A federal jury yesterday convicted 2 former ArthroCare (NSDQ:ARTC) executives, finding that the pair "masterminded and executed a scheme" to defraud investors of some $400 million, prosecutors said.
Former ArthroCare CEO Michael Baker was found guilty 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.
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.
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 allege 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.
"These corporate executives cooked the books to prop up their stock, and when the truth came out investors lost more than $400 million," principal deputy assistant attorney general for Western Texas Marshall Miller said in prepared remarks. "Today’s convictions are the first step in holding them accountable for undermining our financial markets for their own personal gain."
"This case demonstrates the FBI’s commitment to unraveling elaborate and complex fraud schemes leaving no financial stone unturned," added special agent in charge Christopher Combs of the FBI’s San Antonio office. "Those who abuse their position of trust to illegally enrich themselves, at the expense of shareholders and members of the investing public, will be held accountable for their actions."
Early this year ArthroCare, acquired for $1.7 billion last week 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.