BOSTON (Reuters) - A bankruptcy judge on Monday froze the assets of the owners of the pharmacy linked to a deadly U.S. meningitis outbreak.
Orders signed by U.S. Bankruptcy Judge Henry Boroff temporarily restrict the owners of New England Compounding Center (NECC) from selling their luxury homes or spending up to $21 million they received last year in salary and shareholder distributions.
NECC filed for bankruptcy protection in December after U.S. authorities shut down its pharmacy operations amid a meningitis outbreak that has killed 44 people and sickened nearly 700 others, according to the U.S. Centers for Disease Control.
Boroff also ordered three companies affiliated with NECC, including Ameridose LLC, from paying money to the individual owners. Ameridose has paid money to NECC, though, to fund its legal defense and bankruptcy counsel, court filings show.
"This is a victory for the creditors committee," said Anne Andrews of Andrews & Thornton of Irvine, California, a co-chair of the creditors committee.
The judge's rulings came in response to an emergency motion of the Official Committee of Unsecured Creditors. The group launched an investigation after the payments to the owners were revealed January 18 in court filings. The creditors' group, which includes meningitis victims, then sought and received court orders that restrict the sale of owners' real estate and spending down their bank accounts, according to court papers.
Recent disclosures show how privately-held NECC's largest shareholder Carla Conigliaro, for example, received nearly $9 million in 2012, according to court papers.
In addition, Barry Cadden, NECC's chief pharmacist, received about $3.2 million in 2012, filings show. His wife, Lisa Cadden, received about $2.8 million. Greg Conigliaro, a recycling entrepreneur who is Lisa Cadden's brother and Carla Conigliaro's brother-in-law, received about $1.6 million, court papers show.
In a statement issued after the payments were revealed, NECC said a large portion of the distributions to owners were for taxes that were coming due.
"The cash flow patterns and expenditures identified as part of the Chapter 11 process were consistent with the routine operations of NECC throughout 2012," NECC said last week. The company also said there were no indications the pharmacy would experience financial distress in the fourth quarter of 2012.
Last year, NECC shipped thousands of vials of a fungus-tainted steroid to medical facilities throughout the United States, according to authorities. More than 14,000 people have been exposed to the drugs, which were typically injected to ease back pain.
Reporting By Tim McLaughlin; editing by Carol Bishopric