A year ago, I was sitting next to my husband, Ken, in a federal courthouse in Austin, Texas. I was there that day to be sentenced, along with 3 co-defendants, for my role in a channel-stuffing scheme that caused ArthroCare to falsely inflate its revenue by tens of millions of dollars (see "How Channel-Stuffing Works" on page 28). At the core of the scheme, ArthroCare "parked" mounds of the company's devices at key distributors for all 3 of its main business units to meet Wall Street forecasts. It was an elaborate ruse: While some of the shipments to these distributors were legitimate, most were not.

Yet ArthroCare informed investors that it had actually sold the parked product.

I had pleaded guilty 15 months earlier to one count of conspiracy to commit securities fraud and one count of making false statements. My attorney thought a sentence of 24 to 30 months was likely. But under my plea agreement, a sentence of up to 10 years in prison was possible. I never imagined I'd be in the position of hoping for a 30-month prison sentence. How did I get here? Ten years before I was a very successful medical device sales and marketing executive. I was vice president and general manager of the Spine Business Unit at ArthroCare, a high-growth company and a Wall Street darling.

Now sentencing day was here. It felt surreal, and I was scared. I was summoned before the judge. The sentence was harsh: 60 months in federal prison and 3 years of probation. I was crushed. Friends and colleagues who have known me for years were shocked. Many of them told me, "If this could happen to you, it could happen to anyone."

On Jan. 13, 2015, I surrendered to the Federal Prison Camp in Taft, Calif. Since then, I've had a great deal of time to reflect on how I got here. This is my story.

Childhood scars
I have always had an intense desire to be liked, to fit in and to please people. Before I surrendered to prison, I saw a psychologist for several weeks, mainly because I was concerned about my drinking. The stress over the past several years was intense, and Tito's vodka martinis were my anti-anxiety medication of choice. The psychologist administered a couple of personality tests and one of the key findings was that I was off the charts on the "people-pleasing" vector. My response was "So I'm a pathological people-pleaser?" "Pretty much," he said after complimenting me on my alliteration.

Of course, he proceeded to ask me about my childhood. I know. You're thinking, "Oh, he's going to blame everything on his terrible childhood." No, I take full responsibility for my actions at ArthroCare and the subsequent impact on people's lives. However, I now know that personality traits I have make me vulnerable in certain situations and it's important to understand these and where they came from so that I never cross the line again.

I explored my childhood. I was a very sensitive kid: empathetic, very smart, totally uncoordinated — and, yes, gay. My favorite thing to do was to sit in my room listening to music, making lists and reading the "Wizard of Oz" books. I was the firstborn kid and my dad must have thought the stork brought him an alien. We had nothing in common. My dad was a big sports star in high school, was very handy with tools and was completely incapable of developing deep emotional relationships. He did not get me at all. I remember one Christmas he got me an erector set. Really? I wanted the new Monkees album!

Even though I was a straight-A student, I always felt like a disappointment to him. To compensate for my inability to be a "real boy," I over-excelled at school. In grade school, I was always the teacher's pet. Teachers loved me, but, as you can imagine, that was not a good strategy for making friends. In fact, it was a great strategy for being bullied! I was high school valedictorian, but I was miserable through high school. I would have traded all the academic success to be popular and liked. I could not wait until college. I was desperate to start fresh.

Big man on campus
As a freshman at California State University, Fresno in the fall of 1976, I was willing to do anything to be liked and accepted. When I moved into the dorms, I didn't know a single person on campus, so I was starting from scratch. Plus, I was still a long way from coming out of the closet.

As I came to discover, Fresno State was a party school. What better way to fit in than diving into the party scene with both feet? It started with binge drinking every weekend. It wasn't long before pot smoking was added to the mix and even the occasional line of coke. It still amazes me how easy it was for 18- and 19-year-olds to acquire all of this.

This time in my life was critical, as it was the foundation for a radically new "David Applegate." This new person would be everything the high school one was not — confident and popular and a risk taker. These traits would serve me well in my business career, but would later get me in trouble. The new David Applegate was real. However, I chose to ignore rather than process the issues from childhood. Consequently, the unpopular, unattractive, closeted high school kid who was constantly made fun of was always just below the surface.

WHITE-COLLAR CRIME The Federal Prison Camp in Taft, Calif., where David Applegate began serving his 5-year sentence earlier this year.

I partied my way through 4 years at Fresno State, skipping numerous classes along the way and still managing a 3.9 GPA (4.0 was the top GPA back then). I majored in psychology, but took an elective marketing class during my junior year (consumer behavior), and the light went off. Marketing was my calling! Instead of changing my major to business, I completed my degree in psychology and was accepted into the MBA program at the University of California, Berkeley, one of the top 10 MBA programs in the country. While at Cal, with the help and support of one friend in particular, I finally came out. And for the first time, I felt attractive and felt that there were people out there (OK, at this point, guys) who were attracted to me. This was a very powerful feeling for someone who had never felt that before and it fed into my new confident personality.

I graduated in 1982 in the middle of a deep recession and was fortunate to get an offer from Allergan to participate in the SmithKline Beckman management training program (Allergan was a subsidiary of SKB at the time). I was as junior as they come. Even so, I was given the opportunity to manage Allergan's highest revenue and most profitable product line — enzymatic cleaners for soft contact lenses — and I reported directly to the vice president of marketing.

The culture at Allergan back in the early- to mid-'80s was one that encouraged risk-taking and out-of-the-box thinking — at least in marketing. At the time, marketing contact lens care products consisted of professional promotion to optometrists and ophthalmologists. It was clear to me, however, from the work I did in market research, that consumers were going to play a much bigger role in the decision process. I was given the green light to conduct the first-ever direct-to-consumer promotion in the history of the contact-lens-care category. This resulted in a 50% increase in sales over the next 3 years on a product line with a profit margin of 95%. This, along with my new, outgoing and confident personality gave me the opportunity to make many friends.

I was also "out" at work, which was pretty rare for the mid-'80s. I was popular — particularly with the sales force — and I liked that! It was like a drug to me. Plus, I was rewarded for my risk-taking, a characteristic that would become ingrained in me over time. In a sense, I felt invincible.

All of these qualities were cemented at Vistakon, the vision care division of Johnson & Johnson that markets the Acuvue family of disposable contact lenses. After a year of managing the Surevue brand, I was selected to manage the global launch of the first daily disposable contact lens. J&J was spending $200 million to launch this category, so this was a highly visible position. The launch was successful, and I was on top of the world! I was known and well-liked, not only in J&J, but throughout the eyecare industry. Because Vistakon was a top advertiser, my husband and I even got to attend the White House Correspondents' dinner 3 years in a row!

After my success at J&J, I caught the start-up bug. It was pretty clear to me that the high-level, influential positions at Vistakon were closed to me due to my sexual orientation. I wanted to be one of the people who drove corporate strategy, and by that point I lacked the patience necessary to affect change in what was becoming a large, more cautious organization. I wanted to take a bigger risk.

At a crossroads in my career
From the mid-'90s through 2000, I held vice president of marketing positions at 3 vision care companies: Summit Technology, 2C Optics and KeraVision. Although each company had breakthrough technologies, none had experienced breakout success. Summit was the first company to receive FDA approval for the type of laser used for LASIK and other vision correction procedures. I managed the initial consumer launch of laser vision correction as well as the marketing for Summit's laser vision correction centers. While the launch succeeded in terms of generating consumer awareness, the procedure itself didn't catch on for a few years and the company struggled. The board removed the CEO and sold off the vision correction centers. The next 2 startups folded due to manufacturing problems at one and, primarily, unlucky launch timing at the other.

I was at a crossroads in my career. At that point, I clearly had not demonstrated any ability in identifying startups that would be successful. In addition, none of those positions were financially lucrative. We had also moved 4 times in 5 years, which is not exactly the best way to build financial security. I was still extremely confident in my medical device marketing abilities, although there was no doubt my resume was a bit tarnished at this point. Fortunately, my position with KeraVision had taken Ken and me to the Bay Area — the center of the medical device universe. I was looking for a growth company with a great technology that was not in danger of going under anytime soon. I was also looking for a company where I could have a significant impact, and where there wasn't a lot of bureaucracy and politics. Enter ArthroCare.

Along came ArthroCare
ArthroCare was a breath of fresh air and delivered on all the criteria that were important to me. The company's core technology, Coblation, was clearly a disruptive technology that had huge potential. Unlike standard cautery devices, single-use Coblation devices precisely removed tissue without damaging or disrupting adjacent tissue. The company had built a large position in the sports medicine market — primarily in shoulder arthroscopy — and was looking to repeat that success in the ENT, spine and cosmetic surgery markets. The CEO was the most dynamic, passionate, articulate and mesmerizing executive I'd ever met. When he personally called me after interviewing me and said I was exactly what they were looking for and that he hoped I would join the company, I was hooked. In a twist of fate, the vice president of sales I had worked with at KeraVision lived next door to the ArthroCare executive to whom I would report. When he asked my former colleague what he thought of me, he said, "Hire him." Clearly, this was meant to be.

I was hired to be vice president and general manager for the cosmetic surgery business. The ArthroCare culture was a great fit for me. Even though it had been a public company for a number of years and had 2001 revenue of $83 million, it had many of the traits of a privately-held startup. The employee ranks were thin — there was always more work to do than employees to do it — there was little bureaucracy, decisions were made quickly and politics were nil. In short, it was a fun place to work.

I soon began to notice that underneath the fun exterior was an obsession with meeting Wall Street expectations for revenue and earnings per share. I didn't think much of this at the time. I was relatively shielded from the pressure to make the numbers because the initial targets for cosmetic surgery were too low to make a difference. Yet it was hard not to notice the "fire drills" that occurred at the end of almost every quarter. When sales were significantly behind budget going into the quarter's final month, key executives were exhorted to do whatever it took to make the number. We put sales promotions in place for key customers, offered large distributors special terms in exchange for large orders and told department heads to hold off on spending. We were told time and again that if we didn't make the numbers, the stock price would drop and we'd be "taken out" (acquired).

Reasonable efforts to meet revenue and profit targets are generally okay. But I now know that the rules around revenue recognition and expense management are very complex, and it's not always clear when you're crossing the line that separates being aggressive from being illegal — especially if, like me, you don't have an accounting or finance background.

What was most disconcerting in my early days at ArthroCare was that it felt like making the numbers at times took priority over sound business strategy. For example, a gentleman who ran a company that sold and distributed aesthetic spa products approached me at a cosmetic surgery trade show. He wanted to distribute Coblation controllers and disposable devices to his customers. I didn't think this was a good idea for many reasons, chief among them being that this company didn't have a physician on staff (only a physician could use ArthroCare products). And while we had a device that aestheticians conceivably could use in a spa setting, it was a prototype that was still in development. Although I recommended against it, I was directed to strike a licensing deal with this company — provided they purchased $150,000 worth of controllers before the end of the quarter. Should this revenue have been recognized? I don't know. However, it did turn out to be a bad deal for the company. We were unable to provide them with reliable product and they eventually sued for breach of contract.

From cosmetic surgery to ENT
By this point, risk-taking and pushing the envelope were deeply ingrained in my personality, but I was disappointed with the decision to strike the deal with the spa distributor. The risk-taking I enjoyed was in executing novel sales and marketing strategies that were based on sound analysis and could result in big market-share gains.

The kind of risk-taking associated with the spa channel distribution deal represented a different kind — the kind primarily associated with achieving financial targets. Although it stood out in my mind because I felt it was a bad business decision, it was consistent with other "pushing-the-envelope" activities whose main purpose appeared to be meeting the numbers. Another topic that fell into this bucket was expired and obsolete inventory. When inventory no longer has a chance of ever being sold, it should be written off, which creates an expense and reduces earnings. There was a lot of discussion about this and it seemed to me that there was inventory that should have been written off but wasn't. Since I had no specific expertise in this area, I figured the finance and accounting people knew what they were doing. Looking back on it, I am no longer sure. Regardless of the legality of all of these financial transactions that pushed the envelope, what I should have realized was that I was working in a company that would do whatever it took to meet Wall Street expectations. Given my background and personality, this was exactly the wrong kind of company for me to work in.

Shortly thereafter, a change occurred that would put many of these issues in the background. It became clear that the cosmetic surgery business was not a good fit for ArthroCare. I recommended that the business be shut down.

I thought I had recommended my way out of a job, but instead I was asked to manage the company's ENT business unit, which had tremendous potential but was struggling. The big opportunity was in tonsillectomy, where the company's Coblation devices resulted in far less pain than cautery devices that were the standard of care.

However, because the devices required a change in technique and stopping bleeding was much more difficult, usage was mostly limited to highly skilled early adopters. So we worked closely with R&D on a new controller that dramatically improved coagulation so that the typical ENT surgeon could get through cases with minimal bleeding. An outside agency developed a new advertising campaign that focused on happy, pain-free children. The ENT space at this point (2002) was fairly sleepy, and I knew a unique campaign would break through. Finally, we added additional direct sales representatives as fast as we could afford them. The business took off and it was an incredible amount of fun. Sales and marketing were a cohesive team and overall it was a very talented group. Plus, we were providing a very real and important benefit to children. It reminded me of my time at Vistakon where everything was firing on all cylinders and everyone was having fun. Because the ENT business was meeting or exceeding plan almost every quarter and we had no "stocking" distributors, I was not directly involved in the primary pushing-the-envelope activities at the end of the quarter. I would have been happy to manage the ENT business for several years. I was having so much fun and I had a very clear vision on how to grow the business for many years to come. However, along came another twist of fate that would be a key turning point.

PATHOLOGICAL PEOPLE-PLEASER David Applegate, seen here in a photo taken about 20 years ago, says he always had an intense desire to be liked, to fit in and to please people, traits that left him vulnerable to participate in the illegal channel-stuffing scheme.

From ENT to spine
In 2004, the CEO called me into his office to break some news. The general manager of the spine business unit had resigned to lead an artificial disc startup. The CEO asked me to take over as general manager of the spine business. My heart and stomach dropped. I was on a roll at ENT. Annual sales growth exceeded 40% and we were gaining market share hand over fist. Conversely, the spine business unit was struggling and, in my opinion, didn't have a clear strategy. I didn't want the job and said as much. The CEO argued that ENT was practically on autopilot. Unfortunately, I couldn't argue with that. Still, I wasn't interested. Then came the kicker.

The CEO told me that the spine business unit had enormous potential, but faced the greatest obstacles and needed the most help. He told me I was the most talented general manager in the company and that he and the board were counting on me to do for spine what I'd done for ENT (or words to that effect). So given that I was a pathological people-pleaser and risk-taker with an intense desire to be liked, what do you think I did? How could I say no? I couldn't. It was one of the key turning points and a decision that I would come to regret.

The key — and really only — product at the time was a SpineWand that interventional pain specialists used to perform percutaneous disc decompressions. The good news was that physicians reported that patients with radicular pain (sciatica, for example) secondary to a contained disc herniation experienced a significant reduction in pain more than 80% of the time. The bad news was that key payer policies were mostly either silent or negative regarding coverage. To compound matters, published clinical data was sparse and interventional pain physicians were not in the best position to advocate for coverage, as they didn't have the same clout with payers that surgeons had. In addition, the interventional spine space was littered with procedures with questionable efficacy. To complicate matters further, ArthroCare had just acquired Parallax, a small manufacturer of vertebroplasty devices. This acquisition did not result in the promised synergies and severe supply chain issues led to frequent backorders.

Could I grow the spine business?
Heading into 2005, the company expected the spine business to grow significantly, but the prospects for short-term growth were slim. Increased sales of the SpineWand were primarily dependent on published clinical data. A trial was in the works, but results were a long way off. And the Parallax vertebroplasty line lurched from backorder to backorder in spite of our best efforts to straighten out the supply chain issue. At the same time, as the ENT business got larger, its still-strong growth inevitably started to slow. The sports medicine business, which accounted for about 70% of sales, was growing well below the 20% rate that was considered critical to meet Wall Street expectations.

In 2005, the spine business unit wasn't meeting its forecasts in spite of my best efforts. Sales were essentially flat and the pressure was incredibly high to find a way to grow sales in the short term. However, there was one customer in South Florida — Palm Beach Lakes Surgery Center — that was steadily increasing its purchases of SpineWands month to month.

The local sales rep reported that the growth had to do with an unusual business model that didn't rely on treating patients with traditional insurance. Eventually, the sales team convinced me that it was worthwhile to meet with the individuals who were behind this success. So in the fall of 2005, I flew down to West Palm Beach to meet with the principals to see what this was all about. I knew that the model had something to do with personal injury (PI), so I wasn't surprised that the meeting took place at the law offices of one of the top personal injury firms in Palm Beach County.

After a dinner of filet mignon, lobster tails and soft drinks (apparently they were all teetotalers), I was treated to one of the most compelling, unique and well thought-out presentations I've ever heard. The principal in the law firm and practice administrator for one of the surgeons outlined what amounted to an opportunity to make disc decompression with the SpineWand the standard of care in all personal injury cases where the patient had suffered a contained herniated disc.

I know what you're thinking — and I was thinking the same thing. Personal injury? Seedy, unethical ambulance chasers? All I can say is the presenters were very persuasive.

They started by extolling the medical benefits of the SpineWand for patients. They raved about the results they were seeing and claimed that more than 90% of the patients treated by the surgeons they worked with experienced significant reductions in pain and increases in functioning.

They then explained that they followed a very specific treatment algorithm to ensure that they offered the SpineWand procedure only to patients who had a good chance of improvement. All patients referred by personal injury attorneys with back or neck pain were given an MRI. For patients with a confirmed contained disc herniation on MRI, they prescribed a minimum of 3 months of conservative care, which included physical therapy, chiropractic and/or epidural steroid injections. If there was no improvement, they gave the patient a discogram, a diagnostic test to confirm that the disc on MRI was the cause of the pain. Only if the discogram was positive would they use the SpineWand to decompress the disc. The presenters claimed that of all the patients referred by PI attorneys with back or neck pain, only about 10% ended up being candidates for the SpineWand.

They then explained how personal injury cases worked. Before the SpineWand, the only options physicians could generally offer to injured patients were conservative care or open surgery (discectomy or fusion). Open surgery wasn't appropriate for most patients; besides, most weren't willing to take that risk. On the other end, conservative care didn't have a lot of "value," most patients didn't improve and these cases didn't settle for very much money for any of the parties involved. The SpineWand procedure fit right in the middle and allowed for better patient outcomes and for more cases to settle.

They walked me through a typical case, a car accident in which the at-fault driver had a $100,000 limit on his insurance policy. In this case, if the patient was a candidate for the SpineWand procedure, the case would settle for the full $100,000, with about one-third going to the medical bills (surgeon, SpineWand, conservative care), one-third going to the attorney and one-third going to the patient. They described it as a win-win-win. The patient won because she got better and received a settlement. The surgeon won because, although he was risking not getting paid at all, when he did get paid, the payment was much higher than he would get from private insurance. In some cases, 10 to 20 times higher. Of course, I came to understand that the insurance company didn't perceive it this way.

They claimed that when they precisely followed the treatment algorithm and a surgeon performed the procedure (not a pain specialist), on a $100,000 limit case they were able to settle more than 95% of the cases for the full $100,000. What was in it for Arthro-Care? They were billing $7,500 for the SpineWand and collecting an average of $5,750. This was about 5 times the current selling price of the SpineWand.

Medically sound, perfectly legal?
The last piece of the puzzle was whether this model could be successful in markets other than South Florida. The attorney noted that he was part of a network of firms that specialized in PI and generally dominated their markets in terms of advertising and share. He even had a map with all of the locations flagged and commented that many of his colleagues were "chomping at the bit" to implement this model.

I have to say that I was very impressed. The approach appeared from my point of view to be both medically sound and perfectly legal. Of course, I was concerned about associating ArthroCare and my reputation with PI. On the other hand, implementation of this model in other markets could provide short-term growth while we were doing the clinical studies necessary to gain coverage from major payers. In addition, the financial incentives for spine surgeons were significant, which would give us an entry into that market. It was well known that many spine surgeons were more financially driven than other specialists.

I briefed senior management on my findings upon my return and gave them the pluses and minuses. I was actually torn, but this decision was not one I could make on my own. If we were to go down this path, it would be a major change in strategy for the spine business unit with significant risks. The decisionmakers had no such misgivings. They thought it was a fantastic idea with huge potential and their thoughts soon turned to how big a stocking order we could get them to place.

I didn't know it at the time, but this was the key turning point. Had higher-ups decided to pass on this opportunity, I firmly believe I wouldn't be writing this article from prison. I didn't fight the decision, though. I once again played the good soldier who wanted to please his bosses and agreed to begin negotiations. I was about to embark on 3 years of constant stress where I was the center of a storm in which I felt trapped. I was getting on a roller coaster where once you were strapped in, the ride never ended until it went off the rails at 100 mph.

SAN JACK David Applegate climbed to the top of Mt. San Jacinto in Riverside County, Calif., last year.

The personal injury model
And so began the negotiations between what would become DiscoCare and ArthroCare in the 4th quarter of 2005. Although the negotiations were with the attorney and the practice administrator from the original meeting, a physician who was one of the owners of Palm Beach Lakes Surgery Center owned 100% of DiscoCare. In the government's indictments of former ArthroCare employees, this would be the beginning of the fraud that they would be prosecuting.

DiscoCare had visions of grandeur and wanted to be the country's exclusive SpineWand distributor. Although the U.S. spine business wasn't huge (less than $15 million per year at that time), we weren't about to put the entire business in the hands of people we hardly knew and trust an untested business model. We all agreed that the personal injury model was an interim solution to the ultimate goal of gaining universal private insurance coverage for the procedure.

My superiors were insistent that DiscoCare place a large initial stocking order and targeted $1 million. While this seems like a large amount, the personal injury model had enormous potential and large stocking orders for new distributors was the normal course of business at ArthroCare. DiscoCare did not even want to be a stocking distributor. So the parties were pretty far apart at the beginning of negotiations. We knew, however, that we held the upper hand in that they would do anything to demonstrate that they could successfully implement this business model in other markets. So we offered them an exclusive distributorship in the 3 most promising states in exchange for the $1 million stocking order. They finally agreed, but it took almost to the very end of the quarter for them to incorporate DiscoCare and sign the purchase order.

It's important to note that nobody bothered to determine DiscoCare's ability to pay for this product. It was simply presumed that they would do so based on the success of Palm Beach Lakes Surgery Center and the large market opportunity. In addition, no one asked me to vet the legality of the model DiscoCare would be implementing as ArthroCare's exclusive distributor in those states.

Even though I had misgivings about getting involved with PI, I was excited about the potential of the opportunity. If DiscoCare could successfully implement this model in several other markets, the spine business could easily become a $100-million business. In addition, we'd be providing pain relief to patients who wouldn't otherwise get it and introducing our Coblation technology to surgeons who wouldn't typically adopt this type of technology. However, it didn't take long to learn that implementing the model was much harder and would take much longer than anticipated.

Growing pains
During the first half of 2006, we learned a lot. There was a lot of interest among surgeons and the PI firms in the targeted geographic markets. However, it took quite a bit of time to find the right surgeon(s) and to get them and their practices on board, as well as the facilities where they operated. Not surprisingly, many surgeons were uncomfortable with PI or with the aspect of waiting longer to receive payment. In addition, the ArthroCare sales force didn't have the skill sets or training required to effectively present and implement the business model. On top of this, I found the DiscoCare principals to be extremely difficult to work with.

They were 100% convinced that they knew exactly how to implement this model and they were very impatient. Other markets weren't like Palm Beach County and they had no experience working with a medical device sales force. So there was a tremendous amount of friction and growing pains. To top it off, while DiscoCare was very good at getting the SpineWand approved and paid for, they had no operations or logistics experience. They had no systems for tracking cases or for stocking and shipping product.

My stress level started to go through the roof, which wasn't helped by the fact that the primary form of communication by certain DiscoCare principals was yelling. Every night I retreated to our beautiful house in the hills west of Austin, where my husband and I would go through a few rounds of martinis so that I could decompress and do it all over again the next day. I felt like I was constantly running and in a fog most of the time. It really did feel like a ride that was going too fast for me to get off of.

Then there was the stress of having to deliver on the numbers for ArthroCare. Because of the potential of the DiscoCare model, the forecast for 2006 was aggressive and the pressure was tremendous as each quarter went on.

One problem, though, was that the collections cycle for DiscoCare was much longer than that of a typical medical device distributor that sold to ASCs and hospitals. It often took several months or more than a year for PI cases to settle, and DiscoCare didn't get paid (nor did the surgeons and other healthcare providers) until cases settled. The good news was that a very high percentage of cases settled — and at a high price. The bad news was that DiscoCare had plenty of product on hand to meet its needs. Nevertheless, ArthroCare needed to meet Wall Street expectations, so we devised a plan where DiscoCare would place additional orders at the end of each quarter in exchange for exclusive distributorships in additional states. They were reluctant, but they relented. The orders shipped and the revenue was recognized.

As the year wore on, I was more and more exhausted. The number of DiscoCare cases completed and the amount DiscoCare collected for SpineWand sales was increasing each quarter. DiscoCare was also having modest success getting private insurance and workers' compensation cases approved and completed.

Expand the DiscoCare model
Based on the initial success, the next step was to expand the DiscoCare model to the entire United States. Under the distributor model, DiscoCare had been purchasing SpineWand devices for a little more than $1,000 and collecting between $5,500 and $6,000 on average. We agreed that it was a team effort and that the markup on the SpineWand should be shared more equally between DiscoCare and ArthroCare. With that goal, we began negotiating a national services agreement in the fall of 2006 that was to take effect at the beginning of 2007. We needed the time to prepare all the logistics and training required for a national rollout.

I was informed shortly thereafter that the national launch of the DiscoCare model needed to be moved up to Nov. 1. The proposed higher average selling prices were needed to meet company revenue projections for the quarter. I had only 30 days to do 90 days of work. Once again, the tail was wagging the dog.

The national distribution agreement with DiscoCare was a very complex service agreement.

• DiscoCare would purchase wands from Arthro- Care at the prices that DiscoCare had been averaging on collections and ArthroCare would pay DiscoCare a service fee that was roughly 50% of the selling price.
• DiscoCare needed to meet specific quotas each quarter. These quotas were baked into the revenue forecast for the spine business unit for 2007.
• DiscoCare had 180 days to pay for SpineWands used in private insurance and workers' compensation cases and 360 days for PI cases.

Similar to when the relationship with DiscoCare began, I don't recall any due diligence being done at this time on the DiscoCare model regarding legality or compliance with healthcare laws.

Although we began operating under the new national agreement on Nov. 1, as requested, the actual agreement wasn't executed until late November. I was also surprised to learn that the service fee paid to DiscoCare was to be classified as a marketing expense rather than a discount, and that Price Waterhouse Coopers (PwC), ArthroCare's outside auditing firm, had signed off on this treatment.

It's important to note that revenue recognition rules changed a number of times from late 2006 throughout 2007, and I was told that PwC signed off on each of these changes. By the middle of 2007, ArthroCare had moved to a revenue recognition model where it recorded revenue when a case was entered into a case tracker system and it shipped a SpineWand to DiscoCare for the case. This increased the already very long lag time between when revenue on the SpineWand sale was recognized and when DiscoCare collected from the payer.

The business through DiscoCare grew strongly in 2007, both on a revenue basis and in terms of cases completed. DiscoCare continued to collect on a very high percentage of cases. However, this growth still fell short of the quota for a couple of quarters. As we had learned in 2006, implementing this business model in new markets took much longer than expected and much of our sales force didn't have what it took for success.

Because of the lag between when ArthroCare booked the sale and when DiscoCare collected on the case — and the long dating DiscoCare had on orders — the amount of money that DiscoCare owed to ArthroCare grew exponentially. The irony is that the more successful our sales force was in scheduling cases, the higher the accounts receivable balance grew. This became a significant problem because the company had elected not to disclose to investors the national agreement with DiscoCare, or that DiscoCare accounted for more than 80% of U.S. spine business unit sales.

ArthroCare acquires DiscoCare
ArthroCare had a history of not breaking down its revenue in its financial reports beyond the business unit. The company also didn't break out what percentage of specific business unit sales came from the Americas and what percentage came from the rest of the world. I don't know if this was typical of publicly traded medical device companies at the time or not.

What was clear to me, though, was that the extremely strong growth of the spine business unit was driving ArthroCare's strong overall growth. And the extremely strong growth of the spine business unit was being driven in large part by DiscoCare (and more than half of that success was due to personal injury). And yet the company hadn't disclosed any of this to investors.

In mid-2007, talk began of acquiring DiscoCare. Apparently, in an acquisition the large accounts receivable balance would be wiped out. By the fourth quarter, the balance exceeded $20 million and we began serious discussions with DiscoCare to buy them, with specific instructions to close the deal before the end of the year.

As this was happening, a December New York Post article examined the relationship between DiscoCare and ArthroCare and stated that DiscoCare was the engine driving ArthroCare's growth. Not long after, Citron Research, a website that sniffs out corporate fraud, began publishing reports on ArthroCare, focusing on the relationship with DiscoCare. Although the reports were littered with errors, the articles got a couple key things right — that DiscoCare accounted for the vast majority of ArthroCare's U.S. spine sales and that personal injury was the main driver of the DiscoCare relationship.

ArthroCare acquired DiscoCare on the last day of 2007. The announcement created an absolute firestorm that never ended. An analyst conference call was scheduled for Jan. 3. The last days of 2007 were spent frantically preparing for this. From my standpoint, it was the last chance to "come clean" about PI and DiscoCare and to disclose how the relationship worked, the long lag time in receivables and how it was successful. The company instead chose to remain secretive and didn't provide full disclosure. To me, this was the final turning point and it was all downhill from there.

After the DiscoCare acquisition
The first quarter of 2008 following the acquisition was insane. There was a tremendous amount of work to do integrating DiscoCare into ArthroCare. Before the acquisition, to my knowledge ArthroCare didn't conduct an independent review to determine whether DiscoCare was in compliance with all relevant healthcare laws. After the acquisition, a healthcare attorney conducted an audit and determined that we needed to revise a number of DiscoCare procedures. And of course, I was responsible for ensuring these were implemented.

In addition, the negative Citron Research articles continued and thestreet.com joined in. We spent a lot of time refuting the claims of these websites. We all felt like we were under attack and a natural response was to circle the wagons. The company's law firm conducted an internal investigation. Also, during this quarter, NASDAQ announced it was investigating ArthroCare. Although I did a lot of the research for the presentation, I wasn't involved in the development of the presentation or the presentation itself. Apparently it went well, though, as NASDAQ announced the investigation was closed.

At this point, it looked like things might settle down a bit, but Citron and thestreet.com kept piling on with additional revelations. While their reports often contained factual errors, generally they were accurate. During the second quarter, the company was trying to sell itself and was in the process of closing a deal. I've been told that in the 11th hour, an anonymous party sent a huge package of information to the headquarters of PwC. My understanding is that this package contained all of the Citron postings along with supporting documentation. PwC called a halt to the transaction to sell ArthroCare in order to investigate. We believed that the sender of the package to PwC and the provider of the information to Citron was an employee of the auto insurance company that was on the receiving end of the biggest share of the SpineWand PI settlement cases.

This triggered another investigation, which culminated in a board meeting. At this meeting, the board decided to issue a press release stating that it had no confidence in the financial results of the company from Q4'05 through Q1'08. Senior management, including me, were present at this off-site meeting and the decision was disclosed to us. I was in total shock when I heard it. My initial thought was, "This is all my fault." I was the one who introduced DiscoCare to the company. I was devastated. ?That night, my boss and I were sitting together with our respective spouses/partners, discussing the day's events and I recall Ken saying, "You guys had better hire attorneys ASAP." Of course, he was absolutely right.

Asked to resign
It's interesting that my initial reaction to the news was that it was my fault and that I had failed my colleagues. It didn't occur to me initially that I might personally be in trouble. Of course, this was the "pathological people-pleaser" in me in full operational mode. I think I was in denial, though. At that point, plans were being made for me to move back into my position as general manager of the ENT division. I recall asking a key board member at that off-site meeting if everything was still on track for me. His equivocating response gave me pause and for good reason.

Although I didn't know it at the time, my ArthroCare career was on hold pending the ongoing investigation. By Thanksgiving, I had a feeling that I wasn't going to be part of ArthroCare going forward. But I was paralyzed. I just waited for the inevitable. And on Dec. 18, 2008, it occurred. I was summoned to the CEO's office and asked to resign — although if I hadn't resigned, I would have been terminated. The same thing happened to my direct supervisor.

The following day ArthroCare issued a press release stating that the company no longer had confidence in its financial results gong back to 2001. They also essentially said that my direct supervisor and I perpetrated all of the financial irregularities during the restatement period. So while I knew my role in what happened, I felt like I had been thrown under the bus. The press release wasn't accurate — as others played much larger roles — but it was immediately clear to me that getting employment at that point would be next to impossible.

I tried to find work in Austin — or anywhere — without success. Ken and I didn't have much cash on hand. Unlike many others, other than a small automatic exercise back in early 2006, I hadn't exercised any stock options during the period that the government was to investigate. We owned a large property in Austin (with a corresponding large monthly payment) as well as 3 income properties (vacation rentals) in Palm Springs. The end of 2008 wasn't a great time to own or sell real estate, and we were bleeding cash every month. Bankruptcy was on the horizon. We decided to move back to California into the smallest of our 3 income properties to save cash. We finally were able to unload the Austin house for the amount of the mortgage, which was much less than what we paid for it.

Just when things seemed their bleakest from a financial standpoint, something happened that literally saved us — both financially and personally. I was in the process of contacting everyone I knew to see if they knew of any work opportunities, and I called the gentleman who I'd worked with at KeraVision and who'd vouched for me with ArthroCare. He was working for an interesting privately held ophthalmology company. As it turned out, the CEO was an old friend and colleague of mine from Allergan. He asked me to fly out and meet with him. We caught up and he felt my experience in the intervening years was a good fit for the needs of the company. He made me an offer to join them as a consultant that very day, even though I had filled him in on as much as I could regarding what had happened at ArthroCare. It was the best thing that could have happened to us. The company was well run, highly ethical, and filled with people who were high in talent and low in ego. I was so very thankful for the opportunity and remain so to this day. I worked there right up until the time I surrendered and I was given the opportunity to make a significant contribution during the time I was there.

Little did I know that having that kind of stability and positive working environment would be incredibly important for what was coming on the horizon.

As I left ArthroCare, both the Securities and Exchange Commission and the U.S. Department of Justice announced that they were investigating the company. I already had counsel by the time I left, and I knew that I might be targeted by both the SEC and the DOJ. Nevertheless, my goal was to live life one day at a time and to enjoy my job and my life with my husband and my family and friends.

It wasn't long before the SEC asked me to come in and talk to them. After conferring with my attorney, I declined their offer as they wouldn't assure us that my testimony wouldn't be used against me in a criminal proceeding. The SEC had interviewed several other people at ArthroCare and based on their testimony and their investigation filed a complaint against me that I had acted improperly and benefitted from more than $800,000 in ill-gotten gains. We strongly disagreed with the complaint and negotiated a settlement where I had to pay $55,000 in fines over a 3-year period without admitting to their charges. At the time, Ken and I actually had a negative net worth.

Handcuffs and tracking devices
But my troubles were of course far from over. In early 2010 I found out I was officially a target of a criminal investigation. My attorney and I were summoned to Fort Lauderdale, where FBI agents and a DOJ official "interviewed" me. I say interviewed because I don't recall saying a word — they did all the talking. They basically laid out their case for the fraud and my involvement in it. According to them, I was the "mastermind" and they said I was "the next Jeffrey Skilling" (the former CEO of the Enron Corporation). At the close, they offered me a 10-year sentence and implied that if I didn't accept, I'd be looking at life in prison. My attorney, who was then and is now a good friend, did his best to convince me that they were just trying to intimidate me. However, their tactics worked. I waited until I got back to my rental car and completely broke down. At that point I thought my life was over. I called my husband, sobbing.

But then, nothing happened. For the next 2 years, I had the threat of criminal prosecution hanging over my head. However. I did my best to live my life the best I could and be as happy as possible. My key coping mechanism continued to be my martinis at the end of the day.

On Aug. 22, 2012, I got "the call" from my attorney. He asked me where I was. I had just left my apartment in Dana Point, Calif., and was headed into work. He told me to pull over and then delivered the news. The U.S. government had indicted me on 16 counts; when you added up all the possible sentences associated with those charges, they totaled more than 200 years. I was remarkably composed, as I had been mentally preparing for that day for a long time. My attorney informed me that several FBI agents, along with the local police, had raided our home that morning in Palm Springs before sunrise. They used ladders to scale the walls that surround the house. Of course, I wasn't there. It was common knowledge that I commuted to Orange County every Monday for my work, stayed in an apartment over there during the week and returned home to Palm Springs on Friday. My husband was quite surprised by the raid. He answered the door in his underwear. The agents broke the door in and then interrogated, handcuffed and threw my husband to the ground with a shotgun pointed at his head. At first they thought he was me even though he told them immediately that I was in Orange County. They didn't believe him. However, after searching the house, they finally figured out I was not there and asked Ken for my address in Dana Point. He actually didn't know it off the top of his head, but they didn't believe him. They finally left while warning him not to contact me.

Ken immediately called my attorney, which is how he was able to call me on my way to work. My attorney advised me not to go to work and to head back to my apartment while he arranged with the FBI for me to self-surrender. I'm greatly appreciative to both my husband and my attorney for avoiding what would have certainly been a deeply embarrassing and ugly scene at my place of employment. While I was waiting for a call back from my attorney, I had to inform my boss of my situation. This was one of the most difficult calls I had ever made in my life. Like many times before, I again felt like I was letting people down whom I admired and trusted. However, my boss, while shocked, was very supportive. I drove to an FBI field office and turned myself in. I was handcuffed and taken to the federal courthouse in Santa Ana for processing and a bond hearing. Everyone was very professional and I was mentally prepared for the experience. My attorney took the next flight from Austin to Orange County and made it in time for my bond hearing. I was released that day, but until I paid the bond, I had to wear a tracking device. They programmed the device so that I could continue to go to my job in Orange County during the week and home to Palm Springs on the weekend. Wearing that device (it is not small) around my ankle made me feel like a criminal for the first time. It also gave me the feeling that all of this was not going to end well.

Over the next several months, my new criminal attorney (my previous attorney did not practice criminal law) and his associates negotiated a plea agreement for me. While I can't discuss that process, I will say this. Once the DOJ has you in its sights, it holds all the cards. It definitely changed forever my view on the fairness of the U.S. legal system.

I pleaded guilty on May 9, 2013, and awaited sentencing. Now you're back to where this long tale began. I do want to say that nothing positive came out of that day when we all were sentenced. I felt no anger or bitterness, only sadness. The 3 other individuals sentenced that day received longer sentences — much longer in a couple of cases. ArthroCare's CEO and CFO were sentenced to 20 years and 10 years in prison, respectively. I felt only deep sorrow. For the most part, I enjoyed working with these people and I thought they were my friends. I still believe that each of them is basically a good person who went off the rails somewhere.

Don't tolerate cutting corners
When ArthroCare finally restated its earnings, it announced a reduction of $72.3 million in revenue. The vast majority of this reduction was due to reclassifying service and marketing fees as discounts, reversing DiscoCare receivables from PI attorneys and health insurance plans, and changing the accounting for the DiscoCare acquisition. The ArthroCare finance group determined and the company's external auditors approved the original accounting for these transactions. I had no input into the accounting treatment of these transactions.

This is not to say I did not break the law. I take full responsibility for the things I did. I gave direction to sales reps and put promotions in place that resulted in revenue that shouldn't have been recognized. I authorized shipments of a new type of SpineWand and shipments to meet contractual quotas that shouldn't have been recognized as revenue. I either knew or suspected that these transactions were not legal. And I know that the fact that they were approved or initiated by someone above me in the company is irrelevant.

I am truly sorry for many of the things that happened as a result of the fraud in which I participated. Shortly after I parted ways with ArthroCare, the company decided to shut down the spine business unit. As a result, many talented people whom I cared about and respected lost their jobs. I am also sorry for all the patients with contained herniated discs who no longer could benefit from a minimally invasive procedure that truly worked. But most of all, I am sorry for all the pain, suffering and difficulty to which I subjected my husband and partner of 31 years. In particular, I am deeply sorry he was subjected to the FBI raid that caused emotional scars that may take a lifetime to heal. Although he has been supportive and stood by me through it all, he deserved far better. I will spend the rest of my life continuing to do the work I need to do to stay honest and humble and maintain his trust and love.

This article is not meant to be a complete summary of all the facts in the government's case against ArthroCare and against me and my co-defendants. I have selected the facts that are most germane to my specific situation and most illustrative of my journey.

Hopefully by this point you have a good idea how I ended up where I am now. You may put yourself in my shoes and think to yourself, "I would have walked away." Maybe, but I think it takes a strong person who is very well attuned to his weaknesses to immediately recognize situations that could get him in trouble. One thing that struck me is the number of people who came up to me after learning of my legal troubles and told me, "That could have been me." Many of us wind up in the "gray area" — sometimes without knowing it.

You may also think my story does not apply to you because you aren't a high-ranking employee in a public company. But as the readers of this magazine know, health care is a thicket of laws and regulations that are constantly changing. It's impossible to stay on top of everything. By necessity, you must rely on co-workers whom you know to be trustworthy and knowledgeable, and on leaders who uphold the highest standards and establish a culture that reflects that. Doing what's best for patients, although admirable, isn't enough and it's not always legal. In healthcare delivery, it's imperative that your facility understands the pertinent laws and regulations, or retains someone who does, and has procedures in place to ensure they are followed. In short, you want a culture that does not tolerate cutting corners.

Thanks for sharing in my journey
As I waited for my prison term to begin, I found that I was often beating myself up for letting myself participate in illegal activity. With the help of many friends, I came to the conclusion that this was counterproductive and getting in the way of continued growth. While I remain sorry for what happened and the consequences and accept responsibility, I am not defined by my actions in that specific case, nor am I defined by the word "felon."

Since the events at ArthroCare, I have been on a journey of self-discovery and growth. I am not the same person I was. I am more humble and calm, and much more focused on the things that are really important to me: my relationships with my husband, my family, my friends and my colleagues. Integrity and honesty are front and center.

Since I began my sentence, I have used my time to better understand myself — my strengths and weaknesses. I am also using the time to read, write and, most importantly, to grow. For example, I have learned that it is important to set aside time to reflect on what I am doing and the "rationality" of the thought processes and beliefs that lead to certain behaviors. Like many people, I was constantly "doing" and rarely just "being." This was particularly true during my last few years at ArthroCare. Instead of taking time to reflect on my thoughts, beliefs and actions, I chose to "check out" with endless rounds of martinis. Had I slowed down and taken the time to truly reflect on these things — and whether they were reflective of my goals in life — my story might have had a happier ending.

Writing this article is also a big step in this journey. It was painful to shine such a bright light on what I did and why, but it is also a relief to finally be able to talk about things I couldn't talk about for years. I am confident this article will lead to growth. I am also using the time here to practice meditation and mindfulness. Being present as much as possible is the best way to ensure that I never again get on a roller coaster that has no exit. Thanks for being part of my journey, and I wish you the best on yours.