Former ArthroCare CFO Michael Gluk, who last year won his appeal of a 10-year sentence after being convicted of running a scheme to defraud investors of more than $750 million, yesterday pleaded guilty to a single count of conspiracy to commit wire fraud and securities fraud.
Gluk and ex-CEO Michael Baker were convicted in June 2014; 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.
Baker and Gluk won their appeals to the U.S. Court of Appeals for the 5th Circuit, arguing that Judge Samuel Sparks of the U.S. District Court for Western Texas wrongfully excluded evidence from investigations by law firm Latham & Watkins and the SEC that showed they were in the dark about the fraud going on at DiscoCare. The appeals court also agreed with the defendants’ argument that Sparks improperly allowed testimony about medical fraud that allegedly took place at DiscoCare, but was not included in the charges against Baker and Gluk.
Yesterday Gluk pleaded guilty in a hearing before Magistrate Judge Mark Lane after prosecutors introduced a new set of charges against him. Baker is slated for a new trial July 28, according to court documents.
