ArthroCare signs deal to end fraud prosecution, to pay $30 mln fine

Tue Jan 7, 2014 7:29pm EST

Jan 7 (Reuters) - ArthroCare Corp said it signed an agreement with the U.S. Department of Justice to resolve a six-year long investigation regarding allegations of securities and related fraud committed under a previous management team.

Under a deferred prosecution agreement, ArthroCare will pay a $30 million fine and maintain a compliance program meeting certain criteria over a 24-month period.

A deferred prosecution agreement allows a company to avoid possible criminal charges by fulfilling certain conditions that will eventually lead to the dismissal of the case.

Shares of ArthroCare, a maker of surgical devices, rose 11 percent to $45 in extended trading. They closed at $40.58 on the Nasdaq on Tuesday.

Jefferies & Co analyst Raj Denhoy said the resolution of the investigation with just a fine and no ongoing scrutiny was seen as a positive outcome.

Denhoy said the Austin, Texas-based company, by clearing its final legal hurdle, had also made itself more attractive to potential buyers.

The DOJ had in July charged former Chief Executive Michael Baker and ex-Chief Financial Officer Michael Gluk with a $400 million scheme to defraud investors by inflating the company's earnings.

Prosecutors had claimed the company, inflated earnings by shipping extra products to its distributors at the end of financial quarters, even though the shipments were not for actual orders, so ArthroCare could count the shipments as sales and meet earnings forecasts.

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