A federal judge yesterday refused to overturn the convictions of 2 former ArthroCare (NSDQ:ARTC) executives found guilty last month of masterminding a scheme to defraud investors of some $400 million.
Former ArthroCare CEO Michael Baker was found guilty in June of conspiracy to commit wire and securities fraud, wire fraud, securities fraud and false statements and remanded into custody, according to a press release. Ex-CFO Michael Gluk was found convicted of conspiracy to commit wire and securities fraud, wire fraud and securities fraud.
Federal prosecutors indicted Baker and Gluk last year on 17 counts of conspiracy to commit fraud for their alleged roles in running a $400 million 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 chargers; later that month, former co-worker John Raffle denied his involvement but later changed his plea to guilty.
The feds alleged that the scheme was 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 was DiscoCare’s only client until it acquired DiscoCare in December 2007, according to the documents.
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.
"If the jury chose to believe either Raffle or Applegate – and by implication, to disbelieve Baker and Gluk – their individual testimony alone is sufficient to sustain a conspiracy conviction. In addition, there was substantial testimony from other sources, including one of ArthroCare’s directors, Terrence Geremski, and ArthroCare employee Steve Oliver. The jury also saw mountains of evidence including emails from the Defendants and their alleged co-conspirators discussing the alleged scheme and the maimer and means by which it was carried out. Viewed in the light most deferential to the jury’s verdict, there is no question the evidence is sufficient to sustain the conviction on the conspiracy charge," Sparks wrote.
Baker and Gluk face a maximum of 25 years in prison on the conspiracy charge, 20 years for wire fraud and 25 years for securities fraud. Baker faces 5 years for the false statement conviction. No sentencing date has been set, according to the release.
Early this year ArthroCare, 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.