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ArthroCare will pay $30M to end fraud inquiry

NEW YORK (AP) -- Medical device maker ArthroCare said Tuesday it will pay a $30 million fine to resolve an investigation by the U.S. Department of Justice into alleged securities fraud by its former management.

The Justice Department is charging the company with one count of conspiracy to commit securities fraud and wire fraud, but it will enter into a two-year deferred prosecution agreement with ArthroCare. If ArthroCare meets requirements set by the Justice Department, it won't bring charges against the Austin, Texas-based company.

ArthroCare Corp. said the deal will end the Justice Department's investigation, which was first made public in December 2008. Its shares gained $4.42, or 10.9 percent, to $45 in afternoon trading.

Prosecutors say several former ArthroCare executives defrauded shareholders and investors out of $400 million by inflating revenue and using sham transaction to manipulate reported results. The Justice Department says former executives John Raffle and David Applegate have pleaded guilty to conspiracy to commit securities and wire fraud, while ArthroCare CEO Michael Baker and former ArthroCare finance chief Michael Gluk are scheduled to go to trial in May. Baker and Gluk face 11 counts of wire fraud and two of securities fraud, and Baker also is charged with three counts of making false statements.

The agreement will be filed in the U.S. District Court in the Western District of Texas.