Healthcare Business News

Regional News/South: Texas-based ArthroCare pays $30 million fine, resolves criminal case

By Joe Carlson
Posted: January 11, 2014 - 12:01 am ET

A Texas surgical devicemaker resolved recent legal problems, but it may have to dish on its former executives as part of the deal. Publicly traded ArthroCare Corp. is paying $30 million and admitting to allegations that its executives used bogus inventory figures in financial reports to inflate the Austin company's stock price from 2005 to 2008. When the scheme was unmasked, the resulting drop in stock price vaporized $400 million in market value.

On Jan. 7, ArthroCare entered a deferred prosecution agreement with federal prosecutors that resolves a criminal charge of conspiracy to commit wire fraud. The company faced maximum fines of $116 million, according to the agreement filed in U.S. district court in Austin.

“We are very pleased with this result for our client,” said ArthroCare attorney Jeff Layne of Norton Rose Fulbright. “This agreement sends the right message to companies who are considering whether or not to self-audit, self-disclose and fully cooperate with the DOJ's investigations—should those investigations come along. The terms of the (agreement) and significant fine reduction make that clear.”

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The agreement requires ArthroCare to pay about a quarter of what its total exposure could have been, but it requires the company to cooperate in the ongoing criminal case against its former CEO Michael Baker and former Chief Financial Officer Michael Gluk. Such cooperation includes making company records and witnesses available to the government. Baker and Gluk have pleaded not guilty to a 17-count indictment in Austin federal court accusing them of conspiring and carrying out wire fraud and securities fraud. Baker also was charged with making false statements to investigators. After the indictments were announced last July, Baker posted $1 million deed-secured bond and Gluk posted 10% cash deposit on $100,000 bond. A trial is set for May.

Follow Joe Carlson on Twitter: @MHJCarlson

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