A Medical Device Daily

ArthroCare (Austin, Texas) reported that it has been notified by the SEC's Fort Worth District Office that the Staff of the SEC's Division of Enforcement is conducting an informal inquiry into accounting matters related to ArthroCare arising out of the company's recently announced restatement of financial results.

"We're not going to make a comment on [the inquiry]," Andrea Priest a spokeswoman for ArthroCare, told Medical Device Daily on Thursday afternoon. "The release stands on its own."

This makes the third time in nearly four months that the company has been questioned regarding its accounting.

Last spring, two New York law firms reported litigation against the company (Medical Device Daily, April 8, 2008).

According to the complaint, ArthroCare reported financial results that were "materially overstated" and that these misrepresentations served to inflate the company's stock price, causing it to trade as high as $64.84 a share.

As a result of various adverse news stories and partial disclosures concerning the accuracy of the company's reported financial results and its business dealings with DiscoCare (Margate, Florida), an ArthroCare sales agent, the company's stock price fell to roughly $38.11 by Jan. 25, 2008.

ArthroCare has been plagued by rumors since it bought DiscoCare, a third-party billing and reimbursement company, in January for $25 million in cash (MDD, Jan. 7, 2008). The rumors surrounding the purchase led investors to question DiscoCare's business practices and the relationship between the two companies prior to the acquisition.

ArthroCare officials have repeatedly defended the DiscoCare purchase, and even confronted the rumors during a conference call sponsored by Bear Stearns (New York) in late January (MDD, Jan. 23, 2008).

ArthroCare makes devices for use in soft-tissue surgery. Many of its products are based on its Coblation technology, which uses low-temperature radio frequency energy to dissolve rather than burn soft tissue, minimizing damage to healthy tissue, according to the company.