After 5 years of federal scrutiny and a boardroom shakeup that deposed its whole management team, ArthroCare ($ARTC) has come to terms with the Department of Justice, agreeing to hand over $30 million to resolve fraud charges tied to its ex-leaders.
Under the deal, ArthroCare will pay the fine and enter into a 24-month deferred prosecution agreement. If the company behaves itself and meets certain DOJ-stipulated criteria during the probationary period, the government has agreed to dismiss its allegations, ArthroCare said.
Federal prosecutors allege the company artificially propped up its earnings by over-shipping orders to clients and then claiming the excess devices as legitimate sales, defrauding investors out of roughly $400 million. The company already paid out $74 million to settle class action lawsuits in 2011, and four ex-ArthroCare executives, including former CEO Michael Baker, have been indicted over the scandal. Two have pleaded guilty.
But it's a new day for the company they left behind, and the latest news sent ArthroCare's shares up as much 16% after hours, trading at around $46.50 on Wednesday morning after dipping as low as $31.67 last year. Furthermore, the prospect of a fed-free future could re-ignite some buyout interest for the maker of minimally invasive surgical products, Jefferies analyst Raj Denhoy told Reuters.
Last quarter, the Austin, TX, company increased its revenue by 5.7% to $91.9 million and turned a $9.3 million profit despite reporting another $3.2 million in investigation-related costs.
- read the statement