Former CFO Pleads Guilty in Multimillion-Dollar Securities Fraud Scheme
A Texas man and former chief financial officer (CFO), Michael Gluk, pleaded guilty today to a multimillion-dollar securities fraud scheme in a Texas court.
Gluk, 59, of Austin, Texas, pleaded guilty to one count of conspiracy to commit securities and wire fraud before U.S. Magistrate Judge Mark Lane of the Western District of Texas on an unspecified date. A sentencing date has yet to be scheduled.
As part of his guilty plea, Gluk admitted that he conspired with others to falsely inflate ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors. He further admitted that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 and Form 10-Q for the first quarter of 2008 with the U.S. Securities and Exchange Commission (SEC) that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.
Gluk further admitted that he provided false testimony in proceedings before the SEC and in federal district court. He also admitted that he and others determined the type and amount of product to be shipped to distributors – notably ArthroCare’s largest distributor, DiscoCare Inc. – based on ArthroCare’s need to meet sales forecasts, rather than the distributors’ actual orders. Gluk and others then caused ArthroCare to “park” tens of millions of dollars worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter, he admitted.
Gluk acknowledged that 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 of 2006 through the first quarter of 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share. On Dec. 19, 2008, after ArthroCare announced publicly that it had identified accounting errors and possible irregularities in its revenue recognition practices going back to 2005, the price of ArthroCare shares dropped further, from $16.23 to $5.92 per share.
Gluk was charged along with co-defendant Michael Baker, ArthroCare’s former CEO, in an indictment unsealed on July 17, 2013. Baker is scheduled for trial on August 7, before U.S. District Judge Sam Sparks in the Western District of Texas.
This case was investigated by the FBI’s San Antonio Field Office. The case is being prosecuted by Securities and Financial Fraud Unit Chief Benjamin D. Singer, Assistant Chief Henry P. Van Dyck, and Trial Attorney Caitlin Cottingham of the Criminal Division’s Fraud Section.
Key Facts
- State: Texas
- Category: Fraud & Financial Crimes
- Source: DOJ Press Release â†â€â€
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