An amended lawsuit filed Thursday by New York Attorney General Letitia James against Purdue and eight individual Sackler family members is pushing a novel argument that profits paid to Purdue’s owners should be clawed back because of mounting litigation filed against the company. The claims hinge on a legal theory meant to protect creditors from debtors that try to stash or shield assets for their personal benefit.
The billionaire Sackler family allegedly transferred funds from Purdue and an affiliated generic drugmaker called Rhodes Pharmaceuticals LP into various entities that family members control through trusts, according to the amended lawsuit.
Rhodes was formed in 2007, state business records show, five months after Purdue pleaded guilty to federal charges of misleading the public about the addiction risk related to OxyContin. The complaint alleges that a senior manager at Purdue called Rhodes a “landing pad” for Purdue “to prepare for the possibility that they would need to start afresh following the crisis then engulfing OxyContin.”
A spokeswoman for the Sackler family members named in the lawsuit said, “Expanding this baseless lawsuit to include former directors of Purdue Pharma is a misguided attempt to place blame where it does not belong for a complex public health crisis.”
Purdue broadly denied the allegations in the amended complaint and said the state offered little supporting evidence. “Instead, the state is seeking to publicly vilify Purdue and its former directors while unfairly undermining the important work we have taken to address the opioid crisis,” the company said.
The lawsuit claims the Sacklers regularly voted to pay their family hundreds of millions of dollars a year. Details of individual payments in the complaint appear to be heavily redacted, which an attorney general spokeswoman said is due to a protective order.
The suit says the transfers are fraudulent because the family knew Purdue was insolvent yet continued to distribute funds from the company to the family members.
By 2014, the lawsuit says, the Sacklers knew state attorneys general were investigating Purdue and that settlements or judgments could be coming. “Despite this knowledge, the Sackler Defendants continued to vote to have Purdue pay the Sackler Families significant distributions, and send money to offshore companies,” the lawsuit says.
The profit distributions “left Purdue with unreasonably small capital to pay off its certain creditors in the opioids litigation, including plaintiff New York State,” the attorney general alleges.
Communities in Illinois and California sued Purdue in 2014, though the vast majority of the current lawsuits have been filed since 2017—which could make it harder for New York to prove earlier transfers were improper.
New York’s lawsuit, originally filed against Purdue last year, also now includes new allegations that fault several drugmakers for playing down the risks of opioid drugs and blames distributors for lacking proper systems to stop the flood of drugs into New York communities. Much of that information was redacted.
At a press conference in Lower Manhattan, Mrs. James said she is seeking to prohibit companies from marketing and distributing prescription opioids in the state if they didn’t comply with the law. She also said that even though there is no specific dollar amount named, the remedies sought include funding for addiction treatment programs.
“There is no monetary amount at this point in time that accounts for all the deaths of all the individuals who are addicted by these drugs,” she said.
Purdue and other companies face more than 1,600 lawsuits from cities, counties and states accusing them of helping fuel the nation’s opioid crisis through aggressive marketing of opioids. Individual Sackler family members have been named in a few dozen of the suits in an attempt to hold the family personally liable and tap into their wealth.
A separate lawsuit against Purdue and Sackler family members brought by the Massachusetts attorney general asserted that more than $4 billion was paid to the family from 2008 to 2016. The Sacklers stopped taking dividends from the company at the end of 2017, according to a person familiar with the matter.
Purdue agreed this week to resolve the first of the many lawsuits, in a $270 million deal with Oklahoma’s attorney general that includes the creation of a national addiction center. Purdue has said it is considering filing for bankruptcy, a mechanism that could allow it to resolve the lawsuits on a global basis.
Purdue has been an important source of the Sackler family’s wealth and income. Family members were involved for years in senior management and until this month maintained a presence on the company board. The two branches of the family that own Purdue are worth more than $3.5 billion, the Journal has reported, citing people familiar with the matter.
New York’s complaint brings claims under a law known as fraudulent conveyance and is meant to protect creditors. “The idea is, if you owe a lot of money, you shouldn’t go stash your assets,” said Jared Ellias, a law professor at the University of California Hastings College of the Law.
A key to the argument, however, is proving that a company was at or near insolvency when the transfers were made. New York can argue that the existence of the many lawsuits was considered a debt that meant transfers shouldn’t have been made, legal experts said. Purdue could counterargue that they expected to win the suits and didn’t consider it enough of a liability to prevent them from paying the usual dividends.
The Sackler family’s sophisticated, multibillion-dollar investment operations and philanthropy have been under increasing scrutiny as the lawsuits have mounted. Some family members are suspending their charitable efforts around the world as high-profile institutions said they will no longer accept support from the Sacklers.
Three Sackler brothers—Arthur, Mortimer and Raymond—acquired a company in 1952 that later became today’s version of Purdue Pharma. Some of Arthur’s family members have said his estate sold out after his death in 1987, almost a decade before OxyContin was approved by U.S. regulators. Arthur Sackler’s heirs haven’t been named in any opioid litigation.
Thursday’s complaint offers a more complete view than previously known of the vehicles the Sacklers allegedly used to transfer their money. For example, the complaint claims these include an entity called PLP Associates Holdings LP, which is a limited partner of Purdue Holdings LP.
The lawsuit also claims the fraud included the family’s alleged transfer of funds out of Rhodes Pharmaceuticals LP, which sells generic opioid prescription drugs, and a related company, Rhodes Technologies LP, both located in Rhode Island and controlled by companies owned by Sackler trusts.
Rhodes made payments “in the millions” to entities known as Rosebay Medical LP and the Beacon Company for the benefit of the Sackler family members, according to the complaint. Rosebay’s general partner is Rosebay Medical Company Inc., whose directors are Richard Sackler, a former Purdue president, and Jonathan Sackler, according to state business records. Their father, Raymond, helped found Purdue.
Purdue and family members signed off on Rhodes operations, the suit claims. Sackler family members received financial statements and served on governance committees, according to the lawsuit. Richard Sackler is listed as one of six inventors on a patent for Rhodes for a form of buprenorphine, which is prescribed to treat opioid dependency.