On November 3, 2017, Michael Baker, the former CEO of publicly traded medical device company ArthroCare Corporation (“ArthroCare”), was sentenced to 240 months in prison for his role in a scheme that resulted in shareholder losses of more than $750 million. Following a two-week retrial, Baker was convicted in August of one count of conspiracy to commit wire fraud and securities fraud, seven counts of wire fraud, two counts of securities fraud, and two counts of making false statements. Evidence introduced at trial showed he and several co-conspirators devised and executed a scheme to artificially inflate ArthroCare’s sales and revenue figures between 2005 and 2009 through a series of end-of-quarter transactions involving the company’s distributors. Authorities alleged Baker and his co-conspirators arranged to “park” millions of dollars of ArthroCare devices with distributors and reported these shipments as sales to meet or exceed internal and external earnings forecasts. Evidence introduced at trial also showed distributors involved in the alleged parking scheme agreed to accept these shipments in return for special conditions, including cash commissions or terms permitting them to return the products. Baker was further shown to have lied about ArthroCare’s relationship with its largest distributor in a deposition taken by the SEC in November 2009.
In addition to the 240-month prison sentence, Baker was also ordered to serve five years of supervised release, to pay a fine of $1 million, and to forfeit $13.7 million. Co-conspirators David Applegate and John Raffle, who served as senior vice presidents of ArthroCare, previously pled guilty to multiple felonies in connection with the scheme and were sentenced to 80 months and 60 months in prison, respectively. Former ArthroCare CFO Michael Gluk has also pled guilty to related charges and is scheduled to be sentenced on January 5, 2018. U.S. v. Baker, 13-cr-00346-ss-1 (W.D. Tex.)