The one-time head of Austin-based ArthroCare Corp. has been sentenced to 20 years in federal prison for his role in a scheme that federal prosecutors say caused shareholder losses of more than $750 million.
Former CEO Michael Baker, 58, was convicted 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, the U.S. Department of Justice said.
After completing his prison term, Baker will serve five years of parole. He must also pay a $1 million fine and forfeit $13.7 million, according to a news release.
“Evidence at trial showed that, beginning in 2005 and continuing until 2009, Baker, along with his co-conspirators, masterminded and executed a scheme to artificially inflate sales and revenue through a series of end-of-quarter transactions involving several of ArthroCare’s distributors,” the Department of Justice said.
“Baker, along with his co-conspirators, determined the type and amount of product to be shipped to distributors based on ArthroCare’s need to meet Wall Street analyst forecasts, rather than distributors’ actual orders. Baker 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. ArthroCare reported 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.”
This was a retrial for Baker. His initial conviction was overturned by the U.S. Court of Appeals for the Fifth Circuit. The prison sentence then was the same: 20 years.
Baker’s co-conspirators, according to federal indictments, were chief financial officer Michael Gluk and David Applegate and John Raffle, both senior vice presidents of ArthroCare.
Applegate and Raffle have both pleaded guilty to multiple felonies. Raffle got an 80-month sentence, while Applegate got five years.
Gluk will be sentenced Jan. 5, according to the Department of Justice.