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Opinion | The Sacklers’ Last Poison Pill

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 (@Jonathan_Lipson) is Harold E. Kohn Chair and is a Professor of Law at Temple University Beasley School of Law. Gerald Posner (@geraldposner) is an investigative journalist and author of “PHARMA.”

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