Former ArthroCare Executive Receives 20-Year Prison Term

A U.S. judge sentenced the former chief executive of surgical device maker ArthroCare Corporation to 20 years in prison and its finance chief to 10 years after a jury convicted the pair of orchestrating a $750 million securities fraud scheme, the U.S. Department of Justice said.

A federal judge in Austin, Texas, sentenced former CEO Michael Baker to 20 years, and former Chief Financial Officer Michael Gluk to 10 years. The government had request a 30-year prison term for Baker and 20 years for Gluk.

Two other ArthroCare executives who had pleaded guilty to felonies in 2013 and cooperated in the government’s investigation, also were sentenced to five or more years in prison.

“In federal court in Austin, Texas, we witnessed the culmination of an epic tale of greed,” said Marshall Miller, a senior official in the Justice Department’s criminal division.

The top executives were found guilty of inflating sales and revenue figures for the company through end-of-quarter deals with some of the company’s distributors between 2005 through 2009.

Earlier this year the Austin-based company agreed to pay a $30 million penalty and enter into a deferred prosecution agreement to resolve a six-year investigation into the scheme.

In February, Smith &Nephew plc agreed to buy ArthroCare for $1.7 billion to use its expertise in treating shoulder joint injuries to build its sports medicine business.

One of the cooperators, John Raffle, was sentenced to 80 months in prison. The other, David Applegate was sentenced to 60 months, the Justice Department said. Both had worked as senior vice presidents of the company.

The executives had engaged in a scheme to ship products to distributors based on Wall Street analyst forecast rather than actual orders, and to park the products at distributors at the end of the quarter in order to meet or exceed earnings forecasts, prosecutors said.

Distributors agreed to accept the shipments in exchange for cash commissions, the ability to return the products and other incentives, prosecutors said.