Former CFO of Arthrocare Corp. Pleads Guilty to Multimillion Dollar Securities Fraud Scheme

[nitpicker]

https://www.justice.gov/opa/pr/former-chief-financial-officer-arthrocare-corp-pleads-guilty-multimillion-dollar-securities

Department of Justice
Office of Public Affairs

FOR IMMEDIATE RELEASE
Wednesday, June 14, 2017

Former Chief Financial Officer of Arthrocare Corp. Pleads Guilty to Multimillion Dollar Securities Fraud Scheme

A Texas man and former chief financial officer (CFO), pleaded guilty today to a multimillion dollar securitries fraud scheme.
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Michael Gluk, 59, of Austin, Texas, pleaded guilty to one count of conspiracy to commit securities and wire fraud before U.S. Magistrate Judge Mark Lane of the Western District of Texas. A sentencing date has yet to be scheduled.

As part of his guilty plea, Gluk admitted that he conspired with others to falsely inflate ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors. He further admitted that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 and Form 10-Q for the first quarter of 2008 with the U.S. Securities and Exchange Commission (SEC) that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings. As part of the plea, Gluk further admitted that he provided false testimony in proceedings before the SEC and in federal district court.

Gluk further admitted that he and others determined the type and amount of product to be shipped to distributors – notably ArthroCare’s largest distributor, DiscoCare Inc. – based on ArthroCare’s need to meet sales forecasts, rather than the distributors’ actual orders. Gluk and others then caused ArthroCare to “park” tens of millions of dollars worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter, he admitted. ArthroCare would then report these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts, Gluk admitted.

In addition, Gluk admitted that DiscoCare agreed to accept shipment of approximately $37 million of product in exchange for substantial, upfront cash commissions, extended payment terms and the ability to return product, as well as other special conditions, allowing ArthroCare to falsely inflate its revenue by tens of millions of dollars. To conceal the fact that DiscoCare owed ArthroCare a substantial amount of money on the unused inventory, Gluk and others caused ArthroCare to acquire DiscoCare on Dec. 31, 2007, Gluk admitted.

In connection with the plea, Gluk acknowleged that between December 2005 and December 2008, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock. On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter of 2006 through the first quarter of 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. On Dec. 19, 2008, after ArthroCare announced publicly that it had identified accounting errors and possible irregularities in its revenue recognition practices going back to 2005, the price of ArthroCare shares dropped further, from $16.23 to $5.92 per share.

Gluk was charged along with co-defendant Michael Baker, ArthroCare’s former CEO, in an indictment unsealed on July 17, 2013. Baker is scheduled for trial on August 7, before U.S. District Judge Sam Sparks in the Western District of Texas.
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[nitpicker]

1. Is this a new charge?

From 2014:

http://www.reuters.com/article/arthrocare-sentencing-idUSL1N0QZ2DV20140829


Market News | Fri Aug 29, 2014 | 5:59pm EDT

Ex-ArthroCare executive sentenced to 20 years in prison

By Aruna Viswanatha | WASHINGTON

Aug 29 A U.S. judge sentenced the former chief executive of surgical device maker ArthroCare 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 on Friday. A federal judge in Austin, Texas, sentenced former CEO Michael Baker to 20 years, and former CFO Michael Gluk to 10 years. The government had request a 30-year prison term for Baker and 20 years for Gluk.
(snip)

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, Britain's Smith & Nephew agreed to buy ArthroCare for $1.7 billion to use its expertise in treating shoulder joint injuries to build its sports medicine business.
(snip)

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.
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[TexasTowelie]

2. Here are a couple of threads that I posted in 2014 about this case:

Ex-ArthroCare execs guilty in fraud case for orchestrating $400M scheme
https://www.democraticunderground.com/107818501

Ex-ArthroCare executives get prison time in fraud case
https://www.democraticunderground.com/107820444