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Thursday, May 16, 2024 | Back issues
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Imprisoned ArthroCare Execs Win New Trial

NEW ORLEANS (CN) - The Fifth Circuit on Monday ordered a retrial for two former medical device executives convicted in a $756 million securities fraud scheme because of the judge's improper rulings at trial.

A Texas jury convicted former ArthroCare CEO Michael Baker and ex-CFO Michael Gluk of orchestrating an illegal "channel stuffing" plot in order to inflate quarterly earnings. U.S. District Judge Sam Sparks sentenced the former executives to 20-year and 10-year prison terms, respectively.

Prosecutors at their 2014 trial said that Baker, 56, and Gluk, 57, inflated sales and revenue through several end-of-quarter transactions involving ArthroCare's distributors from 2005 to 2009, according to the Fifth Circuit ruling.

The company sold medical devices directly to end users, including physicians and surgery centers, while also selling them to distributors who would resell them to end users. The conspirators determined the type and amount of product to be shipped to distributors based on the need to meet Wall Street analysts' forecasts, instead of the distributor's actual orders, prosecutors said.

Citing improperly excluded reports from federal securities regulators and independent investigators that could have aided the jury's understanding of the "complex legal intricacies" of the case, the New Orleans-based appeals court ruled in favor of the former executives' bid for a new trial.

"Gluk and Baker argue that the district court's evidentiary rulings were incorrect in two ways: they kept evidence out that should have been let in, and it let in evidence that should have been kept out. We agree on both counts, and accordingly reverse the defendants' convictions," Judge E. Grady Jolly wrote for the Fifth Circuit.

The trial judge also should not have allowed the jury to hear "salacious details" from prosecutors about the shoddy business practices of the former executives' co-conspirators, the appeals court found.

"The district court could have done more to police the line between proper and improper evidence; it should have been careful to prevent the government from dwelling on the salacious details of DiscoCare's business practices that could not be charged to the defendants," Jolly wrote.

Both Gluk and Baker were serving their sentences at a low-security federal prison Texas, according to the Bureau of Prisons.

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