Austin, Texas-based medical device company ArthroCare Corp. has been rocked by a $400 million securities fraud scheme, with a former senior executive pleading guilty to his role in the crime.
David Applegate, 54, a former senior vice president in charge of ArthroCare’s Spine Division, pleaded guilty on February 4, 2013 to two counts of conspiracy to commit securities, mail, and wire fraud, and false statements violation.
According to court documents, Applegate and other co-conspirators inflated ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving the company’s distributors. They ‘parked’ millions of dollars’ worth of ArthroCare’s medical devices at distributors at the end of each quarter, allowing the company to meet or exceed internal and external earnings forecasts.
ArthroCare’s largest distributor, DiscoCare Inc., agreed to accept shipment of approximately $37 million of product in exchange for substantial, upfront cash commissions, extended payment terms, and the ability to return product. To conceal the fact that DiscoCare owed ArthroCare a substantial amount of money on the unused inventory, ArthroCare, with Applegate’s knowledge, caused ArthroCare to acquire DiscoCare on December 31, 2007.
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, causing an immediate loss in shareholder value of more than $400 million.
Applegate faces a maximum prison sentence of five years in prison for each charge. A sentencing date has yet to be scheduled.
David Applegate’s co-defendant, John Raffle, is scheduled for trial on July 15, 2013. Defendants are presumed innocent unless and until proven guilty at trial.
Related Federal Cases
- Christopher Ferguson, Securities Fraud, New York 2020 · Ohio
- Letitia James, Securities Fraud, New York 2022 · Texas
- Jason Jarin, Medicaid Fraud and Illicit Transition Procedures, Texas 2023 · Texas
- Jose Antonio Caballero, Mortgage Fraud Scheme, Texas 2011 · Texas
- Shannon Tecoko Mays, Conspiracy to Commit Wire Fraud, Texas 2012 · Kansas
Key Facts
- State: Texas
- Category: Fraud & Financial Crimes
- Source: DOJ Press Release â†â€â€
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