Ex-ArthroCare CEO and CFO Convicted in Texas Securities Fraud Case

A Texas jury has convicted to two ex-ArthroCare executives with operating a $400 million scam to bilk investors. Michael Baker, the former CEO, was found guilty of wire fraud, securities fraud, conspiracy to commit both, and making false statements. Michael Gluck, the ex-CFO, was found guilty of securities fraud, wire fraud, and conspiracy to commit both also. ArthroCare manufactures medical devices.

According to prosecutors, from 2005 until 2009 the two men and others inflated sales and revenue by tens of millions of dollars through transactions with several ArthroCare distributors. Some of the transactions occurred because the medical device maker had to satisfy sales forecasts and not to fulfill distributors’ product needs. As a result, ArthroCare sent million of dollars worth of devices to these distributors, reporting the deliveries as sales in yearly and quarterly filings. This let ArthroCare meet and sometimes even exceed predicted sales.

Meantime, the distributors consented to the extra inventory in return for cash commission, extended terms of payment, and a refund option. Gluk and Baker even compelled the company to acquire DiscoCare, a distributor, to hide the nature of these sales.

Investors lost the $400 million after ArthroCare’s share price plunged in 2008 when it announced that it would be restating the financial results from 2006’s third quarter through 2008’s first quarter. Also implicated are ex-ArthroCare senior VPs David Applegate and John Raffle, who have already pleaded guilty to a number of felonies.

Earlier this year, ArthroCare announced it would pay $30 million to resolve a U.S. Department of Justice probe into the alleged securities fraud. The DOJ charged the company with conspiracy to commit securities fraud as well as wire fraud. The settlement reached involves a two year deferred prosecution agreement between the company and the federal government.

Our Texas securities fraud law firm represents investors in getting their money back. Contact Shepherd Smith Edwards and Kantas, LTD LLP today.

Ex-ArthroCare execs guilty in fraud case, Statesman.com, June 2, 2014

ArthroCare Pays Justice Department $30M for Securities Fraud, Compliance Week, January 14, 2014

Former Senior Executive of ArthroCare Corp. Pleads Guilty in $400 Million Securities Fraud Scheme, DOJ, July 23, 2013

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