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article imageMedical device producer accused of fraud

By Tim Sandle     Jan 14, 2014 in Business
ArthroCare Corp., a medical device manufacturer based in Austin, Texas, has agreed to pay a $30 million fine to resolve accusations that its senior executives engaged in a securities fraud scheme.
The securities fraud scheme is said to have cost shareholders more than $400 million, Controlled Environments has reported. In addition to the fine, John Raffle and David Applegate, former senior vice presidents of ArthroCare, pleaded guilty to conspiracy to commit securities and wire fraud in connection with the fraud scheme. Furthermore, ArthroCare’s former chief executive officer, Michael Baker, and chief financial officer, Michael Gluk are set to stand trial in May 2014 (the defendants are presumed innocent unless and until proven guilty at trial).
The issue, Silicon Hills recounts, is that ArthroCare has admitted that these executives and others then caused ArthroCare to “park” millions of dollars’ worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter so the company could report these shipments as sales in its quarterly and annual filings. This was, allegedly, so the company would appear to have met or exceeded internal and external earnings forecasts.
This case was investigated by the FBI’s Austin Resident Agency. The announcement about the fine was made by Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney Robert Pitman of the Western District of Texas.
The issue has affected shares in the company, according to WKRB. The news outlet reports that analysts at Northcoast Research downgraded shares of ArthroCare Corp. from a “buy” rating to a “neutral” rating in a research note to investors.
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