EDITORIAL: Bankruptcy judges and Congress must close the Sackler loophole

By The Editorial Board  | May 7, 2021

No region of this nation has been spared the steep emotional, physical, and financial toll of the opioid addiction epidemic, a crisis fueled in part by drugmaker Purdue Pharma’s aggressive marketing of highly addictive OxyContin. While the cost of the estimated 450,000 lost lives to the drug epidemic is incalculable, state and local officials estimate the economic toll to be in the trillions of dollars. Massachusetts is among the states that have filed suits against the company.

Purdue Pharma is bankrupt. But the Sacklers, the family behind the company and its practices, are worth $11 billion, according to congressional estimates. And members of the family are seeking to exploit a loophole in bankruptcy law that could shield a large portion of their personal wealth, amassed in part from the drug’s sale, from creditors including states and municipalities.

That can’t be allowed to happen. Bankruptcy judges should heed the formal objections filed by Massachusetts Attorney General Maura Healey and dozens of other state officials seeking to stop members of the Sackler family, which is not party to the company’s bankruptcy proceedings, from shielding the majority of their fortunes from it in exchange for a $4 billion payment and forfeiture of company control.

The move, using an obscure legal device called a “nonconsensual third-party release,” would essentially strip state and local officials from the policing power they ought to possess to hold those responsible for the crisis responsible and fail to adequately compensate all those who have been harmed, according to a brief filed last week by Healey and other officials.

And beyond that, Congress must act to close this virtual escape hatch for wrongdoers to use company bankruptcy proceedings to escape individual personal liability.

A bevy of lawsuits accuse members of the Sackler family, which founded and controlled Purdue, and in particular Dr. Richard Sackler, of aggressively promoting and marketing OxyContin for years to increase the drug’s use and maximize profit while misleading doctors and patients about the drug’s addictiveness. They did this while seeking to shield their own family name — well known in the world of philanthropy — from the taint of scandal. Since their actions came to light, in part due to the efforts of the Globe’s sister publication STAT, museums from the Louvre in Paris to the Smithsonian Institutions in Washington have dropped the Sackler name. Tufts University has also dropped the name from its programs and buildings, including the medical school.

The company has also been in the crosshairs of federal and state officials, who accuse it of accelerated payments to members of the Sackler family after it was fined for its role in the opioid crisis. Between 2007 and 2017, based on the company’s own court filings, the family was paid nearly $11 billion, compared to just $1.3 billion from 1995 to 2007. Healey called that disclosure “the very definition of ill-gotten gains.”

“Yet, despite their own admitted guilt,” state officials claim in their brief, filed in a New York bankruptcy court Friday, the company and other debtors “seek to cram down an unconfirmable plan that, among other things, would absolve [the Sacklers] in exchange for the stretched-out payment of only a tiny fraction of their independent liability, unlawful gains, and current wealth, over the objection of Attorneys General from 24 States and the District of Columbia, representing 53% of the U.S. population.”

Bankruptcy judges have wide discretion in approving proposed settlements, but in this case, the interest of justice requires that there be the possibility of holding family members responsible if they misled those seeking relief from chronic pain, sending millions of them down a painful and dangerous path of addiction. Doing otherwise runs contrary to the principles of fairness and equity by which all judges are bound.

And Congress should act to ensure that state attorneys general never again have to rely on the individual judges to guard against this misuse of bankruptcy courts. Legislation introduced by Representative Carolyn Maloney, Democrat of New York, and whose cosponsors include Massachusetts Representatives Katherine Clark, Ayanna Pressley, Stephen Lynch, and Jim McGovern, called the Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases (SACKLER) Act, would close the loophole that some of the Sacklers seek to exploit.

If the Sacklers’ deal is finalized — something that could happen as soon as this month if the states’ objection is dismissed — it would set a dangerous precedent that protects the wealth of wrongdoers so long as their companies go bankrupt. That’s a legacy that the courts and Congress must avoid.

READ MORE ON BOSTONGLOBE.COM

By The Editorial Board  | May 7, 2021

No region of this nation has been spared the steep emotional, physical, and financial toll of the opioid addiction epidemic, a crisis fueled in part by drugmaker Purdue Pharma’s aggressive marketing of highly addictive OxyContin. While the cost of the estimated 450,000 lost lives to the drug epidemic is incalculable, state and local officials estimate the economic toll to be in the trillions of dollars. Massachusetts is among the states that have filed suits against the company.

Purdue Pharma is bankrupt. But the Sacklers, the family behind the company and its practices, are worth $11 billion, according to congressional estimates. And members of the family are seeking to exploit a loophole in bankruptcy law that could shield a large portion of their personal wealth, amassed in part from the drug’s sale, from creditors including states and municipalities.

That can’t be allowed to happen. Bankruptcy judges should heed the formal objections filed by Massachusetts Attorney General Maura Healey and dozens of other state officials seeking to stop members of the Sackler family, which is not party to the company’s bankruptcy proceedings, from shielding the majority of their fortunes from it in exchange for a $4 billion payment and forfeiture of company control.

The move, using an obscure legal device called a “nonconsensual third-party release,” would essentially strip state and local officials from the policing power they ought to possess to hold those responsible for the crisis responsible and fail to adequately compensate all those who have been harmed, according to a brief filed last week by Healey and other officials.

And beyond that, Congress must act to close this virtual escape hatch for wrongdoers to use company bankruptcy proceedings to escape individual personal liability.

A bevy of lawsuits accuse members of the Sackler family, which founded and controlled Purdue, and in particular Dr. Richard Sackler, of aggressively promoting and marketing OxyContin for years to increase the drug’s use and maximize profit while misleading doctors and patients about the drug’s addictiveness. They did this while seeking to shield their own family name — well known in the world of philanthropy — from the taint of scandal. Since their actions came to light, in part due to the efforts of the Globe’s sister publication STAT, museums from the Louvre in Paris to the Smithsonian Institutions in Washington have dropped the Sackler name. Tufts University has also dropped the name from its programs and buildings, including the medical school.

The company has also been in the crosshairs of federal and state officials, who accuse it of accelerated payments to members of the Sackler family after it was fined for its role in the opioid crisis. Between 2007 and 2017, based on the company’s own court filings, the family was paid nearly $11 billion, compared to just $1.3 billion from 1995 to 2007. Healey called that disclosure “the very definition of ill-gotten gains.”

“Yet, despite their own admitted guilt,” state officials claim in their brief, filed in a New York bankruptcy court Friday, the company and other debtors “seek to cram down an unconfirmable plan that, among other things, would absolve [the Sacklers] in exchange for the stretched-out payment of only a tiny fraction of their independent liability, unlawful gains, and current wealth, over the objection of Attorneys General from 24 States and the District of Columbia, representing 53% of the U.S. population.”

Bankruptcy judges have wide discretion in approving proposed settlements, but in this case, the interest of justice requires that there be the possibility of holding family members responsible if they misled those seeking relief from chronic pain, sending millions of them down a painful and dangerous path of addiction. Doing otherwise runs contrary to the principles of fairness and equity by which all judges are bound.

And Congress should act to ensure that state attorneys general never again have to rely on the individual judges to guard against this misuse of bankruptcy courts. Legislation introduced by Representative Carolyn Maloney, Democrat of New York, and whose cosponsors include Massachusetts Representatives Katherine Clark, Ayanna Pressley, Stephen Lynch, and Jim McGovern, called the Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases (SACKLER) Act, would close the loophole that some of the Sacklers seek to exploit.

If the Sacklers’ deal is finalized — something that could happen as soon as this month if the states’ objection is dismissed — it would set a dangerous precedent that protects the wealth of wrongdoers so long as their companies go bankrupt. That’s a legacy that the courts and Congress must avoid.

READ MORE ON BOSTONGLOBE.COM