Device Firm Hit With Class Action Lawsuit Over Financial Reports

A class action lawsuit against devicemaker ArthroCare alleges the company issued misleading financial reports and press releases for nearly two years.

The complaint, filed in the U.S. District Court for the Southern District of Florida, says the company’s CEO and CFO “knowingly or recklessly made a series of material misrepresentations concerning ArthroCare’s business and financial results.” The plaintiffs — who purchased the company’s stock between Aug. 4, 2006, and Jan. 23 — say these misrepresentations cost them.

At the same time, the defendants and company employees “profited handsomely,” selling more than $20 million of ArthroCare stock, according to the lawsuit. CEO Michael Baker sold more than $11.5 million of company stock during the period and CFO Michael Gluk sold more than $800,000 of stock, the suit says.

Baker and Gluk were involved in drafting, producing, reviewing, approving and releasing the materially false and misleading statements, the suit says. Citing press releases and SEC reports, it claims the company’s revenues were overstated due to the improper inclusion of revenue from “purported purchases” of devices by DiscoCare, an ArthroCare sales agent.

DiscoCare provided ArthroCare surgical devices to customers at no charge and without guaranteed payment for the product, the suit says.

Last week, the defendants filed a motion to dismiss the case on the grounds that it fails to allege sufficient facts. The plaintiffs fail to show that ArthroCare’s recognition of revenue from sales to DiscoCare was improper, they state.