ArthroCare Corporation Case 07/25/2008
FEBRUARY 2012 - According to the Notice:
Description of the Litigation and Class: This Notice relates to the pendency and proposed settlement of a class action lawsuit against Defendants ArthroCare, Michael Baker and Michael Gluk (collectively referred to as “Defendants”). Defendants and Lead Plaintiff are collectively referred to as the “Settling Parties.”
The proposed Settlement, if approved by the Court, will settle certain claims of all persons and entities who purchased or otherwise acquired the publicly traded securities of ArthroCare as well as all persons and entities who purchased or otherwise acquired call options or sold put options in ArthroCare common stock between December 11, 2007 and February 18, 2009, inclusive (the “Class Period”) and who suffered a loss thereby (the “Class”).
Statement of Class’ Recovery: Subject to Court approval and, as described more fully below, Lead Plaintiff, on behalf of the Class, has agreed to settle all claims related to the purchase or other acquisition of ArthroCare’s publicly traded securities and call and/or put options during the Class Period that were or could have been asserted against Defendants and other Released Parties (as defined below) in the Action in exchange for a settlement payment of $74 million to be deposited into an interest-bearing escrow account (the “Gross Settlement Fund”). The Net Settlement Fund (the Gross Settlement Fund less taxes, notice and administration costs, and attorneys’ fees and certain litigation expenses awarded to Lead Plaintiff and Lead Counsel (as defined below)) will be distributed in accordance with a plan of allocation (the “Plan of Allocation”) that will be approved by the Court and will determine how the Net Settlement Fund will be allocated to the members of the Class. The proposed Plan of Allocation is described in this Notice and may be modified by the Court without further notice.
Statement of Average Amount of Damages Per Share: The Gross Settlement Fund consists of $74 million plus interest earned. Your recovery will depend on the number of ArthroCare publicly traded securities or call options you purchased or otherwise acquired or sale of put options, and the timing of those transactions. It will also depend on the number of valid claim forms that members of the Class submit and the amount of such claims. Assuming that all of the investors who purchased or otherwise acquired ArthroCare’s publicly traded securities or who purchased or otherwise acquired call options or sold put options in ArthroCare common stock during the Class Period and suffered damages as a result participate in the Settlement, Lead Counsel estimates that
the estimated average distribution will be approximately $3.49 per damaged share of ArthroCare common stock before the deduction of Court-approved fees and expenses as described below and the cost of notice and claims administration. Historically, not all eligible investors submit claims, resulting in higher average distributions per share.
Statement of the Parties’ Position on Damages: Defendants deny all claims of wrongdoing, that they are liable to the Class or that any Class Members suffered any injury. Moreover, the parties do not agree on the amount of recoverable damages or on the average amount of damages per share that would be recoverable if Lead Plaintiff prevails on each of its claims. The issues on which the parties disagree include, but are not limited to: (1) whether ArthroCare and the Individual Defendants acted with any intent to defraud the investing public; (2) whether the statements made or facts allegedly omitted were material, false or misleading, or whether Defendants are otherwise liable under the securities laws for those statements or omissions; (3) the amount by which the
prices of ArthroCare common stock were allegedly inflated (if at all) during the Class Period; and (4) the effect of various market forces influencing the trading prices of ArthroCare common stock at various times during the Class Period.
NOVEMBER 2011 - ArthroCare Corp. reached a proposed $74,000,000 settlement.
APRIL 2008 - According to a press release dated April 4, 2008, the complaint charges ArthroCare and certain of its officers and directors with violations of the Securities Exchange Act of 1934. ArthroCare designs, develops, manufactures, and markets medical devices for use in soft-tissue surgery. Its products are based on the patented soft-tissue surgical controlled ablation technology called Coblation technology.
Specifically, the complaint alleges that, during the Class Period, defendants issued materially false and misleading statements and failed to disclose the following adverse facts which were known to defendants or recklessly disregarded by them: that the Company’s reported financial results were materially overstated due to the improper inclusion and recognition of revenue attributable to purported “purchases” of medical devices by DiscoCare, Inc. (“DiscoCare”), an ArthroCare “sales agent” for the sale of ArthroCare medical devices. More specifically, defendants violated Generally Accepted Accounting Practices (”GAAP”) in numerous material respects by, inter alia,: (i) recognizing revenue where payment for the shipment of ArthroCare’s products was not unconditional, but was entirely contingent upon the decision of third-party payers to pay for the ArthroCare device or the successful resolution of personal injury lawsuits; (ii) recognizing revenue from transactions with DiscoCare where DiscoCare did not have an unconditional obligation to pay ArthroCare for certain products; (iii) recognizing revenue from bill and hold transactions between the Company and DiscoCare involving certain products which were to be paid for pursuant to the contingent payment arrangement; and (iv) materially overstating financial results due to the improper inclusion and recognition of revenue attributable to purported “purchases” of medical devices by a related party, Device Reimbursement Services (“DRS”).
According to the complaint, during the Class Period, the Company’s stock price rose, reaching a high of $64.84 on October 31, 2007. As a result of a series of adverse news stories and partial disclosures concerning the propriety of the Company’s business relationship with DiscoCare and DRS, as well as the accuracy of the Company’s reported financial results, culminating with an article dated January 23, 2008, the price of the Company’s stock decreased to approximately $38.11 by January 25, 2008.