United States v. Michael Baker and Michael Gluk
Court Docket Number: 1:13-CR-00346-SS
The case is assigned to Judge Sam Sparks, U.S. District Judge for the Western District of Texas, Courtroom 2, United States Courthouse, 501 West Fifth Street, Austin, Texas 78701.
On July 17, 2013, the U.S. District Court for the Western District of Texas unsealed an indictment charging Michael Baker, the former chief executive officer of ArthroCare Corporation (ArthroCare) and Michael Gluk, ArthroCare’s former chief financial officer, with one count of conspiracy to commit wire and securities fraud (Count 1: 18 U.S.C. § 1349), 11 counts of wire fraud (Counts 2-12: 18 U.S.C. § 1343) and two counts of securities fraud (Counts 13-15: 18 U.S.C. § 1348). The indictment also charges Baker with three counts of false statements (Counts 15-17: 18 U.S.C. § 1001). The charges stem from a scheme to defraud and conceal from ArthroCare’s shareholders, the investing public, and ArthroCare’s internal accountants and external auditors the true nature of ArthroCare’s financial condition, ultimately causing ArthroCare’s earnings to be inflated by tens of millions of dollars. The indictment also seeks forfeiture (18 U.S.C. § 981(a)(1)(C). ArthroCare’s stock was traded under the stock symbol ARTC.
A press release issued by the Department of Justice may be viewed on the web at http://www.justice.gov/opa/pr/2013/July/13-crm-805.html. Gluk and Baker were arraigned on July 25, 2013 and August 1, 2013, respectively, before Magistrate Judge Mark Lane. If convicted, both would face a maximum prison sentence of 25 years for the conspiracy charge, 20 years for each count of wire fraud, and 25 years for each securities fraud count. Baker faces an additional five years for each count of false statements. A status conference is scheduled for August 15, 2013 at 4:00 p.m. in Courtroom 2.
We are in the process of identifying victims who might be willing to provide testimony in court during the presentation of the government’s case. Victims who are willing to testify at trial for the government or who have additional evidence should complete the online questionnaire (in fillable PDF format) at the bottom of this page as soon as possible.
According to the indictment, from at least December 2005 through December 2008, Baker, Gluk, and other senior executives and employees of ArthroCare allegedly falsely inflated ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving several of ArthroCare’s distributors. Court documents reveal that Baker, Gluk, and others 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, Gluk, and others then allegedly caused ArthroCare to “park” millions of dollars worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare would 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.
The indictment alleges that ArthroCare’s distributors agreed to accept shipment of millions of dollars 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. Baker, Gluk, and others allegedly used DiscoCare, a privately owned Delaware corporation, as one of the distributors to cover shortfalls in ArthroCare’s revenue. According to the indictment, at Baker and Gluk’s direction, ArthroCare shipped product to DiscoCare that far exceeded DiscoCare’s needs. In addition, Baker, Gluk, and others allegedly lied to investors and analysts about ArthroCare’s relationships with its distributors, including its largest distributor, DiscoCare. As alleged, Baker and Gluk caused ArthroCare to acquire DiscoCare specifically to conceal from the investing public the nature and financial significance of ArthroCare’s relationship with DiscoCare. The indictment further alleges that when Baker was deposed by the U.S. Securities and Exchange Commission about the DiscoCare relationship in November 2009, he lied again on multiple occasions.
According to court documents, 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 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. This drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.
If you have suffered losses as a result of this scheme, you have the right to submit a Victim Impact Statement (or letter) during the sentencing phase to explain how the crimes affected you. This statement is completely voluntary but is important to us because it reflects what you are having to personally and financially endure because of the defendant's crimes. Victim Impact includes physical, emotional and/or financial loss. Because there are many victims in this case, we are asking that you complete this statement now as it relates to this defendant and mail it to: Pam Washington, U.S. Department of Justice, Criminal Division, Fraud Section, 10th & Constitution Avenue, NW, Bond Building, Room 4216, Washington, DC 20530. Alternatively, you may also fax the statement to Ms. Washington at (202) 514-7021.
There has been no finding of guilt with respect to these two defendants, and they are presumed innocent until and unless proven guilty beyond a reasonable doubt.
Related case: In a related case in the Western District of Texas, United States v. John Raffle and David Applegate, ArthroCare executives John Raffle and David Applegate were indicted in August 2012 for their roles in the same scheme. They each have pleaded guilty and await sentencing. For more details on the pleas entered by Raffle and Applegate go to http://www.justice.gov/criminal/vns/caseup/raffle-applegate.html.
The written information on this website will be updated as new developments arise in the case. If you have any questions, please call Pam Washington toll-free at (888) 549-3945 or email her at firstname.lastname@example.org.
Victim Impact Statement Form