Ex-ArthroCare executives get 10 and 20 year prison sentences
A U.S. judge sentenced the former chief executive of surgical device maker ArthroCare to 20 years in prison and its finance chief to 10 years after a jury convicted the pair of orchestrating a $750 million securities fraud scheme, the U.S. Department of Justice said on Friday.
A federal judge in Austin, Texas, sentenced former CEO Michael Baker to 20 years, and former CFO Michael Gluk to 10 years. The government had request a 30-year prison term for Baker and 20 years for Gluk.
Two other ArthroCare executives who had pleaded guilty to felonies in 2013 and cooperated in the government’s investigation, were also sentenced on Friday to five or more years in prison.
“Earlier today, in federal court in Austin, Texas, we witnessed the culmination of an epic tale of greed,” said Marshall Miller, a senior official in the Justice Department’s criminal division.
The top executives were found guilty of inflating sales and revenue figures for the company through end-of-quarter deals with some of the company’s distributors between 2005 through 2009.
Earlier this year the Austin-based company agreed to pay a $30 million penalty and enter into a deferred prosecution agreement to resolve a six-year investigation into the scheme.
In February, Britain’s Smith & Nephew agreed to buy ArthroCare for $1.7 billion to use its expertise in treating shoulder joint injuries to build its sports medicine business.
One of the cooperators, John Raffle, was sentenced to 80 months in prison. The other, David Applegate was sentenced to 60 months, the Justice Department said. Both had worked as senior vice presidents of the company.
The executives had engaged in a scheme to ship products to distributors based on Wall Street analyst forecast rather than actual orders, and to park the products at distributors at the end of the quarter in order to meet or exceed earnings forecasts, prosecutors said.
Distributors agreed to accept the shipments in exchange for cash commissions, the ability to return the products and other incentives, prosecutors said. (Reporting by Aruna Viswanatha; Editing by Sandra Maler)
ArthroCare ex-CEO faces 30-year sentence for fraud (MassDevice)
Federal prosecutors want a 30-year sentence for former ArthroCare CEO Michael Baker and 20 years for former CFO Michael Gluk in a securities fraud lawsuit estimated at as much as $960 million.
The feds asked for a 30-year sentence for former CEO Michael Baker and a 20-year sentence for former CFO Michael Gluk, saying that the pair showed no remorse for running a scheme that cost investors up to $960 million. Prosecutors further asked for $25 million total in restitution from both men as well as a 5-year term of supervised release following their prison terms.
“Michael Baker, President and Chief Executive Officer of ArthroCare Corporation and Michael Gluk, ArthroCare’s Chief Financial Officer, perpetrated a multi-year fraud scheme that caused hundreds of millions of dollars in losses and nearly took down an Austin-based publicly-traded company with more than 1000 employees,” lawyers for the U.S. government said a sentencing memorandum. “Perhaps most tellingly, at the time of the filing of this memorandum, neither Baker nor Gluk have shown the slightest bit of remorse for the terrible harm their actions caused to ArthroCare’s investors and employees. Instead, they continue to focus entirely on minimization, obfuscation, and finger-pointing.”
Prosecutors added that Baker and Gluk had lied under oath and attempted to thwart the SEC’s investigation.
Original estimates put the cost of Baker and Gluk’s actions at around $400 million, but prosecutors said that number is far short of that damage the pair did. The feds put the damage in the range of $756-$958 million, Law360.com reported.
Federal prosecutors indicted Baker and Gluk last year on 17 counts of conspiracy to commit fraud for their alleged roles in running a scheme designed to defraud investors. Each was charged with a single count of conspiracy to commit wire and securities fraud, 11 counts of wire fraud and 2 counts of securities fraud; Baker was also tagged with 3 counts of making false statements for allegedly lying to the SEC during its probe of the case.
Baker and Gluk were the latest ex-ArthroCare executives to be indicted in the case. In May 2013, ex-executive David Applegate pleaded guilty to the fraud charger; later that month former co-worker John Raffle denied his involvement but later changed his plea to guilty.
After their convictions, Baker and Gluk asked Judge Sam Sparks of the U.S. District Court for Western Texas to grant their motions for acquittal (Baker also asked for a new trial). Sparks declined, ruling that neither defendant showed that the testimony and evidence in the trial was not credible.
Early this year ArthroCare, which was acquired for $1.7 billion by Smith & Nephew (FTSE:SN, NYSE:SNN), agreed to pay a $30 million fine and enter a deferred prosecution deal to settle its part in the fraud case.