Medical device company's ex-CEO gets 20-year prison sentence for $750M fraud scheme

The former CEO of ArthroCare, an Austin, Texas-based medical device company, was sentenced Nov. 3 to 20 years in prison for his role in a $750 million fraud scheme, according to the Department of Justice.

From 2005 through 2009, the company's then-CEO, Michael Baker, and his co-conspirators artificially inflated sales and revenues by entering into fraudulent end-of-the-quarter transactions. According to evidence presented at trial, they would "park" millions of dollars worth of ArthroCare's devices at its distributors at the end of each quarter and report the shipments as sales in the company's quarterly and annual filings to meet Wall Street analyst forecasts.

The evidence presented at trial also showed the company's distributors accepted shipment of the products in exchange for upfront cash commissions, extended payment terms and the ability to return the products.

In addition to falsely inflating the company's revenue, Mr. Baker lied when he was deposed in November 2009 by the U.S. Securities and Exchange Commission, according to the DOJ.

Mr. Baker was sentenced to 20 years in prison in 2014 for his role in the scheme, but that conviction was overturned by the U.S. Court of Appeals for the Fifth Circuit. After a two-week re-trial in August 2017. Mr. Baker 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.

In addition to his prison term, Mr. Baker was ordered to pay a $1 million fine and forfeit $13.7 million.

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