A pair of former ArthroCare (NSDQ:ARTC) executives found guilty of defrauding investors drew hefty prison sentences last week for their parts in a scheme estimated to have cost investors more than $750 million.
Ex-ArthroCare CEO Michael Baker was sentenced August 29 to 20 years and former CFO Michael Gluk was sentenced to 10 years by Judge Samuel Sparks of the U.S. District Court for Western Texas.
Federal prosecutors wanted a 30-year sentence for Baker and a 20-year term for Gluk. The duo was indicted last year on 17 counts of conspiracy to commit fraud for their alleged roles in running a scheme designed to defraud investors. After their convictions, Baker and Gluk asked Sparks 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. Last week the judge also ordered the pair to repay $22.2 million in illicit profits and sentenced them to 5 years of supervision after their terms are served, according to the release.
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. Raffle was sentenced to serve 6 years and 8 months in prison followed by 3 years of supervised release, according to a press release, while Applegate was sentenced to a 5-year term and 3 years of supervised release.
“Earlier today, in federal court in Austin, Texas, we witnessed the culmination of an epic tale of greed," principal deputy assistant attorney general Marshall Miller said in prepared remarks. "The CEO, CFO and 2 vice presidents of ArthroCare sentenced today ran a successful business, but they wanted more. Their greed led to fraud, and their fraud caused investors to lose hundreds of millions of dollars. At the Criminal Division of the Department of Justice, we are committed to prosecuting individuals who commit crimes to make money, whether they do so on street corners or in corner offices. The aggressive pursuit of corporate executives who commit fraud is at the core of our mission to pursue justice and protect the American public."
"This scheme of betrayal and deceit was carried out by the defendants without regard to the deep-reaching and irreparable harm their actions caused to thousands of victims, here in Texas, and throughout the United States," added FBI special agent in charge Christopher Combs. "While it is important to recognize the financial losses sustained by all victims, which includes individual investors and institutional investment firms, many of the victims will never recover from the financial ruin caused by the defendants’ greed. Many of the victims worked hard their entire lives, saving money for retirement or their children’s’ college funds. Some were already living on fixed incomes and are now struggling to make ends meet. The FBI will continue to aggressively work to uncover these fraud schemes in an effort to prevent future victimization and to protect the integrity of the securities and commodities market."
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.