ArthroCare (NSDQ:ARTC) and the U.S. Justice Dept. yesterday agreed to settle the $400 million fraud case against the medical device company with a $30 million fine and a 2-year deferred prosecution deal.
The Justice Dept. also filed a single count of criminal conspiracy to commit wire and securities fraud as part of the deal, which will be dismissed if ArthroCare walks the line during the 2-year term of the deferred prosecution agreement, according to a press release.
The feds launched the probe in 2008 to investigate a scheme designed to generate false revenue numbers to meet internal and external forecasts by dumping inventory, first with a distributor called DiscoCare and eventually via free shipments to end-users.
ArthroCare could have faced penalties ranging from $58 million to $116 million, but mitigating circumstances cut the lower end of the fine by 48%, according to the DPA. The deal comes after more than a year’s worth of postponements of the tolling agreement that extended the statute of limitations in the case.
"Among the factors considered were the following: (a) following discovery of the possible violations of federal law, the company initiated an internal investigation and voluntarily disclosed to the department the misconduct described in the information and statement of facts; (b) the company’s cooperation has been extraordinary, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, and organizing voluminous evidence and information for the department; (c) the company has engaged in extensive remediation, including by restating its financial statements, by reconfiguring its entire corporate and reporting structures, by terminating employment of officers and employees responsible for the violations, by paying restitution in the form of a settlement of the civil class action lawsuit relating to the securities and wire fraud violations, and by enhancing its internal accounting, reporting, and health care compliance functions; (d) the company has committed to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment C to this agreement; and (e) the company has agreed to continue to cooperate with the department in any ongoing investigation of the conduct of the company and its officers, directors, employees, agents, and consultants relating to the securities and wire fraud violations," according to the Justice Dept.
Ex-CEO Michael Baker and former CFO Michael Gluk are still facing charges related to the fraud scheme. Two other former executives, John Raffle and David Applegate, pleaded guilty to the charges last year.
