A former chief executive officer of US medical device company ArthroCare Corporation has been convicted of helping orchestrate a fraud scheme that led to shareholder losses of over $750 million.
After a two-week trial, Michael Baker, 58, of Texas, was found guilty 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 trial heard how Baker and accomplices artificially inflated sales and revenue for four years through a series of end-of-quarter transactions involving several of ArthroCare’s distributors. Two former senior vice presidents of ArthroCare and its former chief financial officer have pleaded guilty to offences relating to their participation in the scheme.
Baker and the other defendants 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. They then “parked’’ millions of dollars’ worth of ArthroCare’s medical devices at its distributors and reported these shipments as sales in order to meet internal and external earnings forecasts.
While those responsible for what happened have been tried and found guilty. The fraud leaves ArthroCare with big questions to answer about its workplace anti-fraud procedures.
With the fraud having continued for four years, the company’s compliance procedures were either not in place or not effective – and it has paid the price.
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