The Register Citizen (Torrington, CT)
$8B Purdue-DOJ settlement gets green light from bankruptcy court
OxyContin maker Purdue Pharma gained bankruptcy court authorization Tuesday to move ahead with the approximately $8 billion settlement that it reached last month with the U.S. Department of Justice, after a seven-and-a-half hour hearing that was dominated by debate about the company’s restructuring.
Judge Robert Drain’s order was needed to enact the new agreement, which also entails the Stamford-based company pleading guilty to three criminal charges related to defrauding the government and kickback violations.
The stipulation that sparked the most discussion during the hearing was a Justice Department requirement for Purdue to carry out a plan it has proposed since filing for bankruptcy last year — to convert itself into a “public benefit company” that would focus on using its resources to help tackle the opioid crisis.
Two dozen states, including Connecticut, and other creditor groups suing the company have rejected that plan, arguing it would create a conflict of interests by having government officials run the new company. Purdue has disputed that claim, and Drain asserted that the settlement still gives Purdue and its creditors the ability to negotiate specifics of the firm’s reorganization.
“The DOJ settlement is a critical building block in this case,” Drain said in the hearing, which was conducted by phone. “It has enough flexibility in it so you can negotiate the remaining open issue as to the exit structure. I know now that you will not do that on a simplistic basis, but take into account the fact that there is no completely conflict-free resolution here with any exit approach.”
Drain also cited what he saw as potential risks tied to the alternative of selling Purdue to a private buyer, an option suggested by the 24 opposing states.
“If it were sold, then you have no charter to focus on the public interest and a shareholder obligation to maximize profits, which leads to the potential for more abuse in the future, notwithstanding the existence of government regulation,” Drain said.
In a statement, Purdue officials reiterated their support for the Justice Department deal, which they described as an “essential step” in their bankruptcy process.
The settlement “preserves billions of dollars of value for Purdue’s other creditors and advances Purdue’s goal of providing financial resources and lifesaving medicines to address the opioid crisis,” the statement said. “We continue to work tirelessly to build additional support for a proposed bankruptcy settlement, with the overwhelming majority of the settlement funds being directed toward abatement programs.”
While the DOJ settlement needed clearance from the bankruptcy court to move forward, the federal criminal matter was prosecuted and negotiated separately from the thousands of local and state lawsuits consolidated in the company’s actual bankruptcy case. They allege the company fueled the opioid crisis with deceptive marketing of opioids including OxyContin.
Purdue has denied those allegations, but it has offered a comprehensive settlement that it values at more than $10 billion. The same 24 states that opposed the public-benefit company proposal have also rejected that settlement offer.
Connecticut Attorney General William Tong, who has lambasted the Justice Department deal, was not immediately available to comment Tuesday.
Also Tuesday, Drain granted a motion that does not prohibit members of the Sackler family from paying $225 million in their own civil settlement with the Justice Department to resolve allegations that family members who own the company and formerly served on its board perpetrated opioid marketing misconduct.
Justice Department officials also alleged that Purdue transferred assets into Sackler family holding companies and trusts that “were made to hinder future creditors and/or were otherwise voidable as fraudulent transfers.”
Paying $225 million to the federal government would supplement at least $3 billion that the Sacklers have pledged to contribute to Purdue’s settlement offer.
Despite the pact with the Justice Department, the Sacklers have not admitted any individual wrongdoing.
Aspokesperson for the Sacklers declined to comment on Drain’s approval of the motion affecting the owners.
Some of the creditors in Purdue’s bankruptcy proceedings opposed the Sacklers’ settlement in part because they said they were concerned about the Justice Department possibly receiving preferential treatment and questioned whether sufficient funds would be available for other creditors.
Drain said, however, that “it appears clear to me that the Sacklers’ financial condition has been sufficiently vetted to show they have materially more assets than the $225 million.”
The Sacklers’ family net worth was estimated at $13 billion by Forbes in 2016.
The Justice Department’s criminal case against Purdue includes the largest penalties ever levied against a pharmaceutical manufacturer, according to department officials. Those funds are supposed to go toward efforts to tackle the national opioid crisis, which is resulting in tens of thousands of deaths every year.
Purdue will make a direct payment to the federal government of $225 million, which is part of a $2 billion criminal forfeiture.
If Purdue enacts the publicbenefit company plan, the government would essentially cede the remainder of the forfeiture by providing a “credit” of up to $1.775 billion in equivalent amounts to support local and state responses to the opioid epidemic.
Purdue has also accepted a $3.54 billion criminal fine. That money will not necessarily be fully collected because it will be treated as an unsecured claim that will be processed through the bankruptcy proceedings.
Additionally, the firm has agreed to pay another $2.8 billion to resolve its civil liability with the Justice Department. Like the criminal fine, that amount will be processed as an unsecured claim.
To the dismay of the likes of Tong, no individuals were criminally charged in connection with the new settlements. Those agreements, however, do not prevent possible prosecution of people involved with the company.