Two former executives of Austin, Texas-based ArthroCare Corp. were arrested Wednesday and charged with defrauding stockholders in an alleged inventory-manipulation scheme that inflated the company's stock and caused a $400 million drop in market valuation when it was revealed in 2008.
Former senior vice presidents John Raffle, 42, and David Applegate, 52, were charged by the U.S. Justice Department with 16 counts of conspiracy, wire fraud, mail fraud and securities fraud, according to a Justice Department news release. The indictment, which had not yet been unsealed in court records as of Thursday, calls for the forfeiture of assets by the two.
The news release says the men orchestrated a scheme in which sales and shipments of spinal-care products were manipulated to inflate quarterly earnings statements. In one example, a distributor called DiscoCare appeared on paper to have purchased $37 million in products, though the company had actually made net-cash payments of only $50,000 and had no use for most the products shipped to it. To conceal the scheme, the executives later engineered a deal to have ArthroCare acquire the distributor, authorities allege.