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Owners drew $16m from pharmacy tied to deaths

Barry Cadden is president and lead pharmacist of the company.

Barry Cadden is president and lead pharmacist of the company.

The owners of the Framingham pharmacy blamed for the fungal meningitis outbreak that has killed dozens of people and sickened hundreds more pulled millions of dollars out of the company in the last year.

Bankruptcy records show the four family members who cofounded New England Compounding Center received more than $16 million in wages and profits from the firm from December 2011 through November 2012 — roughly equal to half its sales during this period.

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The filings also show the family members racked up $90,000 on corporate American Express credit cards, including charges made after the company shut down in early October. The company filed for Chapter 11 bankruptcy just before Christmas.

An attorney involved in the bankruptcy case said he felt “shock and amazement” when he saw the list of payments for family members.

“It’s tremendously unusual,” said William R. Baldiga, a partner at the Boston law firm Brown Rudnick who is representing the committee of unsecured creditors owed money by the company, including people who were sickened by the company’s drugs. “This is not a large company.”

Members of the unsecured creditors committee plan to meet Tuesday to discuss what, if anything, to do about the money paid to the company’s owners in the past year.

The compounding pharmacy suspended operations after government investigators tied the outbreak to contaminated steroid injections made by the company — largely to treat back pain — and shipped to clinics across the country.

At least 44 people have died and 678 have become ill in 19 states from fungal meningitis or other complications after receiving the shots, according to the federal Centers for Disease Control and Prevention.

State and federal investigators who inspected the facility last fall have said they found that the company ignored signs that the “clean rooms” where the steroids were prepared were contaminated and did not do enough to test the drugs before shipping them to pain clinics.

Lawyers representing victims have filed hundreds of lawsuits and estimate the potential damages are likely to total hundreds of millions of dollars — far more than the company has in assets.

In documents filed in US Bankruptcy Court in Boston late Friday, the pharmacy reported it had just $1.3 million in cash and owed nearly $900,000 to unsecured creditors such as Fed­Ex, not counting potential legal costs. The company also indicated it had insurance, which could potentially cover a portion of claims to victims.

The records show that Barry Cadden, the lead pharmacist and main executive in charge of the company, and his wife, Lisa, together pulled $6 million out of the company from late December 2011 through November 2012, in wages and shareholder payments. Lisa’s brother Gregory Conigliaro received $1.6 million during this span. And Carla Conigliaro, the majority shareholder and wife of Lisa’s brother Douglas Conigliaro — a doctor who cofounded the company’s marketing and sales affiliate — pulled out $8.7 million.

The company reiterated its plans Monday to work with creditors to establish a fund to compensate victims, saying in a statement from its bankruptcy lawyer that it would meet with creditors this week to discuss the fund. The company did not respond to questions about the payments to family members.

Fredric Ellis, a Boston attorney representing several victims, said there is no evidence that the founders “raided” the company’s coffers shortly before it filed for bankruptcy protection. But he said the records show that the company was growing rapidly and generated enormous profits for the owners before it shut down.

“They were clearly taking a lot of money out while it was operating,” Ellis said. “They cashed out, no doubt about it.”

The records show the company’s revenue skyrocketed as it supplied a growing number of clinics and hospitals across the country with specially formulated medications, some in short supply. The company’s sales jumped from $19.9 million in 2010 to $27.3 million in 2011, an increase of 37 percent. And last year, the company’s sales reached $32.4 million — even though it shut down operations and gave up its pharmacy license in Massachusetts about three-quarters of the way through the year.

Baldiga said he was concerned that the company continued to pay the company’s owners hundreds of thousands of dollars in October and November — including credit card charges at Whole Foods Market, Panera Bread, and Barnes & Noble — even after the company was linked to the meningitis outbreak and recalled the tainted steroids on Sept. 26. He also flagged a $190 charge at the MGM Grand at Foxwoods, the Connecticut casino, on Sept. 28, just days before the shutdown.

“After this tragedy unfolded, the company was still paying for the personal lifestyles of the owners of the company even after the company was clearly insolvent,” Baldiga said. “It shows a cavalier attitude” toward victims who are waiting to be compensated.

Overall, the company paid more than $72,000 in American Express charges for the Caddens and more than $18,000 for Carla Conigliaro. The company also paid $30,000 over the past year for two leased luxury cars and $4.7 million to affiliated companies.

Todd Wallack can be reached at twallack@globe.com. Follow him on Twitter @twallack.
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