ArthroCare (ARTC) Announces Investigations by SEC and US Attorney Offices; CEO Departure and Management Changes

February 18, 2009 9:38 AM EST
ArthroCare Corp. (OTC: ARTC) announced that a review being conducted by the Audit Committee has identified certain improper practices in the insurance billing and healthcare compliance practices associated with the Company's Spine Business Unit.

While the review, which is being conducted with the assistance of outside counsel Latham & Watkins LLP, is not yet complete, the Audit Committee has reviewed evidence that indicates that the Company’s Spine Business Unit engaged in and may have caused others to engage in improper practices in certain instances by: (1) seeking separate reimbursement from insurers for Company products in connection with procedures which were contractually reimbursed on a global basis; (2) making inaccurate statements in claims submitted to insurers regarding the place where particular procedures were performed; (3) providing physicians and insurers with descriptions of Company technologies which had the effect of circumventing payor policies that did not cover such technologies; and (4) recommending and advocating to physicians the use of a Current Procedural Terminology code to identify its coblation nucleoplasty technology that was not approved by the American Medical Association and may have not properly described the procedure that was performed. The improper practices identified to date by the review may have occurred since at least 2006.

ArthroCare is unable to estimate the possible effect of the review on the ongoing restatement of its financial statements for the years 2000 through 2007 and the quarter ended March 31, 2008.

In connection with the review, the Company announced the departure, effective immediately, of Michael A. Baker from his position as the Company's President and Chief Executive Officer. Mr. Baker currently remains a member of the Company’s Board of Directors. The Company also announced the resignations, effective immediately, of Michael Moehring, former Vice President and General Manager of the Spine Business Unit, and Michael Denker, former Director of Sales Development and Training.

The Board of Directors has named David Fitzgerald as Acting President and Chief Executive Officer. Mr. Fitzgerald, age 75, has been a member of the Company's Board of Directors since 2003. Mr. Fitzgerald, who has stepped down as a member of the Compensation and Audit Committees of the Board of Directors, will remain as a member of the Board of Directors

ArthroCare also announced that the SEC has issued a formal order of investigation in the previously-disclosed investigation by the SEC’s Division of Enforcement into the Company’s restatement of financial results. As a result, the SEC staff now has the authority to subpoena witnesses and documents. The Company has also been informed by the United States Attorney’s office in the Southern District of Florida that the Company and its DiscoCare subsidiary are targets of an investigation being conducted by that United States Attorney's office and have also been informed that the United States Attorney’s office in North Carolina is conducting a separate investigation of the Company, which is related to that being conducted in the Southern District of Florida.

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