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U.S. Supreme Court Rejects Arizona Opioid Case Against Purdue, Sackler Family

The U.S. Supreme Court yesterday turned away a novel case by Arizona seeking to recover billions of dollars that the state has said that members of the Sackler family — owners of Purdue Pharma LP — funneled out of the OxyContin maker before the company filed for bankruptcy in September, Reuters reported. The justices declined to take the rare step of allowing Arizona Attorney General Mark Brnovich to pursue a case directly with the Supreme Court on the role the drugmaker played in the U.S. opioid epidemic that has killed tens of thousands of Americans annually in recent years. The lawsuit accused eight Sackler family members of funneling $4 billion out of Purdue from 2008 to 2016 despite being aware that the company faced massive potential liabilities over its marketing of opioid medications. Brnovich argued that the national importance of holding those responsible for the opioid crisis accountable justified taking the case directly to the justices. The case is among the thousands filed by states, counties and cities seeking to hold Stamford, Connecticut-based Purdue, and in many cases the Sacklers, responsible for a U.S. opioid addiction crisis that since 1999 has resulted in more than 400,000 overdose deaths. The lawsuits accuse the company of deceptively marketing opioids by overstating their benefits and playing down the risks. Purdue filed for chapter 11 protection in September after reaching a tentative deal it values at $10 billion to resolve those cases.

Justices Seek Trump Lawyer’s View on Madoff Appeal

The U.S. Supreme Court asked for the Trump administration’s views on a $3 billion appeal from foreign financial institutions that took stolen money from Bernard Madoff’s Ponzi scheme, WSJ Pro Bankruptcy reported. The justices yesterday asked the U.S. solicitor general to weigh in on whether the trustee cleaning up after Madoff’s Ponzi scheme can pursue tainted cash that was sent to offshore investment funds, then passed on to European banks and other foreign recipients. Irving Picard, the trustee cleaning up after the Ponzi scheme, has long maintained that under U.S. bankruptcy law, he can recoup stolen money that passed between foreign institutions before the $20 billion fraud was discovered. Banks including HSBC Holdings PLC and several Caribbean governments have fought Picard’s efforts, saying that transfers occurring entirely outside U.S. borders are beyond his grasp. Picard has recouped more than $13 billion in Ponzi scheme proceeds over the past decade, arguing that money withdrawn from Madoff’s phantom investment firm should help repay average investors who came out as net losers when the fraud collapsed in 2009. Madoff pleaded guilty to running the largest Ponzi scheme in history and is serving a 150-year prison sentence in North Carolina. Read more

For a further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case

Bayou Hedge Fund's Samuel Israel, Who Ran Big Ponzi Scheme, Fails to Win Freedom

The ailing former Bayou hedge fund manager Samuel Israel has lost his bid for an early end to his 22-year prison sentence for running a $450 million fraud, as a U.S. judge found it would make a “mockery” of federal sentencing laws to set him free, Reuters reported. Chief Judge Colleen McMahon of the U.S. District Court in Manhattan said she had no doubt the 60-year-old Israel, who has spent 11 years in prison, suffers from severe, progressive and incurable medical problems, and was “certainly not a well person.” But she called Israel’s fraud from 1996 to 2005 “extremely serious,” one of the largest Ponzi schemes uncovered before Bernard Madoff’s, and said he did not deserve “compassionate release” though he could get better medical care outside prison. “It would make a mockery of the sentencing statute if this financial fraudster, who ruined the lives and finances of hundreds of people while living the high life of an ostensibly successful hedge fund manager, were to have his sentence reduced,” McMahon wrote. The judge blacked out Israel’s medical problems from her 29-page decision. McMahon had in August 2014 rejected Israel’s prior request for a shorter sentence because of ill health. Bayou went bankrupt in May 2006. Israel pleaded guilty in September 2005 to defrauding Bayou investors, and was originally sentenced by McMahon to 20 years in prison. But rather than surrender as scheduled in June 2008, Israel faked his own suicide by leaving his GMC Envoy on the Bear Mountain Bridge north of New York City, with the words “suicide is painless” scrawled in dust on the hood. He surrendered the following month, and another judge tacked on two years in prison for bail-jumping.

Destination Maternity Shutdown Looms as Marquee’s Bid Wins

Destination Maternity Corp. canceled its bankruptcy auction and Marquee Brands LLC was declared the winner, making it likely that the chain’s stores will be shut down, Bloomberg News reported. The cancellation was disclosed in a court filing Monday, signaling that no other qualified bids were received by last week’s deadline. Plans previously outlined call for Marquee to shutter the brick-and-mortar outlets but keep the brand alive online and possibly inside department stores. Marquee will get the retailer’s name, website and other operating assets for about $50 million. Hilco Merchant Resources and Gordon Brothers Retail Partners would run store-closing sales at its remaining 235 locations, with thousands of jobs jeopardized, court papers show. Shutting the stores would add to the so-called retail apocalypse that has claimed more than 9,200 stores among small and large retailers. The industry is suffering from online competition, fewer shoppers at malls and too much debt that was piled on before those trends sapped profitability. The company filed for chapter 11 protection in October with about 3,200 employees, 436 stand-alone stores and another 423 store-in-store locations, including Macy’s, buybuyBABY, and Boscov’s, according to court papers. Less than a year earlier, it counted more than 1,100 retail locations in the U.S, Canada and Puerto Rico. Destination Maternity hasn’t posted an annual profit since 2014.

PG&E Charges to Swell to $25 Billion After Wildfire Settlement

PG&E Corp. disclosed in a securities filing yesterday that it expects to take a fourth-quarter charge of $4.9 billion in connection with a new $13.5 billion deal to settle claims from wildfire victims, the Wall Street Journal reported. The new charge, which PG&E expects to take by year’s end, would raise the company’s total recorded fire-related charges to over $25 billion. The higher amount reflects the increase over the $8.4 billion PG&E initially offered to resolve wildfire victim claims, which stem from more than a dozen fires linked to the company’s equipment in recent years. The victims settlement agreement unveiled Friday would remove a substantial roadblock to PG&E’s emergence from bankruptcy, even as it puts additional strain on its balance sheet. PG&E shares were up more than 18 percent yesterday following news of the deal.

DeVos Orders Partial Loan Relief for Many Duped Student Borrowers

Education Secretary Betsy DeVos is pushing ahead on her plans to cancel only a portion of loans taken out by defrauded college students, even amid legal setbacks and as House Democrats prepare to grill her during a hearing on Thursday, POLITICO reported. DeVos in recent weeks directed the Education Department to carry out a new policy that will provide partial loan forgiveness to many borrowers whom the agency determines were duped or cheated by their colleges, according to an internal Education Department memo. The memo, which was signed by DeVos in mid-November and hasn’t been reported previously, instructs department officials to resume issuing decisions on some of the roughly 227,000 pending applications filed by borrowers seeking debt relief based on their colleges' alleged misconduct. That process has been stalled for the past 18 months. Department officials now plan to move ahead adjudicating those claims — most of which allege fraud at for-profit schools like Corinthian Colleges and ITT Tech — by using a new formula. It calculates loan forgiveness based on how much a defrauded student’s “estimated earnings” differed from those of students who attended similar programs across the country. Read more

For more information on the House Education and Labor Committee's hearing at 9 a.m. EDT on Thursday titled "Examining the Education Department’s Implementation of Borrower Defense," please click here