U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22315 / April 2, 2012
Accounting and Auditing Enforcement Release No. 3375 / April 2, 2012
Securities and Exchange Commission v. Michael A. Baker and Michael T. Gluk, Civil Action No. 1:12-cv-00285 (W.D. Tex.)
On April 2, 2012, the Securities and Exchange Commission sued two former executives at Austin, Texas-based ArthroCare Corporation to recover bonus compensation and stock sale profits they received during a period when the company's financial statements were misstated due to accounting fraud.
According to the SEC's complaint filed in federal court in Austin, former ArthroCare CEO Michael A. Baker and former CFO Michael T. Gluk are not charged with personal misconduct, but they are still required under Section 304 of the Sarbanes-Oxley Act (SOX) to reimburse ArthroCare for bonuses and stock profits that they received after the company filed false financial statements during 2006, 2007, and the first quarter of 2008.
SOX Section 304 requires reimbursement by some senior corporate executives of certain compensation and stock sale profits received while their companies were in material non-compliance with financial reporting requirements due to misconduct. This can include an individual who has not been personally charged with the underlying misconduct or alleged to have otherwise violated the federal securities laws.
This is the third enforcement action that the Commission has brought arising out of ArthroCare's accounting misconduct. The Commission previously settled charges against ArthroCare, see Rel. No. 34-63883 (February 9, 2011), and against John Raffle and David Applegate, two former ArthroCare executives alleged to have conducted the scheme to inflate the company's revenues and earnings. See Rel. No. 22027 (July 5, 2011).