United States v. Michael Baker and Michael Gluk

CLOSED CRIMINAL DIVISION CASES

United States v. Michael Baker and Michael Gluk
Court Docket Number: 1:13-CR-00346 (W.D. of Texas)

Court Assigned: This case is assigned to the Honorable Judge Sam Sparks in the Western District of Texas, Courtroom 2, United States Courthouse, 501 West Fifth Street, Austin, Texas 78701.

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Criminal Charges: On July 17, 2013, the U.S. District Court for the Western District of Texas unsealed an indictment charging Michael Baker, the former chief executive officer of ArthroCare Corporation (ArthroCare) and Michael Gluk, ArthroCare’s former chief financial officer, with conspiracy to commit wire fraud and securities fraud, as well as wire fraud and securities fraud. The indictment also charged Baker with making false statements. On April 1, 2014, a superseding indictment (the “indictment”) was returned charging Baker and Gluk with one count of conspiracy to commit wire and securities fraud (Count 1: 18 U.S.C. § 1349), 9 counts of wire fraud (Counts 2-10: 18 U.S.C. § 1343) and two counts of securities fraud (Counts 11-12: 18 U.S.C. § 1348). The indictment also charges Baker with three counts of false statements (Counts 13-15: 18 U.S.C. § 1001). The charges stem from a scheme to defraud and conceal from ArthroCare’s shareholders, the investing public, and ArthroCare’s internal accountants and external auditors the true nature of ArthroCare’s financial condition, ultimately causing ArthroCare’s earnings to be inflated by tens of millions of dollars. The indictment also seeks forfeiture (18 U.S.C. § 981(a)(1)(C)). ArthroCare’s stock was traded under the stock symbol ARTC.

According to the charges, from at least December 2005 through December 2008, Baker, Gluk, and other senior executives and employees of ArthroCare allegedly falsely inflated ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving several of ArthroCare’s distributors. Court documents reveal that Baker, Gluk, and others 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. Baker, Gluk, and others then allegedly caused ArthroCare to “park” millions of dollars worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare would report these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts.

The indictment alleges that ArthroCare’s distributors agreed to accept shipment of millions of dollars of product in exchange for substantial, upfront cash commissions, extended payment terms, and the ability to return product, as well as other special conditions, allowing ArthroCare to falsely inflate its revenue by tens of millions of dollars. Baker, Gluk, and others allegedly used DiscoCare, a privately owned Delaware corporation, as one of the distributors to cover shortfalls in ArthroCare’s revenue. According to the charges, at Baker and Gluk’s direction, ArthroCare shipped product to DiscoCare that far exceeded DiscoCare’s needs. In addition, Baker, Gluk, and others allegedly lied to investors and analysts about ArthroCare’s relationships with its distributors, including its largest distributor, DiscoCare. As alleged, Baker and Gluk caused ArthroCare to acquire DiscoCare specifically to conceal from the investing public the nature and financial significance of ArthroCare’s relationship with DiscoCare. The indictment further alleges that when Baker was deposed by the U.S. Securities and Exchange Commission about the DiscoCare relationship in November 2009, he lied again on multiple occasions.

According to court documents, 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. This drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.

Public Notice:

On October 19, 2018, the Honorable Sam Sparks, United States District Judge for the Western District of Texas, entered an order forfeiting to the United States at least $12.7 million seized from accounts belonging to the Michael Baker.

The United States hereby gives notice of its intent to remit the forfeited funds in such manner as the United States Attorney General is authorized under 21 U.S.C. § 853(i)(1). Individuals who believe that they have suffered a pecuniary loss as a result of the fraudulent acts committed by Michael Baker between December 2005 and December 2008 and have not received compensation for their loss may now complete a petition for remission.

If you would like to submit a petition for remission, you may do so by mailing the petition to: U.S. Department of Justice, Criminal Division, Fraud Section, ATTN: Michelle Pascucci, Trial Attorney, 1400 New York Avenue NW, Washington, DC 20005.

Petition for Remission/Mitigation Form

The deadline for receipt of a petition for remission is 60 days from the first date of online posting of this notice, September 11, 2019.

The petition must be filed with the Fraud Section of the Department of Justice.

For the regulations governing remission please click here.

Victim Impact Statement: If you would like to submit a Victim Impact Statement (or a letter addressed to District Court Judge Sparks) you may do so by mailing the attached Victim Impact Statement (or a letter to District Court Judge Sparks) no later than December 15, 2017 to: Victim Witness Unit, U.S. Department of Justice, Criminal Division, Fraud Section, 10th & Constitution Avenue, NW, Bond Building, Room 4416, Washington, DC 20530. You also may submit the Victim Impact Statement via email at Victimassistance.fraud@usdoj.gov or by fax at: (202) 514-3708.

Victim Impact Statement (PDF)
Victim Impact Statement (Fillable PDF)

For more information about the charges, please see below:
Press Release – July 17, 2013
Press Release – August 18, 2017
Press Release – November 3, 2017
Indictment
Superseding Indictment

The information on this website will be updated as new developments arise in the case. If you have any questions, please call the Victim Assistance Line toll-free at (888) 549-3945 or email us at victimassistance.fraud@usdoj.gov.

Presumption of Innocence: It is important to keep in mind that defendants are presumed innocent until proven guilty and that presumption requires both the court and our office to take certain steps to ensure that justice is served.

Crime Victims’ Rights Act and Right to Retain Counsel: The Crime Victims’ Rights Act (18 U.S.C. § 3771) applies only to victims of the counts charged in federal court, and thus individuals may not be able to exercise all of these rights if the crime of which the individual is a victim was not charged. Section 377I(c)(2) of this Act requires that we advise you that you have the right to retain counsel. Although the statute specifically sets forth your right to seek advice of an attorney with regard to your rights under the statute, there is no requirement that you retain counsel. The Government may not recommend any specific counsel, nor can the Government (or the Court) pay for counsel to represent you. Government attorneys represent the United States.

If you elect to obtain counsel to represent your interests, please have your attorney notify this office in writing at: U.S. Department of Justice, Criminal Division, Fraud Section, 10th & Constitution Avenue, NW, Bond Building, 4^th Floor, Washington, DC 20530, Attention: Victim Witness Unit; fax: (202) 514-3708; or email: victimassistance.fraud@usdoj.gov. If you elect not to retain counsel to represent your interests, you do not need to do anything.

Plea Agreements: Please be aware that many criminal cases are resolved by plea agreement between the Department of Justice and the defendant. You should also know that it is not unusual for a defendant to seek to negotiate a plea agreement shortly before trial is scheduled to begin. Plea agreements can be made at any time and as late as the morning of trial, leaving little or no opportunity to provide notice to you of the date and time of the plea hearing. If the court schedules a plea hearing in this case, we will use our best efforts to notify you of available information as soon as practicable. If you want to inform the prosecutor of your views regarding potential plea agreements, or any other aspect of the case, please call the Victim Assistance Line toll-free at (888) 549-3945 or email us at victimassistance.fraud@usdoj.gov, and we will put you in touch with the prosecutor.

Updated September 27, 2023