Medical device company ArthroCare announced Monday that it has reached an agreement in principle to settle an investors’ class action lawsuit pending against the company and two of its former officers for $74 million.
According to the Securities and Exchange Commission, Austin, Texas-based ArthroCare inflated its revenue and overstated its profits between 2006 and 2008 through fraudulent reimbursement and a sales scheme that made it appear the company was selling more product than it actually was.
In February 2009, Orthopedic and Dental Industry News reported that ArthroCare’s internal audit committee had uncovered “evidence of fraudulent reimbursement activity including seeking separate reimbursement for procedures that were contractually reimbursed on a global basis; making inaccurate statements in claims regarding the place where particular procedures were performed; providing physicians and insurers with descriptions of products that circumvented payer coverage policies; and encouraging physicians to improperly code procedures.”
Michael Baker, ArthroCare’s president and CEO, resigned amid the scandal. Michael Moehring, vice president and general manager of the spine business unit and Michael Denker, director of sales development and training, also resigned.
The settlement, subject to final documentation and court approval, would settle all claims arising from the purchase or sale of ArthroCare securities of a class of all purchasers of ArthroCare common stock between December 11, 2007 and February 18, 2009, inclusive (the class), except those members of the class who opt out, for a payment of $74 million to a settlement fund to be created for the settlement.