[Plura-list] How the Sacklers rigged the game

Cory Doctorow doctorow at craphound.com
Sun May 23 15:40:27 EDT 2021

Today's links

* How the Sacklers rigged the game: Kickstarting the opioid epidemic and
escaping with a fortune bigger than the Rockefellers'.

* This day in history: 2016, 2020

* Colophon: Recent publications, upcoming/recent appearances, current
writing projects, current reading


🙊 How the Sacklers rigged the game

Two quotes to ponder as you read "Purdue's Poison Pill," Adam Levitin's
forthcoming Texas Law Review paper:

"Some will rob you with a six-gun, And some with a fountain pen." (W.

"Behind every great fortune there is a great crime." (H. Balzac)

Some background. Purdue was/is the pharmaceutical company that
deliberately kickstarted the opioid crisis by deceptive, aggressive
marketing of its drug Oxycontin, amassing a fortune so vast that it made
its owners, the Sackler family, richer than the Rockefellers.

Many companies are implicated in the opioid crisis, but Purdue played a
larger and more singular role in an epidemic that has killed more
Americans than the Vietnam war: Purdue, alone among the pharma
companies, is almost exclusively devoted to selling opioids.

And Purdue is also uniquely associated with a single family, the
Sacklers, whose family dynasty betrays a multigenerational genius for
innovating in crime and sleaze.

The founder of the family fortune, Arthur Sackler, invented modern drug
marketing with his campaigns for benzos like Valium, kickstarting an
addiction crisis that burned for decades and is still with us today.

His kids, while not inventing the art of reputation laundering through
elite philanthropy, did more to advance this practice than anyone since
the robber barons whose names grace institutions like Carnegie-Mellon

The Sackler name because synonymous not with the cynical creation of a
mass death drug epidemic and a media strategy that blamed the victims as
"criminal addicts" - rather, "Sackler" was associated with museums from
the Met to the Louvre.

Handing out crumbs from their vast trove of blood-money was just one
half of the Sacklers' reputation-laundering. The other half used a
phalanx of vicious attack-lawyers who'd threaten anyone who criticized
them in public (I personally got one of these).

The Sacklers could not have attained their high body count nor their
vast bank-balances without the help of elite legal enablers, both the
specialists from discreet boutique firms and the rank-and-file of the
great white-shoe firms.

I'm not one to take cheap shots at lawyers. Lawyers are often
superheroes, defending the powerless against the powerful. But the law
has a bullying problem, a sadistic cadre of brilliant people who live to
crush their opponents.


To see the sadism at work, look no further than the K-shaped world of
bankruptcy: for the wealthy, bankruptcy is the sport of kings, a way to
skip out on consequences. For the poor, bankruptcy is an anchor - or a

When working people are saddled with debts - even debts they did not
themselves amass - they are hounded by petty, vindictive monsters who
deluge them with calls and emails and threats.


But it's very different for the wealthy. Community Hospital Systems is
one of the largest hospital chains in America, thanks to the $7.6b worth
of debt it acquired along with 80+ hospitals, which it is running into
the ground.


CHS raked in hundreds of millions in interest-free forgivable loans,
stimulus and other public subsidies and paid out millions from that to
its execs for "performance bonuses."

It also leads the industry in suing its indigent patients, some for as
little as $201.

Debt and bankruptcy are key to private equity's playbook, especially the
most destructive forms of financial engineering, like "club deal"
leveraged buyouts that turn productive businesses into bankrupt husks
while the PE firms pocket billions:


For mere mortals - those of us who can't afford to hire legal enablers
to work the system - bankruptcy is a mystery. If you know someone who
went bankrupt, chances are they had their lives destroyed. How can
bankruptcy be a gift, rather than a curse?

Purdue Pharma presents a maddening case-study in the corrupt benefits of
bankruptcy. When it was announced in March, many were outraged to learn
that the Sacklers were going to walk away with billions, while their
victims got stiffed.


Levitin's paper uses the Purdue bankruptcy as a jumping-off point to
explain how this can be - how corporate bankruptcy "megacases" have
become a sham that subverts the very purpose of bankruptcy: to allow
orderly payments to creditors while preserving good businesses.

Levitin identifies three pathologies corrupting the US bankruptcy system.

First is "coercive restructuring techniques" that allow debtors and
senior creditors to tie bankruptcy judges' hands and those of other
creditors, overriding bankruptcy law itself.

These techniques - "DIP financing agreements," "Stalking Horse bidder
protections," "Hurry-up agreements," etc - are esoteric, though Levitin
does a good job of explaining each.

More significant than their underlying rules is their *effect*.

That effect? Thousands of Oxy survivors and families of Oxycontin
victims lost their right to sue the Sacklers and Purdue pharma because
of these techniques. In return, the Sacklers surrendered about a third
of the billions they reaped.


Depriving the victims of the Sacklers' drug empire of the right to sue
doesn't just leave the Sacklers with billions; it also means that no
official record will be produced detailing the Sacklers' complicity in
hundreds of thousands of deaths.

Levitin: "The single most important question in the most socially
important chapter 11 case in history will be determined through a
process that does not comport with basic notions of due process."

The Sacklers are not unique beneficiaries of "coercive restructuring
techniques." The rise of "prepack" and 24-hour "drive through"
bankruptcies have turned judges into rubberstampers of private
agreements between debtors and their cronies, with no look-in for victims.

It in these proceedings that the law descends into self-parody, more
Marx Brothers than casebook. Levitin highlights the Feb '21
"drive-through" bankruptcy of Belk Department Stores, where the judge
was told that failing to accede to the private deal would risk 17,000 jobs.

The trustees representing Belk's non-crony creditors were railroaded
through this "agreement," upon notice consisting of an "unintelligible"
one-page, one-paragraph release opening with "a 630-word sentence with
92commas and five parentheticals."

Sackler lawyers were geniuses at this game, securing judicial approval
of a deal where the Sacklers' personal liability to the Feds went from
$4.5b to $225m. The judge heard no evidence about whether the Sacklers'
voluntary payout was even close to their liabilities.

The corruption of bankruptcy is bad enough, as the creditors for finance
criminals are often small firms and workers' pension.

The Sacklers' case is far worse: they don't owe billions in unpaid loans
- they owe criminal and civil liability for the lives they destroyed.

The next area of corruption that Levitin takes up is the inadequacy of
the appeals process for bankruptcy settlements. This, too, is complex,
but it has a simple outcome: once a judge agrees to a settlement, it's
virtually impossible to appeal it.

In those rare instances where people do win appeals, they are still
denied justice, because the appellate courts typically find that it's
too late to remedy the lower courts' decisions.

That makes the business of "coercive restructuring techniques" (in which
judges rubber-stamp corrupt arrangements between debtors and their
cronies) even more important, since any ruling from a bankruptcy judge
is apt to be final.

The third and most important corrupt element of elite bankruptcy that
Levitin describes is the ability for debtors' lawyers to pick which
judge will rule on their case, a phenomena that means that only *three*
judges hear *nearly every* major bankruptcy case in America.

"[In 2020] 39% of large public company bankruptcy filings ended up
before Judge David Jones in Houston. 57% of the large company cases
ended up before either Jones or two other judges, Marvin Isgur in
Houston and Robert Drain in White Plains."


In other words, elite law firms have figured out how to "hack" the
bankruptcy process so they can choose from among three judges. And these
three judges weren't picked at random - rather, they competed to bring
these "megacases" to their courts.

This competition is visible in how these judges rule - in ways that are
favorable to cronyistic arrangements between debtors and their favored,
deep-pocketed creditors - and in the public statements the judges
themselves have made, going on the record admitting it.

Levitin cites the groundbreaking work of Harvard/UCLA law prof Lynn
LoPucki on why judges want to dominate bankruptcy megacases. LoPucki
points out hearing these cases definitely increases "post-judicial
employment opportunities" - but says the true motives are more complex.

Levitin, summarizing LoPucki: "[it's more] in the nature of personal
aggrandizement and celebrity and ability to indirectly channel to the
local bankruptcy bar.. The judge is the star and the ringmaster of a
megacase - very appealing to certain personalities"

Obviously, not every judge wants these things, but the ones that do are
of a type - "willing and eager to cater to debtors to attract
business...[an] assurance to debtors that...these  judges will not
transfer out cases with improper venue or rule against the debtor..."

Forum-shopping in bankruptcy is not new, but it has accelerated and

Once, the game was to transfer cases to Delaware and the Southern
District of New York.

It's why the LA Dodgers went bankrupt in Delaware, why Detroit's iconic
General Motors and Texas's own Enron got their cases heard in the SDNY.

The bankruptcy courts have long been in on this game, allowing the
flimsiest of pretences to locate a case in a favorable venue.

For example, GM argued that it was a New York company on the basis that
it owned a single Chevy dealership in Harlem.

Other companies simple open an office in a preferred jurisdiction for a
few months before filing for bankruptcy there.

Lately, the venue of choice for dirty bankruptcies is in Texas (if only
Enron could have held on for a couple more decades!). Only two Houston
judges hear bankruptcy cases, and any bankruptcy lawyer who gets on
their bad side risks ending their career.

Once a court becomes a national center for complex bankruptcies, the
bankruptcy bar works to ensure that only favorable judges hear cases
there, punishing a district by seeking other venues when a judge goes
"rogue." The fix is in from the start.

Purdue did not want to have its case heard in Texas. Instead, it
manipulated the system so that it could argue in front of SDNY Judge
Robert D Drain.

It was a good call, as Drain is notoriously generous with granting
"third-party releases," which would allow the Sacklers to escape their
debts to the victims and survivors of their Oxy-pushing.

Once Drain agreed to the restructuring, he ensured that the victims
would never get their day in court, and no evidence - from medical
examiners, auditors, and medical professionals who received kickbacks
for every patient they addicted - would be entered into the record.

Drain is also notoriously hostile to independent examiners, "an
independent third-party appointed by the court to investigate 'fraud,
dishonesty, incompetence, misconduct, mismanagement, or
irregularity...by  current or former management of the debtor."

But getting the case in front of Drain took some heroic maneuvering by
the Sacklers' lawyers. Levitin tracks each step of a Byzantine plan that
somehow allowed a company that gave its address in Connecticut to have
its case heard in New York.

The key to getting in front of Judge Drain appears to involve literally
hacking the system, by putting a Westchester County location in the
machine-readable metadata for its filing in the federal Case
Management/Electronic Case Files (CM/ECF) system.

CM/ECF does not parse the text of the PDF that it receives from lawyers;
only the metadata is parsed. The company listed a White Plains, NY
address in this metadata, even though it had never conducted business there.

Purdue seems to have opened this office 192 days earlier for the sole
purpose of getting its bankruptcy in front of Judge Drain (they were
eligible for Westchester County jurisdiction 180 days after opening the

Their lawyers even went so far as to pre-caption the case filing with
"RDD" - for "Robert D Drain" - knowing that all complex bankruptcies in
Westchester County were Drain's to hear.

The fact that the Sacklers were able to choose their judge - a judge who
was notorious for his policies that abetted elite impunity in bankruptcy
- is nakedly corrupt.

This move is how the Sacklers are walking away from corporate mass
murder with a giant fortune. The art galleries have started to remove
their names from their buildings, but they'll have a lot of money to
keep themselves warm even if they're shunned in polite society.

A couple weeks ago, a Texas judge ruled against the NRA, denying its
bankruptcy, on the grounds that it was a flimsy pretence designed to
escape liability in New York, where it was incorporated.


For many of us, the NRA bankruptcy was a kind of puzzle. We went from
glad that the NRA was bankrupt to glad that they WEREN'T, because for
dark money orgs like the NRA, bankruptcy isn't a punishment, it's a way
to escape justice.

The NRA case is evidence that the corruption of the bankruptcy system
isn't yet complete. That's no reason to assume everything is fine. The
Sacklers are developing a playbook that will be used to escape other
elite crimes with vast fortunes intact.


🙊 This day in history

#5yrsago Paypal refuses to deliver online purchases to UK addresses
containing “Isis”

#1yrago Covid apps and false positives


🙊 Colophon

Currently writing:

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* A nonfiction book about excessive buyer-power in the arts, co-written
with Rebecca Giblin, "The Shakedown."  FINAL EDITS

* A post-GND utopian novel, "The Lost Cause."  FINISHED

* A cyberpunk noir thriller novel, "Red Team Blues."  FINISHED

Currently reading: Analogia by George Dyson.

Latest podcast: How To Destroy Surveillance Capitalism (Part 06)

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Beacon Press 2022

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