Federal prosecutors in Texas want a judge to sentence former ArthroCare CEO Michael Baker to a 20-year prison term after his conviction in a $750 million fraud case.
Baker and ex-ArthroCare CFO Michael Gluk were convicted in June 2014 on charges that they ran a scheme to generate false revenue numbers by dumping inventory, first with a distributor called DiscoCare and eventually via free shipments to end-users. ArthroCare was DiscoCare’s only client until it acquired DiscoCare in December 2007.
Although Baker was sentenced to 20 years in prison and Gluk drew a 10-year term, the U.S. Court of Appeals for the 5th Circuit overturned the convictions in January 2016 and ordered new trials. Gluk then pleaded guilty to a single count of conspiracy to commit wire fraud and securities fraud. Baker’s second trial, which began in late July, ended August 18 when the jury in the U.S. District Court for Western Texas convicted him on 12 of 15 counts, according to court documents. Baker moved to have the wire fraud charges tossed based on the Supreme Court case Honeycutt v. United States; Judge Sam Sparks disagreed, finding that the jury heard ample evidence of Baker’s guilt on the wire fraud charges.
Sparks later ordered Baker to cough up the nearly $21.6 million he pulled down from stock sales during the alleged conspiracy; Baker argued that he should only forfeit about $1.4 million, according to the documents.
This week prosecutors asked Sparks to impose a 20-year sentence plus five years of supervised release and a $1 million fine.
“To date, Michael Baker has refused to take any responsibility whatsoever for his actions and the time has come, yet again, to hold Mr. Baker accountable for his crimes – for causing losses to investors of over $700 million and nearly bankrupting ArthroCare,” they wrote in an Oct. 30 sentencing memorandum. “Imposing a long term of imprisonment in this case will reflect the seriousness of the offense and serve to deter other executives who are tempted to break that trust in order to enrich themselves. The need for an emphatic deterrent message is particularly acute in this case where the defendant, after executing a $750 million dollar fraud scheme, and after two trials, has yet to acknowledge any responsibility whatsoever for the consequences of his conduct. Any sentence other than a lengthy one would incentivize others to commit financial crimes, and the aggravating factors surrounding his conduct justifies a strong deterrent message.”
ArthroCare, which was acquired for $1.7 billion by Smith & Nephew (NYSE:SNN) in May 2014, agreed in January 2014 to pay a $30 million fine and enter a deferred prosecution deal to settle its part in the fraud.