ArthroCare Corp. has agreed to settle an investors’ class-action lawsuit for $74 million. The medical device company, which moved its headquarters to Austin from California in 2004, had been accused by the Securities and Exchange Commission of inflating its revenues between 2006 and 2008. The company is also said to have overstated its profits by more than $53 million during that period by using a process known as “channel-stuffing” to make it appear that the company was selling more of its surgical products than it actually was. ArthroCare used a subsidiary company, DiscoCare Inc., to help it inflate its revenue and profits, according to the SEC. In that regard, the SEC said further:
ArthroCare repeatedly turned to DiscoCare to help it overcome quarterly revenue shortfalls by recording revenue from large orders shipped to DiscoCare at or near quarter-end. That revenue should not have been recognized.
ArthroCare agreed to the SEC’s cease-and-desist order in February. Two former company vice presidents agreed to pay financial penalties, and in June they accepted a five-year ban from serving as an officer of any public company. The company replaced its senior management team after the violations were reported.
The class-action suit, filed in 2008, involved similar allegations of company misstatement of its financial performance. The settlement will cover all purchasers of ArthroCare stock and options between Dec. 11, 2007, and Feb. 18, 2009. The company makes “minimally invasive surgical products” for spinal and other types of surgery.
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