SAC Capital Boosts Stake in ArthroCare Corporation

SAC Capital Advisors has dramatically boosted its stake in ArthroCare Corporation (NASDAQ:ARTC). The hedge fund, has been in the news lately after former SAC Capital PM Mathew Martoma was arrested on insider trading charges. SAC Capital owned 400,300 shares of ArthroCare Corporation, according to the hedge fund’s 13F filed for the third quarter. As per the latest 13G filing, Steve Cohen through various entites, owns 1,556,096 shares of ArthroCare Corporation, or a 5.6% stake.

ArthroCare develops, manufactures and markets products based on its unique Coblation tissue removal technology for Sports Medicine, ENT and Spinal markets. The company is based in Austin, Texas.

Last quarter, ArthroCare Corporation (NASDAQ:ARTC). entered into a tolling agreement with the DOJ, which means the company will not raise the statute of limitations as a defense against the government in the DiscoCare investigation prior to February 1, 2013. The company did note that the investigation continues and there could be incremental costs should the government pursue indictment of the former CEO and CFO as under the Sarbanes-Oxley Act, Section 304, the SEC could seek to reclaim incentive based compensation from these former employees. The company is incurring indemnity cost for these former executives as the investigation continues. While the DOJ has not committed to resolving the investigation by February and it could ask for another tolling agreement, the company continues to believe the end date could be a good indicator for the time in which the DOJ needs to conclude its investigation.

While the DOJ criminal investigation is finally moving closer to a resolution, ArthroCare still has an active civil investigative from the DOJ that is seeing information related to marketing RF ablation devices in the ENT division. The company has noted that the investigation could involve the False Claims Act, where penalties are imposed for submitting fraudulent claims for payment to the government. ArthroCare has insisted that the two DOJ investigations are wholly unrelated and have no bearing on one another. While still important, the civil investigation is less weighty than the criminal investigation and many analysts believe it will not have a material impact on ArthroCare.

For the nine months ended 30 September 2012, ArthroCare Corporation revenues increased 56% to $271.5M. Net income applicable to common stockholders excluding extraordinary items increased from $9.4M to $26.9M. Revenues reflect Sports Medicine segment increase of 3% to $112.9M, ENT segment increase of less than 1% to $52.4M, United States segment increase of 4% to $111.1M.

Disclosure: No position