urged the parties to agree to a reorganization plan as quickly as possible. “You can do it,” he implored. “You need to do it.”
For many victims of the opioid crisis, and the legitimacy of the bankruptcy system itself, the “it” here — a plan that exonerates the Sacklers without any meaningful disclosure or accountability — may be Purdue’s most poisonous pill.
Jonathan C. Lipson is Harold E. Kohn Chair and is a Professor of Law at Temple University Beasley School of Law. Gerald Posner is an investigative journalist and author of “PHARMA.”
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