As scrutiny of Purdue Pharma’s role in the opioid epidemic intensified during the past dozen years, its owners, members of the Sackler family, withdrew more than $10 billion from the company, distributing it among trusts and overseas holding companies, according to a new audit commissioned by Purdue.
The amount is more than eight times what the family took out of the company in the 13 years after OxyContin, its signature product, was approved in 1995. The audit is likely to renew questions about how much the Sacklers should pay to resolve more than 2,800 lawsuits that seek to hold Purdue accountable for the opioid crisis.
The family has offered to contribute at least $3 billion in cash as part of a settlement to resolve thousands of lawsuits brought by state and local governments against Purdue. But 24 states, led by Massachusetts and New York, have refused to sign onto the agreement, arguing that the Sacklers should pay more.
The new report, a 350-page forensic accounting prepared by Alix Partners, a consulting firm that Purdue has hired to help guide the company through Chapter 11 restructuring, was filed in bankruptcy court in White Plains, N.Y., Monday evening.
Ultimately, it does not answer a key question for investigators — how much the Sacklers are actually worth and where their money is located.
But the report does detail checks and disbursements that Purdue made to the family in the years after the company’s guilty plea in 2007 to federal charges that it deceptively marketed OxyContin as nonaddictive. It could be used to support allegations as to whether the Sacklers intentionally withdrew large annual sums to shield the money from litigation as legal pressures mounted.
The audit notes that in the first dozen years that OxyContin was approved — from 1995 through 2007 — Purdue’s payouts to the Sacklers totaled just $1.32 billion; from 2008 through 2017, the period of intense scrutiny by the auditors, the payments totaled $10.7 billion.
By 2017, the Sacklers had voted to stop taking cash payments and so Purdue ended the practice.
The report also shows that nearly half the amount sent to the Sacklers was designated to pay taxes, suggesting that less than half the Sackler distributions might actually be available in cash. During the years covered by the audit, the report says, Purdue paid $4.1 billion to the Sacklers, $1.6 billion to their affiliated companies and $4.6 billion for taxes.
The auditors reported that they did not know how much cash distributed to the Sacklers was actually used to pay taxes. The payments were often directed to trusts based in countries known as tax havens, like Luxembourg and the British Virgin Islands, the records show.
A lawyer for some of the Sacklers, Daniel S. Connolly, said in a statement that the family had used the $10.7 billion appropriately and legally. “This filing reflects the fact that more than half was paid in taxes and reinvested in businesses that will be sold as part of the proposed settlement, ” the statement said.
Mr. Connolly said about 90 percent of the tax distributions did go toward tax payments.
Some tax bills were paid on the Sackler family’s behalf. Purdue directed nearly $2.3 billion to the United States treasury for the Sacklers, and also made payments to a number of states, including nearly $97 million to New Jersey.
The Sacklers have said they will submit a report early next year to the bankruptcy court containing further information about their finances. But unlike this filing, it is expected to be confidential.
The Alix Partners report also offers a rare glimpse into other aspects of the financial relationship between Purdue and the Sackler heirs, who, over the years, have served as the company’s senior executives and board members. In addition to the cash disbursements, it details additional expenses the company covered for family members, including $17 million for their legal fees from 2018 to part of this year, as lawsuits escalated against family members. In that time, one law firm, Debevoise and Plimpton, billed $11.4 million for representing one branch of the family.
By early 2019, by mutual agreement, Purdue stopped paying the Sacklers’ legal bills.
The report shows that Purdue also paid comparatively modest salaries to some of the Sacklers, including several members of younger generations who worked as summer interns for the company.
It also describes how, over the last 18 months, as the Sacklers left Purdue’s board and stopped taking distributions, the new executive team sought to distance the company from the family, as it readied Purdue for restructuring. The executives asked family members to reimburse the company for $313 million in loans and $1 million in expenses, including $477,351 in cellphone bills, which the family did.
Some states are investigating the legality and structure of the Sackler transfers from Purdue, and the company is reviewing those transactions. Oregon noted in a lawsuit filed in May that though the Sacklers typically voted to receive annual percentages of sales ranging from 4 percent to 15 percent, by 2007 it jumped to 25 percent and, in 2008, to 65 percent.
This report lands just ahead of a bankruptcy court hearing on Thursday about the Purdue restructuring, the centerpiece of which has been an dispute over the company’s settlement offer. For their part, the Sacklers, who have agreed to relinquish ownership and control of Purdue, would pay $3 billion over seven years, as well as much of the proceeds of the sale of their other companies that manufacture opioids internationally.
As part of the settlement, the company’s new board said it intends to reposition the company as a public beneficiary trust, donating addiction treatment drugs and paying plaintiffs. The trust would keep manufacturing a suite of medicines, including OxyContin, whose patents begin to expire in several years.
A sticking point in negotiations has been the status of the state lawsuits against the Sacklers. The litigation has been stayed against Purdue itself, because it is in bankruptcy. But the Sacklers themselves have not filed for bankruptcy, and two dozen states want to keep pursuing them, to determine their real worth and where their money is.
The family wields a powerful stick: If the lawsuits against them continue, they could withdraw the settlement offer.
The report itself walks something of a tightrope. It could eventually serve as evidence for Purdue to use against the family that has controlled it since the 1950s. As part of the company’s financial obligations in bankruptcy, Purdue must determine whether the Sacklers paid themselves legally or siphoned off the company’s considerable opioid proceeds in anticipation of lawsuits.
In a statement, Josephine Martin, a Purdue spokeswoman, ticked off steps the company had taken in the last 18 months to discontinue promoting opioid painkillers, by eliminating its sales forces, no longer marketing the drug to doctors, submitting to outside oversight and offering $200 million in emergency opioid relief.
“Purdue sees today’s filing as part of its ongoing effort to position itself as a public benefit company for the benefit of the American public, ” the statement said.
While the audit provides a range of detail, it leaves many questions unanswered. The money flowing to the Sacklers soared after the company’s 2007 felony plea, peaking at $1.7 billion in 2009, with about $720 million of that earmarked for tax payments that year. The most common recipients were Rosebay Medical and Beacon Co., holding companies controlled by the two wings of the Sackler family.
One set of a dozen transactions in July 2017 was illustrative of the complex way Purdue moved money around. Purdue transferred equal amounts through a series of companies before $980,000 was deposited into Beacon and another $980,000 into Rosebay. Both then transferred the money into another company before directing it into the Japanese division of Mundipharma, a Sackler company that sells opioids and other drugs abroad. At the same time as the transfers through Rosebay and Beacon, another $17.6 million was sent more directly by Purdue into the same Japanese unit of Mundipharma.
The report did not explain the rationale for the series of transactions.
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