LITIGATION AND CONTINGENCIES	12 Months Ended
Dec. 31, 2013
LITIGATION AND CONTINGENCIES
LITIGATION AND CONTINGENCIES	LITIGATION AND CONTINGENCIES In addition to the matters specifically described below, the Company is involved in other legal and regulatory proceedings that arise in the ordinary course of business that do not have a material impact on its business. Litigation claims and proceedings of all types are subject to many factors that generally cannot be predicted accurately. The Company records reserves for claims and lawsuits when the likelihood of a loss is probable and reasonably estimable. Except as otherwise specifically noted, the Company currently cannot determine the ultimate resolution of or the amount of monetary damages sought as relief in the matters described below. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated, the Company has not recognized any potential liability that may result from these matters in its consolidated financial statements. The resolution of these matters could have a material adverse effect on our earnings, liquidity and financial condition. The Company continues to gather additional facts and information related to insurance billing and healthcare compliance issues and marketing and promotional practices in connection with these legal and administrative proceedings with the assistance of legal counsel. DOJ Investigation On December 31, 2013, the Company entered into a Deferred Prosecution Agreement (“DPA”) with the DOJ. The DPA will resolve the ongoing investigation by the DOJ regarding allegations of securities and related fraud committed under a previous management team. In conjunction with the DPA, the DOJ concurrently filed a criminal information concerning a single-count of conspiracy to commit wire and securities fraud. The DPA is for a 24 month period and, subject to its successful completion, the DOJ agrees that the DPA will expire and that the DOJ will seek dismissal of the criminal information. Pursuant to the DPA, ArthroCare paid a $30 million fine, subsequent to December 31, 2013, to the DOJ and agreed to maintain a compliance program meeting certain criteria specified in the DPA. ArthroCare also must report annually on the status of the Compliance Program to the DOJ. A charge of $20.2 million was recorded in the second quarter of 2013 as investigation and restatement related expenses which increased the balance of the Company’s insurance dispute and settlement reserve to $30 million. The $30 million fine was paid in January 2014. False Claims Act Investigation In the first quarter of 2012, the Company received a Civil Investigative Demand ("CID") from the DOJ, requesting information related to the marketing of its radio-frequency ablation devices, which could implicate the False Claims Act, 31 U.S.C. § 3729. On January 17, 2014, a representative of the DOJ confirmed to the Company that the CID related to a qui tam case, in which the DOJ elected not to intervene, had been dismissed by the United States District Court in the Eastern District of New York. The case, United States of America ex rel. Michael Scherl v. ArthroCare Corporation et al., 2:11-cv-00668-LDW-AKT (E.D.N.Y. Feb 10, 2011), had previously been filed under seal and alleged violations of the False Claims Act. Based on the confirmation from the DOJ, the Company believes that the CID matter is closed. Shareholder Derivative Actions In 2008 and 2009 three derivative actions were filed in Federal court against the Company and its then-current directors alleging breach of fiduciary duty based on alleged improper revenue recognition, improper reporting of such revenue in SEC filings and press releases, failure to maintain adequate internal controls, and failure to supervise management. These federal derivative actions were consolidated with the two securities class actions described below and designated In Re ArthroCare Corporation Securities Litigation, Case No. 1:8-cv-574-SS (consolidated) in the U.S. District Court, Western District of Texas. In 2008 and 2009, three derivative actions were filed in Texas State District Court against the Company, its then current directors, and certain of its current and former officers. In these actions, certain of the Companies shareholders alleged derivative claims on behalf of the Company that its directors and officers breached their fiduciary duties to shareholders by allowing improper financial reporting, failing to maintain adequate financial controls over revenue recognition, disseminating false financial statements, abuse of control, gross mismanagement, waste of corporate assets, and engaging in insider trading. On March 18, 2009, these three state shareholder derivative actions were consolidated and designated: In Re ArthroCare Corporation Derivative Litigation, Case No. D-1-GN-8-3484 (consolidated), Travis County District Court. Settlement of Federal and State Derivative Actions On December 8, 2011, the U.S. District Court for the Western District of Texas granted final approval to the settlement of the Federal Court and State Court derivative actions that were pending against ArthroCare's directors and officers. Under the terms of the settlement, the Company's director and officer insurers collectively paid us $8.0 million on behalf of the individuals named as defendants in the Federal Court and State Court derivative actions to settle the State and Federal Derivative actions. The lawyers for the plaintiffs were awarded legal fees and costs from the Federal Court in an amount of $2.25 million. Under a related settlement, the directors' and officers' insurers paid the Company an additional $2.0 million for a broad mutual release by us and the insurers of any further rights or obligations under the directors' and officers' liability insurance policies. The settlement also contained certain mutually acceptable governance changes and the release by the individual officers and directors and former officers and directors who were parties to the derivative actions, of our directors' and officers' liability insurance carriers from any further rights or obligations under the applicable directors' and officers' liability insurance policies. On December 15, 2011, a dismissal with prejudice of the State derivative action was entered pursuant to the Settlement. Private Securities Class Action In 2008, two putative securities class actions were filed in Federal court against us and certain of our former executive officers, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. Plaintiffs allege that the defendants violated federal securities laws by issuing false and misleading financial statements and making material misrepresentations regarding our internal controls, business, and financial results. On October 28, 2008 and thereafter, the two putative securities class actions and the federal shareholder derivative actions were consolidated and designated: In Re ArthroCare Corporation Securities Litigation, Case No. 1:8-cv-574-SS (consolidated) in the U.S. District Court, Western District of Texas. The Company reached an agreement to settle the private securities class action suits consolidated into the action titled In Re ArthroCare Corporation Securities Litigation, Case No. 1:8-cv-574-SS (consolidated) in the U.S. District Court, Western District of Texas. The settlement resolves all claims arising from the purchase or sale of ArthroCare securities of a class of all purchasers of ArthroCare common stock and call options, and sellers of put options on 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. Counsel for the plaintiff applied for and received an award of attorneys' fees and reimbursement of expenses from the settlement fund. On February 10, 2012, the Court entered an order of preliminary approval of the settlement and ordered that Notice be sent to all class members. Pursuant to the preliminary approval order, the Company paid the $74 million in settlement funds into the applicable settlement escrow account on February 23, 2012. The settlement was approved by the United States District Court for the Western District of Texas and entered as a final judgment on June 4, 2012. Legal Proceedings Related to the Merger Between February 4, 2014 and February 12, 2014, five putative class action lawsuits were filed in the Court of Chancery of the State of Delaware by alleged stockholders of ArthroCare Corporation (“ArthroCare” or the “Company”) against the Company and the individual directors of the Company, as well as Smith & Nephew, Inc., Rosebud Acquisition Corporation and Smith & Nephew PLC (collectively, “Smith Nephew”), and in one case, against One Equity Partners LLC, OEP AC Holdings, LLC, (together, with One Equity Partners LLC, “OEP”) and JPMorgan Chase & Co. (“JPM”). These lawsuits are captioned: King v. ArthroCare Corporation et al. C.A. No. 9313, Rybacki v. ArthroCare Corporation et al. C.A. No. 9336, State-Boston Retirement System v. Fitzgerald et al., C.A. No. 9346, Dixon v. ArthroCare Corporation et al., C.A. No. 9347 and Machcinski v. ArthroCare Corporation et al., C.A. No. 9344. These lawsuits generally allege that the members of ArthroCare’s Board of Directors breached their fiduciary duties in negotiating and approving the merger agreement with Smith Nephew, that the merger consideration undervalues the Company, that ArthroCare’s stockholders will not receive adequate or fair value for their ArthroCare common stock in the merger and that the terms of the merger agreement impose improper deal protection terms that preclude competing offers. The King lawsuit further alleges that the Board of Directors have failed to provide ArthroCare stockholders with complete and accurate information about the proposed merger. The State-Boston Retirement System lawsuit further alleges that JPM and OEP had conflicts of interest in the transaction, resulting from OEP’s investment in ArthroCare and JPM’s economic interest in the buy-side financial advisor fees and the buy-side financing fees and economics, and that JPM’s involvement as Smith Nephew’s advisor and deal financing source violated the terms of the securities purchase agreement that OEP entered into with ArthroCare at the time that OEP invested in the Company. The lawsuits further allege that the Company and/or Smith Nephew, and in the State-Boston Retirement System case, OEP and JPM, aided and abetted the purported breaches of fiduciary duty. The State-Boston Retirement System case further alleges that OEP breached the securities purchase agreement entered into between OEP and the Company, and that JPM and Smith Nephew tortuously interfered with the securities purchase agreement. The lawsuits seek, among other things, to enjoin the merger, or in the event that an injunction is not entered and the merger closes, rescission of the Merger and unspecified money damages, costs and attorneys’ and experts’ fees. The Company believes these lawsuits are meritless and intends to defend against them vigorously.

LITIGATION AND CONTINGENCIES

In addition to the matters specifically described below, the Company is involved in other legal and regulatory proceedings that arise in the ordinary course of business that do not have a material impact on its business. Litigation claims and proceedings of all types are subject to many factors that generally cannot be predicted accurately.

The Company records reserves for claims and lawsuits when the likelihood of a loss is probable and reasonably estimable. Except as otherwise specifically noted, the Company currently cannot determine the ultimate resolution of or the amount of monetary damages sought as relief in the matters described below. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated, the Company has not recognized any potential liability that may result from these matters in its consolidated financial statements. The resolution of these matters could have a material adverse effect on our earnings, liquidity and financial condition.

The Company continues to gather additional facts and information related to insurance billing and healthcare compliance issues and marketing and promotional practices in connection with these legal and administrative proceedings with the assistance of legal counsel.

DOJ Investigation

On December 31, 2013, the Company entered into a Deferred Prosecution Agreement (“DPA”) with the DOJ. The DPA will resolve the ongoing investigation by the DOJ regarding allegations of securities and related fraud committed under a previous management team.

In conjunction with the DPA, the DOJ concurrently filed a criminal information concerning a single-count of conspiracy to commit wire and securities fraud. The DPA is for a 24 month period and, subject to its successful completion, the DOJ agrees that the DPA will expire and that the DOJ will seek dismissal of the criminal information. Pursuant to the DPA, ArthroCare paid a $30 million fine, subsequent to December 31, 2013, to the DOJ and agreed to maintain a compliance program meeting certain criteria specified in the DPA. ArthroCare also must report annually on the status of the Compliance Program to the DOJ.

A charge of $20.2 million was recorded in the second quarter of 2013 as investigation and restatement related expenses which increased the balance of the Company’s insurance dispute and settlement reserve to $30 million. The $30 million fine was paid in January 2014.

False Claims Act Investigation

In the first quarter of 2012, the Company received a Civil Investigative Demand ("CID") from the DOJ, requesting information related to the marketing of its radio-frequency ablation devices, which could implicate the False Claims Act, 31 U.S.C. § 3729. On January 17, 2014, a representative of the DOJ confirmed to the Company that the CID related to a qui tam case, in which the DOJ elected not to intervene, had been dismissed by the United States District Court in the Eastern District of New York. The case, United States of America ex rel. Michael Scherl v. ArthroCare Corporation et al., 2:11-cv-00668-LDW-AKT (E.D.N.Y. Feb 10, 2011), had previously been filed under seal and alleged violations of the False Claims Act. Based on the confirmation from the DOJ, the Company believes that the CID matter is closed.

Shareholder Derivative Actions

In 2008 and 2009 three derivative actions were filed in Federal court against the Company and its then-current directors alleging breach of fiduciary duty based on alleged improper revenue recognition, improper reporting of such revenue in SEC filings and press releases, failure to maintain adequate internal controls, and failure to supervise management. These federal derivative actions were consolidated with the two securities class actions described below and designated In Re ArthroCare Corporation Securities Litigation, Case No. 1:8-cv-574-SS (consolidated) in the U.S. District Court, Western District of Texas.

In 2008 and 2009, three derivative actions were filed in Texas State District Court against the Company, its then current directors, and certain of its current and former officers. In these actions, certain of the Companies shareholders alleged derivative claims on behalf of the Company that its directors and officers breached their fiduciary duties to shareholders by allowing improper financial reporting, failing to maintain adequate financial controls over revenue recognition, disseminating false financial statements, abuse of control, gross mismanagement, waste of corporate assets, and engaging in insider trading. On March 18, 2009, these three state shareholder derivative actions were consolidated and designated: In Re ArthroCare Corporation Derivative Litigation, Case No. D-1-GN-8-3484 (consolidated), Travis County District Court.

Settlement of Federal and State Derivative Actions

On December 8, 2011, the U.S. District Court for the Western District of Texas granted final approval to the settlement of the Federal Court and State Court derivative actions that were pending against ArthroCare's directors and officers. Under the terms of the settlement, the Company's director and officer insurers collectively paid us $8.0 million on behalf of the individuals named as defendants in the Federal Court and State Court derivative actions to settle the State and Federal Derivative actions. The lawyers for the plaintiffs were awarded legal fees and costs from the Federal Court in an amount of $2.25 million. Under a related settlement, the directors' and officers' insurers paid the Company an additional $2.0 million for a broad mutual release by us and the insurers of any further rights or obligations under the directors' and officers' liability insurance policies. The settlement also contained certain mutually acceptable governance changes and the release by the individual officers and directors and former officers and directors who were parties to the derivative actions, of our directors' and officers' liability insurance carriers from any further rights or obligations under the applicable directors' and officers' liability insurance policies. On December 15, 2011, a dismissal with prejudice of the State derivative action was entered pursuant to the Settlement.

Private Securities Class Action

In 2008, two putative securities class actions were filed in Federal court against us and certain of our former executive officers, alleging violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder. Plaintiffs allege that the defendants violated federal securities laws by issuing false and misleading financial statements and making material misrepresentations regarding our internal controls, business, and financial results. On October 28, 2008 and thereafter, the two putative securities class actions and the federal shareholder derivative actions were consolidated and designated: In Re ArthroCare Corporation Securities Litigation, Case No. 1:8-cv-574-SS (consolidated) in the U.S. District Court, Western District of Texas.

The Company reached an agreement to settle the private securities class action suits consolidated into the action titled In Re ArthroCare Corporation Securities Litigation, Case No. 1:8-cv-574-SS (consolidated) in the U.S. District Court, Western District of Texas.

The settlement resolves all claims arising from the purchase or sale of ArthroCare securities of a class of all purchasers of ArthroCare common stock and call options, and sellers of put options on 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. Counsel for the plaintiff applied for and received an award of attorneys' fees and reimbursement of expenses from the settlement fund. On February 10, 2012, the Court entered an order of preliminary approval of the settlement and ordered that Notice be sent to all class members. Pursuant to the preliminary approval order, the Company paid the $74 million in settlement funds into the applicable settlement escrow account on February 23, 2012. The settlement was approved by the United States District Court for the Western District of Texas and entered as a final judgment on June 4, 2012.

Legal Proceedings Related to the Merger

Between February 4, 2014 and February 12, 2014, five putative class action lawsuits were filed in the Court of Chancery of the State of Delaware by alleged stockholders of ArthroCare Corporation (“ArthroCare” or the “Company”) against the Company and the individual directors of the Company, as well as Smith & Nephew, Inc., Rosebud Acquisition Corporation and Smith & Nephew PLC (collectively, “Smith Nephew”), and in one case, against One Equity Partners LLC, OEP AC Holdings, LLC, (together, with One Equity Partners LLC, “OEP”) and JPMorgan Chase & Co. (“JPM”). These lawsuits are captioned: King v. ArthroCare Corporation et al. C.A. No. 9313, Rybacki v. ArthroCare Corporation et al. C.A. No. 9336, State-Boston Retirement System v. Fitzgerald et al., C.A. No. 9346, Dixon v. ArthroCare Corporation et al., C.A. No. 9347 and Machcinski v. ArthroCare Corporation et al., C.A. No. 9344.

These lawsuits generally allege that the members of ArthroCare’s Board of Directors breached their fiduciary duties in negotiating and approving the merger agreement with Smith Nephew, that the merger consideration undervalues the Company, that ArthroCare’s stockholders will not receive adequate or fair value for their ArthroCare common stock in the merger and that the terms of the merger agreement impose improper deal protection terms that preclude competing offers. The King lawsuit further alleges that the Board of Directors have failed to provide ArthroCare stockholders with complete and accurate information about the proposed merger. The State-Boston Retirement System lawsuit further alleges that JPM and OEP had conflicts of interest in the transaction, resulting from OEP’s investment in ArthroCare and JPM’s economic interest in the buy-side financial advisor fees and the buy-side financing fees and economics, and that JPM’s involvement as Smith Nephew’s advisor and deal financing source violated the terms of the securities purchase agreement that OEP entered into with ArthroCare at the time that OEP invested in the Company. The lawsuits further allege that the Company and/or Smith Nephew, and in the State-Boston Retirement System case, OEP and JPM, aided and abetted the purported breaches of fiduciary duty. The State-Boston Retirement System case further alleges that OEP breached the securities purchase agreement entered into between OEP and the Company, and that JPM and Smith Nephew tortuously interfered with the securities purchase agreement.

The lawsuits seek, among other things, to enjoin the merger, or in the event that an injunction is not entered and the merger closes, rescission of the Merger and unspecified money damages, costs and attorneys’ and experts’ fees. The Company believes these lawsuits are meritless and intends to defend against them vigorously.