Fraudulent Transfer by Sackler Family

Fraudulent Transfer Still a Bad Idea

I often preach against engaging in asset protection after there is a known claim. Transferring assets at such a time is considered a fraudulent transfer. This is a justification that the court uses to order a debtor to transfer assets back to be available for creditors. That said, sometimes it works. The case of Purdue Pharma and the Sackler family is apparently one such case. But I still don’t recommend it.

Mick Jagger recoded Sister Morphine with The Rolling Stones in 1971. At that time, Purdue Pharma was already a 20-year-old company owned by the Sackler family. Purdue Pharma’s core business was always in pharmaceuticals for treating pain. Mainly with narcotics.

Twenty-five years later, Jagger was evolving into an elder statesman of rock and roll. And Purdue Pharma introduced its extended-release formulation of oxycodone. This was better known by the brand name OxyContin.

Jagger made his fortune selling records. The Sackler family solidified theirs by manufacturing and selling prescription narcotics.

To protect his wealth, Jagger for a time became a tax exile and fled his native Britain, living in France. He and bandmate Keith Richards used a Dutch accounting firm to ease their tax burdens. (There is no tax on royalties under Dutch law.) The Sackler family took a different approach to asset protection.

The Sacklers made billions of dollars on OxyContin sales. By 2000, though, reports of the drug’s addictive nature started surfacing throughout the United States. State attorneys general began investigations. In May 2007, Purdue Pharma pleaded guilty to misleading the public about Oxycontin’s risk of addiction. It agreed to pay $600 million in fines and other payments. At the time, this was one of the largest pharmaceutical settlements in U.S. history. The company’s president pleaded guilty to misbranding charges. So did the chief legal counsel and former chief medical officer. They all agreed to pay $34.5 million in fines.

Then the civil lawsuits began. This is where the story of asset protection by the Sackler Family takes a sharp turn.

In the midst of mounting lawsuits, the Sacklers continued to pay themselves hundreds of millions of dollars (or more). The Sacklers allegedly moved this money into offshore accounts.

New York’s attorney general filed an amended lawsuit in March 2019 against Purdue and eight members of the Sackler family. The lawsuit claimed that profits paid to Purdue’s owners should be clawed back because of the lawsuits filed against the company. The claims are based on the legal theory of Fraudulent Transfer, which is meant to protect creditors from debtors who try to hide their assets. (

The Sackler family allegedly took funds from Purdue and an affiliated generic drugmaker. They transferred these funds into various entities that family members control through trusts. Unknown millions (or billions) of dollars are now allegedly socked away in offshore accounts under the family’s control. The New York suit says the Sacklers engaged in a fraudulent transfer and the transfers should be unwound. The reason is that the family knew Purdue was insolvent yet continued to distribute funds from the company to family members.

By 2014, according to the suit, the Sacklers knew state attorneys general were investigating Purdue. They also knew that settlements or judgments were probably 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 states.

Purdue has denied the allegations. The company has since filed for bankruptcy protection. The proposed settlement will allow the Sackler family to keep most of their profits from the sale of OxyContin. This is a rare example of such an aggressive attempt at protecting assets after lawsuits arise being successful.

Stephen J. Lawrence was not so lucky. He spent 6.5 years in jail for engaging in a fraudulent transfer, and then not repatriating offshore trust funds when the court ordered him to. The reason was that the bankruptcy court found him in contempt because it did not believe that he could not bring the assets back the U.S. to pay creditors. In re Lawrence, 238 B.R. 498 (Bankr. S.D. Fla. 1998). The court stated that it’s finding regarding Lawrence’s inability to comply was based on the trust provisions and common sense:

It defies reason—it tortures reason—to accept and believe that this Debtor transferred over $7,000,000 in 1991, an amount then constituting over ninety percent of his liquid net worth, to a trust in a far-away place administered by a stranger—pursuant to an Alleged Trust which purports to allow the trustee of the Alleged Trust total discretion over the administration and distribution of the trust res.

In re Lawrence, 238 B.R. at 501.

The issue in the case of Stephen Lawrence was that his claimed impossibility was self-created. This was because he transferred assets close in time to the anticipated judgment. As a result, the court in In re Lawrence affirmed the civil contempt order. The court stated that the law does not recognize the defense of impossibility when it is self-created.

The real issue in the case of Stephen Lawrence was that Mr. Lawrence created the trust a few days after the judgment. The lesson is that asset protection, to be effective and proper, must be done before problems come up – not in reaction to them.

The case against the Sackler family is practically a textbook example of what not to do. The issue is not that they tried to protect their assets, but how they allegedly did it and why. As defendants, they are accused of trying to protect their wealth only after it was obvious that there were going to be claimants against them, seeking compensation.

What we can learn from the Sackler situation is that improper planning was allegedly done, perhaps in a panic, for the purpose of defeating claimants. The Ney Work case and about 2,000 others are still pending against Purdue Pharma and the Sackler family.