Ex-ArthroCare CEO Brown draws 20-year sentence

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Gavel, handcuffsA federal judge in Texas last week accepted prosecutors’ recommendations in sentencing former ArthroCare CEO Michael Baker to a 20-year prison term after his conviction in a $750 million fraud case.

Baker and ex-ArthroCare CFO Michael Gluk were convicted in June 2014 on charges that they ran a scheme to generate false revenue numbers by dumping inventory, first with a distributor called DiscoCare and eventually via free shipments to end-users. ArthroCare was DiscoCare’s only client until it acquired DiscoCare in December 2007.

Although Baker was sentenced to 20 years in prison and Gluk drew a 10-year term, the U.S. Court of Appeals for the 5th Circuit overturned the convictions in January 2016 and ordered new trials. Gluk then pleaded guilty to a single count of conspiracy to commit wire fraud and securities fraud. Baker’s second trial, which began in late July, ended August 18 when the jury in the U.S. District Court for Western Texas convicted him on 12 of 15 counts, according to court documents. Baker moved to have the wire fraud charges tossed based on the Supreme Court case Honeycutt v. United States; Judge Sam Sparks disagreed, finding that the jury heard ample evidence of Baker’s guilt on the wire fraud charges.

Sparks later ordered Baker to cough up the nearly $21.6 million he pulled down from stock sales during the alleged conspiracy; Baker argued that he should only forfeit about $1.4 million, according to the documents.

Sparks acceded to the prosecutors’s request Nov. 3, imposing a 20-year sentence plus five years of supervised release, a $1 million fine and the forfeiture of $13.7 million, according to the U.S. Justice Dept.

Other former ArthroCare executives, David Applegate and John Raffle, who pleaded guilty in 2013, drew sentences of 5 years and 6⅔ years, respectively, the DoJ said. Gluk is slated to be sentenced Jan. 5, 2018.

ArthroCare, which was acquired for $1.7 billion by Smith & Nephew (NYSE:SNN) in May 2014, agreed in January 2014 to pay a $30 million fine and enter a deferred prosecution deal to settle its part in the fraud.