Team: 50 Shades of Awesome Gjana, Jeta Samuel, Irin Qu, Celine.

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Team: 50 Shades of Awesome Gjana, Jeta Samuel, Irin Qu, Celine

About AthroCare  ArthroCare – founded in 1993 in Sunnyvale, California  Develops and manufactures surgical devices, instruments, and implants.  Mission: enhance surgical techniques and improve patient outcomes.  Two core product areas: 1. Sports Medicine and Ear, Nose, and Throat 2. Other areas such as spine, wound care, urology and gynecology.  ArthroCare – dissolved by fraud in 2014

Current management David Fitzgerald: Director, President & CEO. David is a Director since 2003, President and CEO since He holds a B.S. from American International College and a M.B.A from New York University. David spent 25 years at Pfizer, Inc. in the management team. He served as President and CEO its Howmedica division during his last fifteen years with the company, prior to retiring in Since his retirement, Mr. Fitzgerald has served as a Director for public companies such as: LifeCell Corporation from 2001 to 2008 and Chairman of Orthovita, Inc. from 2002 to Todd Newton: Executive VP, CFO & COO since He holds a B.A. from the University of Texas at San Antonio. Todd served in various executive officer roles at Synenco Energy, Inc. from 2004 to Before joining Synenco Energy, Todd served in various roles at Deloitte & Touche LLP from 1984 to 2004, including as partner from 1994 to Todd is a member of the Texas State Society of Certified Public Accountants. In the past he has been a member of the Minnesota State Society of CPA's and the Pennsylvania Institute of CPA's.

Fraud from former management  Fraud – wire and securities fraud  Money loss – massive fraud resulted in shareholder value loss of $400 million and a total loss of $750 million. 1  4 week trial results:  Michael Baker – former CEO sentenced to 20 years in prison  Michael Gluk – former CFO sentenced to 10 years in prison ____________________________________________________________ 1 “A case of Corporate Greed.” The Federal Bureau of Investigation. September 2,

Channel Stuffing at ArthroCare  Sophisticated fraud scheme – get the distributers to buy more product than they need.  End result – company’s sales and revue appear to be greater than they actually are.  ArthroCare - CEO and CFO changed the books to meet and exceed Wall Street’s expectations by creating fake sales on paper.  – CFO manipulated end-of-quarter transactions involving distributors who received more products than they expected to sell.  Product – spine wand, a specialized needle used in back surgeries  Distributers – agreed to extra product because they were profitable; they had the option to return the product at no cost if they didn’t sell.  Issue – the stock price climbed and the CEO had to maintain the stocks inflated price. To sidestep regulatory requirements, ArthroCare bought one of its distributors.

The causes of fraud Causes  Opportunity  Access to payroll, checkbook, purchasing  Pressure  Divorce, medical claims, mortgage debt & foreclosure  Rationalization  “it’s all of our family’s money any way,” ”I’m just borrowing it, I will pay it back.” The Fraud Triangle

Getting caught  2008 – ArthroCare would restate previously reported financial results as a result of an internal investigation.  FBI - 3 year investigation of paper and electronic records (Income statement, cash flows, etc.) and crisscross the country interviewing distributors, investors, and other individuals.