Former ArthroCare CEO Michael Baker is looking to dismiss multiple counts of wire fraud based on a recent Supreme Court ruling which defined requirements for obtaining property as the result of a crime.
In the trial, Baker is looking to dismiss 8 counts of wire fraud based on the recent reaffirmation by the Supreme Court of Honeycutt v. United States, which states that to “obtain property” from a victim, a defendant must personally acquire the property, according to court documents.
The government alleges that Baker defrauded investors by making false or misleading statements to investors during phone calls and emails in 2008, just before ArthroCare stock crashed, court documents state .
Baker’s defense claims that “there is no plausible sense” through which Baker obtained property from from those investors, and argues that the government is using the wire fraud charges to double-charge what it calls a securities fraud case, according to court documents.
“The gist of this case is securities fraud, and Mr. Baker concedes that when it comes to the securities fraud case, the indictment sufficiently pleads an offense […]. But wire fraud is a different offense with different elements—it was never intended as simply another way for the government to add counts in securities fraud cases. Though the government has frequently employed that tactic, it has now been thoroughly undermined by the Supreme Court’s decision in Honeycutt,” the defense for Baker wrote in court documents.
Baker is facing a new trial after a federal appeals court overturned criminal convictions against him and ex-CFO Michael Gluk last January.
Former ArthroCare CEO Michael Baker and ex-CFO Michael Gluk were convicted in June 2014 of running a scheme to defraud investors of more than $750 million; Baker was sentenced to 20 years in prison and Gluk drew a 10-year term.
Prosecutors alleged that the scheme was designed to generate false revenue numbers to meet internal and external forecasts by dumping inventory, 1st 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.
In May 2013, ex-executive David Applegate pleaded guilty to the fraud charges; 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; Applegate was sentenced to a 5-year term and 3 years of supervised release.
ArthroCare, which was acquired for $1.7 billion by Smith & Nephew (NYSE:SNN) in May 2014, agreed to pay a $30 million fine and enter a deferred prosecution deal to settle its part in the fraud.