ArthroCare Corporation’s former senior vice president of strategic business units, John Raffle, has pled not guilty to misleading investors to artificially inflating the company’s stock price.
DiscoCare “Conspirators” Plead Guilty and Not Guilty
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Federal prosecutors claim that Raffle and David Applegate, another former senior executive at the company, inflated publicly reported revenues through fraudulent sales to DiscoCare between 2006 and 2008. The pair was arrested last August 22.
Applegate Guilty
On May 9, 2013, the Department of Justice (DOJ) announced that Applegate pleaded guilty to two charges of conspiracy to commit securities, mail and wire fraud, and with a false statements violation. Applegate was the senior vice president in charge of ArthroCare’s Spine Division.
DiscoCare Sales
According to court documents, Raffle and Applegate determined the type and amount of product to be shipped to distributors based on the company’s need to meet Wall Street analysts forecasts, rather than distributors’ actual orders. Raffle, Applegate and others then allegedly caused ArthroCare to “park” millions of dollars of medical devices at its distributors at the end of each relevant quarter. ArthroCare would then 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.
Between the fourth quarter of 2005 and the fourth quarter of 2007, the government claims ArthroCare reported more than $37 million in revenue in its financial statements based on purported sales to DiscoCare. However, during the same time period, DiscoCare’s actual net cash payments to ArthroCare for the products were less than $50, 000. Prosecutors allege that, to conceal the fact that DiscoCare owed ArthroCare a substantial amount of money on unused inventory, Raffle and Applegate caused ArthroCare to acquire DiscoCare on December 31, 2007.
Raffle’s Defense
MassDevice reported on May 30, 2013, that Raffle told a Texas federal judge that he can’t properly prepare for trial unless the court releases the names of his alleged co-conspirators.
“Mr. Raffle is left just weeks away from trial unable to adequately prepare his defense, ” according to court documents filed by Raffle’s lawyers. “Without further specificity about the identity of the alleged co-conspirators, Mr. Raffle will be left to guess about the nature of the charges against him.”
Raffle and Applegate could face a maximum prison sentence of five years for the conspiracy charge and 20 years for each count of mail and wire fraud. They also face a maximum sentence of 25 years in prison for each securities fraud count.
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This is a fascinating development. In my practice we've seen similar outcomes with the revised protocol. The key differentiator seems to be patient selection criteria. Has anyone else noticed the correlation with BMI thresholds?
Great point. I'd push back slightly on the conclusion, the sample size in the cited study is too small to draw population-level inferences. That said, the directional signal is compelling and worth a larger RCT.
We implemented a similar approach last year. Early results are promising but we're still gathering 12-month follow-up data. Happy to share our protocol if anyone is interested.
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