ArthroCare Corp. (NSDQ:ATRC) settled a shareholders’ lawsuit by agreeing to an $8 million payment from its insurers, more than a quarter of which will go to the plaintiffs’ lawyers, according to court documents.
The Austin, Texas-based surgical device maker copped in 2009 to a scheme by which personal injury lawyers would refer patients to doctors who would then use one of ArthroCare’s spinal surgery devices. The 2009 announcement also detailed restated earnings for the previous four years.
Shareholders had sued in August 2008, alleging “common law breach of fiduciary duty arising out of the company’s announcement that it would restate its financial statements, and that the company’s financial results set forth in company press releases and Forms 10-Q and 10-K filed with the U.S. Securities and Exchange Commission between October 2006 and October 2007, were materially overstated due to allegedly improper recognition of revenue attributable to alleged purchases of medical devices by companies that were allegedly related parties to ArthroCare, namely DiscoCare Inc. and Device Reimbursement Services,” according to the documents filed in the U.S. District Court for Western Texas.
The settlement agreement calls for ArthoCare’s liability insurers to put up the $8 million. The company will in turn kick back nearly $2.3 million of that to attorneys for the plaintiffs, according to the terms of the settlement – which also state that the company continues to deny any culpability.
Earlier this summer, two former ArthroCare executives dodged millions of dollars in penalties as part of their agreements to settle charges that they artificially inflated the company’s stock prices for two years.
And in February, ArthroCare itself escaped a Securities & Exchange Commission probe into its finances after a fraud scandal that took down a former CEO with no admission of guilt, no financial penalty and a promise to be good from now on. The company later sold off its two of its troubled spine units to NeuroTherm for $5.5 million.