ArthroCare Corp.’s former Chief Executive Officer Michael Baker, convicted in June of a $756 million securities fraud, was sentenced to 20 years in prison.
Baker, 55, and his accomplice, ex-finance chief Michael Gluk, 56, were convicted in June of conspiracy and wire fraud for running a “stuffing” scheme from 2005 to 2009 that placed millions of unneeded medical devices with distributors at the end of each quarter to falsely inflate ArthroCare’s financial results. Baker was also ordered yesterday to pay a $1 million fine. Gluk was sentenced to 10 years in prison and fined $50,000.
“There’s nothing we could do worse in our country than lose respect for our financial institutions,” U.S. District Judge Sam Sparks in Austin told Gluk. “Lord knows we have enough problems already.”
Baker and Gluk were also ordered to forfeit their profit of about $22 million from the scheme, prosecutors said in an e-mail. The two lied to investors about their relationships with distributors, who agreed to accept the shipments in exchange for large upfront cash commissions, extended payment terms and lenient product-return policies, according to prosecutors, who raised the estimated value of the scheme to $756 million after alleging during trial that investors lost $400 million.
Principal Deputy Assistant Attorney General Marshall L. Miller described the fraud in a statement as “an epic tale of greed.”
The scheme collapsed in 2008 after allegations of fraud triggered an internal investigation.
ArthroCare’s shares fell 42 percent after the company announced in July 2008 that it would restate earnings for the previous seven quarters.
In pre-sentencing recommendations, prosecutors said neither man showed remorse for almost destroying a company with more than 1,000 employees.
Two former ArthroCare senior vice presidents, John Raffle and David Applegate, were also sentenced yesterday for their roles in the scheme. Raffle was given a prison term of six years and eight months while Applegate was sentenced to five years.
The case is U.S. v. Baker, 1:13-cr-00346, U.S. District Court, Western District of Texas (Austin).
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