United States v. John Raffle and David Applegate
Court Docket Number: 1:12-CR-314-SS
On August 22, 2012, the U.S. District Court for the Western District of Texas unsealed an indictment, filed under seal on August 21, 2012, charging former ArthroCare Corporation (ArthroCare) executives John Raffle and David Applegate with one count of conspiracy to commit wire, mail, and securities fraud (Count 1: 18 U.S.C. § 371), various counts of wire fraud (Counts 2-5: 18 U.S.C. § 1343 (Raffle: Counts 2-5 and Applegate: Counts 3-4)), various counts of mail fraud (Counts 6-13: 18 U.S.C. § 1341 (Raffle: Counts: 6-13 and Applegate: Counts 6-11)) and various counts of securities fraud (Counts 14-16: 18 U.S.C. § 1348 (Raffle: Counts 14-16 and Applegate: Counts 14-15)). The charges stem from a scheme to conceal from ArthroCare's shareholders, the investing public, and ArthroCare's internal accountants and external auditors the true nature of the purported sales and commissions to ArthroCare's distributors, as well as to falsely represent the company's financial condition in order to maintain and increase the market price of ArthroCare's stock and enable the defendants to earn compensation based on the artificially inflated sales figures. 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/2012/August/12-crm-1038.html. Raffle and Applegate both waived personal appearance at their arraignments and entered not guilty pleas on August 29, 2012 and August 31, 2012, respectively. If convicted, they face a maximum sentence of 5 years for the conspiracy count, 20 years for each count of wire and mail fraud, and 25 years for each count of securities fraud, fines of up to $250,000 per count, as well as forfeiture. The case is assigned to U.S. District Court Judge Sam Sparks, Courtroom 2, Federal Court Building, 200 West Eighth Street in Austin, Texas. Trial has been continued to July 15, 2013 at 8:30 a.m., with a status conference on May 30, 2013 at 9:00 a.m.
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.
According to the indictment, the defendants falsely inflated ArthroCare's sales and revenue through a series of end-of-quarter transactions involving several of ArthroCare's distributors. To effect the scheme, Raffle and Applegate would determine the type and amount of product to be shipped to distributors based on ArthroCare's needs to meet sales forecasts, rather than the distributors' actual orders. The defendants would then cause ArthroCare to ship millions of dollars worth of ArthroCare's medical devices to its distributors at the end of each relevant quarter. ArthroCare would report these shipments as sales in its SEC filings, enabling the company to meet or exceed internal or external earnings forecasts. The distributors agreed to accept shipment of the medical devices because they were given extended payment terms, were paid substantial up-front cash commissions, were allowed to return the unsold products, and in some cases only had to make payments to ArthroCare after the distributor actually sold the product. Additionally, ArthroCare agreed to acquire certain distributors and their excess inventory so that the distributor might not have to pay for any products at all.
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 the two defendants, and they are presumed innocent until and unless proven guilty beyond a reasonable doubt.
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