The Wall Street Journal - 07.09.2019 - 08.09.2019

B10| Saturday/Sunday, September 7 - 8, 2019 ** THE WALL STREET JOURNAL.**

Mallinckrodt Nears

Deal in Opioid Suit

Mallinckrodt PLC said it

tentatively agreed to a settle-

ment valued at $30 million to

resolve opioid-crisis lawsuits

brought by two Ohio counties,

allowing the drugmaker to

avoid a trial next month.

The company said Friday

that it would pay $24 million

in cash and provide $6 million

worth of generic products, in-

cluding those for addiction

treatment, to Cuyahoga and

Summit counties, home to cit-

ies including Cleveland and Ak-

ron. The counties are sched-

uled to go to trial against

drugmakers and distributors

next month in what is seen as

a bellwether for allegations

raised in some 2,000 lawsuits.

Mallinckrodt still faces hun-

dreds of other lawsuits, as do

other manufacturers, retail

pharmacies and wholesalers.

The companies are accused by

states, cities and counties of

helping cause a public-health

crisis with misleading marketing

and by failing to stop excessive

amounts of drugs from flooding

the country. Mallinckrodt has

denied the allegations.

Analysts have pointed out

that Mallinckrodt is highly lev-

eraged and will find it difficult

to resolve opioid litigation

while being able to clean up its

balance sheets. The company

recently drew down the re-

maining availability of its re-

volving credit facility.

Mallinckrodt recently hired

AlixPartners, a consulting firm

that specializes in restructur-

ing, to advise on strategies for

improving its business opera-

tions, according to a person fa-

miliar with the matter. A repre-

sentative for AlixPartners

didn’t respond to a request to

comment.

Mallinckrodt Chief Execu-

tive Mark Trudeau said the

company hires advisers for “all

different types of things all the

time.”

—Jared S. Hopkins

and Maria Armental

could further dilute the share
of money available to settle
suits brought by states and lo-
cal governments. It is unclear
how big any potential federal
government fines would be.
Purdue and Sackler family
members have been negotiat-
ing a multibillion-dollar deal
with states, cities and counties
that allege the drugmaker’s

Continued from page B1

marketing of OxyContin

helped hook residents on opi-

oids and cause widespread ad-

diction. Local governments,

Native American tribes, hospi-

tals and others have since

brought some 2,500 lawsuits

of their own against Purdue.

The company has been pre-

paring to file for bankruptcy

as a tool to resolve the legal li-

abilities, but is still trying to

reach deals ahead of time to

ensure a smoother trip

through bankruptcy court.

A bellwether trial slated for

October in the case of two

Ohio counties is putting time

pressure on the talks.

—Jared S. Hopkins and

Sadie Gurman contributed to

this article.

Purdue said in October 2017

it was cooperating with an in-

vestigation by the U.S. Attor-

ney in Connecticut, its home

state.

The Justice Department has

penalized Purdue before.

After a federal investiga-

tion, the company and three of

its executives in 2007 pleaded

guilty to criminal charges of

misleading the public about

the addiction risk of OxyCon-

tin and paid $634.5 million in

government penalties and

costs.

A new round of legal issues

began for the Stamford, Conn.-

based company a decade later,

when state attorneys general

started suing Purdue in ac-

tions claiming its aggressive

necticut, have balked at the

proposed settlement, saying it

doesn’t bring in enough

money. States and other plain-

tiffs have pushed the Sacklers

to guarantee $4.5 billion up-

front but have been rebuffed

by the family, people familiar

with the request said.

The company has said in re-

lation to the civil lawsuits that

it believes a settlement now

“is a far better path than years

of wasteful litigation and ap-

peals.” The company said it is

actively working with state at-

torneys general and other

plaintiffs on a resolution that

could save lives and “deliver

billions of dollars to the com-

munities affected by the opi-

oid abuse crisis.”

aggressive marketing of Oxy-

Contin helped fuel an opioid

epidemic. Purdue has denied

the allegations.

The current proposal to re-

solve some 2,000 of those civil

cases would include $3 billion

from the Sacklers and an addi-

tional $1.5 billion in family

money contingent on the sale

of its international operations,

The Wall Street Journal has

reported. The proposal, valued

by the company at between

$10 billion and $12 billion,

would be implemented

through a bankruptcy and in-

clude donated drugs to treat

opioid addiction and ongoing

revenue from OxyContin sales.

Some states, including New

York, Massachusetts and Con-

vestment professionals.

Ms. De Jong turned to the

free student law clinic at the

University of Nevada, Las Ve-

gas. The team of law students

argued that the Wells Fargo

broker violated Nevada’s fidu-

ciary duty, among other

things.

“It was a huge arrow in our

arsenal that we could deploy,”

Garrett Logan, a student who

worked on Ms. De Jong’s case,

said of Nevada’s statute. The

team recovered the full

amount lost.

Ms. De Jong’s victory shows

that state rules can influence

arbitration decisions to the

benefit of investors. When

brokerage clients assert

wrongdoing, they typically

have to do so in private arbi-

tration hearings.

“Inmy experience, arbitra-

tors take state securities acts

seriously,” said Ross Inteli-

sano, a New York attorney

who represents customers in

brokerage disputes.

state legislators and regula-

tors have meanwhile moved to

strengthen their own securi-

ties laws, citing insufficient

federal protections. Since 2017,

Nevada has led the way by re-

quiring financial advisers of

all stripes to act as fiduciaries,

meaning they must put clients’

interests before their own.

Complaints against brokers

for breaching a fiduciary duty

aren’t always easy to win,

partly because of murky stan-

dards of conduct around in-

Law students work at an investor-protection clinic at the University of Nevada, Las Vegas.

Appeals in New Orleans invali-

dated the Labor Department’s

fiduciary rule, an Obama-era

regulation meant to address

such conflicts for brokers.

Since then, the U.S. Securities

and Exchange Commission has

put forth new conduct rules.

Investor advocates say the

new rules don’t go far enough,

because brokers can still pick

products that are more lucra-

tive for them so long as those

conflicts are disclosed. Some

BUSINESS & FINANCE NEWS

A Nevada investor’s recent
victory against her former
Wells Fargo broker highlights
the efforts by some states to
enact tougher investor protec-
tions.
Ann De Jong, a 43-year-old
emergency-room doctor in Las
Vegas, hired Wells Fargo in
2018 to manage her savings.
She said she asked that the
money be managed conserva-
tively, kept mainly in money-
market accounts for safety
with quick access to cash. But
during a bout of volatility, she
lost $41,000, or roughly 6% of
her portfolio. The broker han-
dling Ms. De Jong’s account
had put the money in riskier
products meant to boost re-
turns.
“It was my life savings,”
Ms. De Jong said. “It was a
nightmare.”
Ms. De Jong’s case appears
to be the first time a customer
invoked Nevada’s fiduciary
rule and won.
“The company is disap-
pointed with the results of
this matter,” a Wells Fargo
spokeswoman said.
Brokers, usually paid in
sales commissions and man-
agement fees based on assets
in a client’s account, often face
conflicts of interest. Last year
the Fifth U.S. Circuit Court of

BYLISABEILFUSS

State Investor-Protection Rules Step In

BrokerBeefs

Breachoffiduciarydutyisthemostcommoncomplaint

investorslodgeagainsttheirfinancialadvisers.

Annualcomplaintsbyclientsagainstbrokers,yearthroughJuly

Source: Financial Industry Regulatory Authority

0 250 500 750 1,000 1,250

Churning

Fraud

Suitability

Misrepresentation

Negligence

Breachof

fiduciaryduty

2019

’17

’18

’16

’15

Purdue

Pharma in

Probe Talks

ROGER KISBY FOR THE WALL STREET JOURNAL

Investors in Fannie Mae

and Freddie Mac aren’t cheer-

ing the Trump administra-

tion’s new plan for privatizing

the mortgage-finance giants.

Fannie shares fell 8.75% to

$2.71 Friday, while Freddie

shares were down 8.2% to

$2.57, a day after the U.S.

Treasury Department unveiled

its blueprint for releasing the

companies from government

control.

The report was short on

some specifics, such as the

precise mechanism for recapi-

talizing Fannie and Freddie so

they could endure another

housing downturn.

Fannie and Freddie support

the U.S. housing market by

buying mortgage loans from

lenders and repackaging them

into securities that they sell to

investors. The government

took them over during the

2008 financial crisis as the de-

teriorating housing market

threatened their businesses.

The companies’ shares have

rallied this year as administra-

tion officials have floated

plans to unwind the govern-

ment takeover. Even with Fri-

day’s drop, Fannie and Freddie

shares have more than dou-

bled in value since the begin-

ning of the year.

Now, the Trump adminis-

tration has formally endorsed

a plan to put them back in pri-

vate hands—a development

that should in theory have

been positive for Fannie and

Freddie shares, since their

profits would enrich private

shareholders rather than gov-

ernment coffers.

However, investors hopeful

for a clear path forward would

have been disappointed by

Thursday’s report. The docu-

ment laid out options for how

to recapitalize Fannie and

Freddie, rather than commit-

ting to one. It is unclear

whether the companies can

exit government control be-

fore the 2020 election.

Fannie and Freddie stock

has suffered a precipitous de-

cline since the mid-2000s,

when they traded at more

than $50 a share. They have

been traded in the over-the-

counter markets since they de-

listed from the New York

Stock Exchange in 2010.

BYALEXANDEROSIPOVICH

Investors

Wary of

Plan for

Fannie,

Freddie

The companies’

shares have rallied

this year despite

Friday's drop.

ACURA

    









 

 
 





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