The Stamford, Connecticut building that is home to Purdue Pharma’s headquarters and Kokino LLC (Image: Wikipedia Commons)
A Sackler family investment vehicle is the top beneficial owner of a publicly-traded company that is under criticism for accepting a $10 million loan intended to help small businesses struggling to stay afloat during the current pandemic and economic crisis.
Kokino LLC, which the Wall Street Journal has called “a private Sackler investment firm” and the Stamford Advocate has described as “the family office of Purdue [Pharma] co-owner Jonathan Sackler,” controls nearly a 12% stake, and has a representative on the board of directors, of Gulf Island Fabrication, a Houston-based producer and servicer of offshore oil rigs, ships, pipelines, and other complex steel structures used by the energy and petrochemical industries. Gulf Island Fabrication reported over $300 million in revenue in 2019 and declared that, as of the end of last year, it had “approximately” 944 employees.
Jonathan Sackler is the son of Raymond Sackler, a co-founder of Purdue Pharma, the maker of the opioid drug OxyContin. The Sackler family and Purdue Pharma have faced numerous lawsuits and widespread public opprobrium for their alleged role in fostering and profiting off of the U.S. opioid epidemic. Jonathan Sackler is a former Director and Senior Vice President, and current co-owner, of Purdue Pharma.
The U.S. House coronavirus oversight committee wrote a letter on May 8 to Gulf Island Fabrication requesting the company return its $10 million loan from the Small Business Administration. This comes as public backlash has grown against publicly-traded companies with access to outside investors and capital markets, such as Ruth’s Hospitality Group and Shake Shack, that have requested and accepted COVID-19 relief loans, through the Paycheck Protection Program, intended for small businesses struggling to survive during the current crisis.
The Sackler family investment vehicle’s top beneficial ownership of Gulf Island Fabrication raises further concerns that billionaire interests – in this case, investor wealth made from the production and distribution of opioid drugs that are widely seen as having driven a national public health crisis – are benefiting from government relief intended for struggling small businesses.
Gulf Island Fabrication under criticism for accepting $10 million PPP loan
Gulf Island Fabrication is a publicly-traded company that describes itself as “a leading fabricator of complex steel structures, modules and marine vessels used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy and shipping and marine transportation operations.” According to its LinkedIn page, it has “grown to be a worldwide leader in the fabrication, maintenance and servicing of structures, facilities and vessels within the energy sector and beyond.”
In a filing with the Securities and Exchange Commission dated April 20, 2020, Gulf Island Fabrication reported that on April 17, 2020, it “entered into an unsecured loan in the aggregate principal amount of $10.0 million… with Hancock Whitney Bank… pursuant to the Paycheck Protection Program… which is sponsored by the Small Business Administration… as “part of the Coronavirus Aid, Relief and Economic Security Act…”
The loans are forgivable “if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities,” according to the U.S. Small Business Administration. The amount that Gulf Island Fabrication borrowed – $10 million – is the maximum amount a business can borrow under the PPP.
Gulf Island Fabrication is one of five publicly-traded companies that the U.S. House Select Subcommittee on the Coronavirus Crisis is demanding to return its loan.
On May 8, members of the U.S. House coronavirus oversight committee wrote to Gulf Island Fabrication CEO Richard W. Heo demanding the company “immediately return the Paycheck Protection Program (PPP) loan it obtained so that these funds may be used to support truly small businesses that are struggling to survive during the coronavirus crisis.” Noting Gulf Island Fabrication’s “over 900 employees” and revenue of “more than $300 million in 2019,” the letter stated that “[w]e did not intend for these funds to be used by large corporations that have a substantial investor base and access to capital markets.”
On May 6, 2020, Gulf Island Fabrication reported revenue of over $78.5 million for the first quarter of 2020 and a net income of $5.9 million. As of May 8, 2020, its market capitalization was more than $46 million.
Gulf Island Fabrication executives defended taking the loan on a recent earnings call, claiming the corporation needs to maintain a “strong balance sheet” to remain successful and maintain customer confidence. One executive said that Gulf Island Fabrication could borrow under its current credit facility to meet liquidity needs, but that this would “significantly impair” its “ability to win new work and return to profitability.”
Sackler family investment vehicles and Gulf Island Fabrication
Kokino LLC, Jonathan Sackler’s family investment office, controls the top stake of Gulf Island Fabrication through an investment vehicle, Piton Capital Partners LLC.
According to its most recent proxy statement, the largest beneficial owner of Gulf Island Fabrication is Piton Capital Partners LLC, which has an 11.8% ownership stake in the company. The proxy statement explains that Piton Capital is “an investment vehicle formed for the benefit of a single family and certain “key employees”” and that “voting and dispositive power with respect to the shares of our common stock held by Piton Capital is exercised by its investment manager, Kokino LLC, a Delaware limited liability company.”
Moreover, Piton Capital has reported to the SEC that its “principal business” is “to act as a pooled investment vehicle for various “Family Clients”… of Kokino, which is a single family office that provides investment management services only to Jonathan Sackler, his family and other Family Clients of Kokino…”
Gulf Island Fabrication’s proxy statement explicitly states that Piton Capital’s role as a shareholder is controlled by Kokino LLC through Robert Averick, a Kokino portfolio manager since 2012, who sits on the Gulf Island Fabrication board of directors:
“The actual trading, voting, investment strategy and decision-making processes with respect to the shares of common stock held by Piton Capital are directed by Robert Averick, the director nominee, who is an employee of Kokino, LLC and the portfolio manager of Piton Capital’s investment in the shares. As a result, Kokino, LLC and Mr. Averick may be deemed to share voting and dispositive power with respect to all of the shares reported.”
A February 23, 2020 Stamford Advocate article referred to Kokino LLC as “the family office of Purdue co-owner Jonathan Sackler,” while a February 19, 2020 Wall Street Journal article described Kokino LLC as “a private Sackler investment firm.” A March 7, 2020 Wall Street Journal article stated that “an entity called Kokino LLC invests the wealth of Jonathan Sackler and Kokino’s employees.” The WSJ also notes that “Kokino operates out of the same building in Stamford that houses Purdue’s headquarters, along with other investment firms with connections to the Sacklers.” Piton Capital shares the same address as Kokino LLC and Purdue Pharma.
As of March 19, 2020, Kokino, through Piton Capital, controlled 1,811,894 shares of Gulf Island Fabrication. The company’s share price was $2.70 as of May 19, 2020, which would make the stake that Kokino controls currently worth about $5.2 million. Gulf Island Fabrication’s stock price has collapsed in recent months, having almost halved since December 2019, and is a fraction of its value from several years ago.
In its most recent report to the SEC on its holdings in publicly-traded companies, filed in November 2019, Kokino also reported holdings in Amtech Group, Argan Inc, Autoweb, Evolving Systems, Hill International, and INTL FCStone. Kokino LLC’s Robert Averick sits on the board of Amtech, which describes itself as “a global supplier of Semiconductor production and automation systems and related supplies for the manufacture of semiconductors, and silicon wafers.”
Sackler family facing lawsuits and ostracization over role in U.S. opioid crisis
All this comes as the Sackler family, including Jonathan Sackler, faces thousands of lawsuits over its alleged role, through its ownership and management of Purdue Pharma, in creating, driving, and profiting from the U.S. opioid crisis, which has resulted in the deaths of tens of thousands of people.
While Gulf Island Fabrication continues to do business with the Sacklers, other firms and prominent public institutions are distancing themselves from the family. A number of hedge funds have broken with the Sacklers and Kokino LLC, returning the family’s investment funds. In recent years, prominent cultural institutions, such as Tate galleries and the Metropolitan Museum of Art, have stopped accepting donations from the Sackler family.
The Sackler family’s finances have been a focus of lawsuits. The judge overseeing Purdue Pharma’s bankruptcy proceedings recently granted permission to 24 states that have brought a lawsuit against Purdue Pharma to “investigate major financial institutions connected to the Sackler family members who own Purdue,” according to the Stamford Advocate.
As of 2016, the Sacklers were worth $13 billion, making them one of the richest families in the U.S. Last August, Bloomberg estimated that, after settling the lawsuits they now face, the family would likely be worth around $1.5 billion.