2 former Endocare executives indicted

Two former executives at Endocare Inc., an Irvine-based medical products company, were indicted Monday for allegedly helping to inflate company revenue in a fraud that cost investors more than $200 million.

Former Chief Executive Paul W. Mikus and former Chief Financial Officer John V. Cracchiolo were charged with wire fraud, securities fraud, filing false statements with the Securities and Exchange Commission and lying to Endocare’s accountants.

Under the 27-count indictment from a grand jury in Santa Ana, the men could face a maximum of 430 years in prison and $21.75 million in fines.

“This is one of the most egregious corporate fraud cases in recent Orange County history,” Assistant U.S. Atty. Andrew Stolper said.

The company, which was not indicted, faces a cash crunch that jeopardizes its future. It manufactures and sells a medical device, known as the Cryocare System, used to freeze cancerous tissue for treatment of prostate and other cancers.

The alleged fraud occurred in 2001 and 2002, with the company overstating revenue as much as 33% in one quarter, the SEC has said. According to the indictment, Endocare fabricated sales of the device and understated or deferred expenses to inflate earnings and show a history of consistent revenue growth.

During the period, Endocare raised fresh capital from investors and bought another company with its stock, the Justice Department said.

Questions were raised in fall 2002 after an Endocare finance executive contacted a board member and expressed concerns about the company’s accounting, the company said.

Endocare, after being notified of its improper accounting by auditor KPMG, falsely told the public that an independent investigation had not discovered fraud, Stolper said.

At the time of the alleged fraud, the company’s stock traded at more than $20 a share, a far cry from its Monday close of $2.15, down 5 cents, or 2.3%, for the day.

Endocare spokesman Matt Clawson said the company had no comment on the specific charges or indictments.

“The employees involved left the company several years ago and we have cooperated with authorities throughout the investigation,” he said.

Last summer, Endocare signed an agreement with the Justice Department under which the company was shielded from prosecution for any criminal wrongdoing by employees in exchange for cooperating in the department’s probe.

Mikus and Cracchiolo resigned from the company in 2003. Calls to both men were not returned Monday. Mikus’ attorney, Thomas Bienert Jr., told the Associated Press that he hadn’t seen the indictment and had no immediate comment.

Mikus, 41, and Cracchiolo, 50, have agreed to surrender this month, officials said.

The SEC sued the two men last year for allegedly artificially boosting earnings, a spokeswoman for the agency said.

Three former company officers who were accused of helping to perpetrate the fraud settled civil charges with the SEC.

Endocare’s latest quarterly filing with the SEC indicates the company is facing financial pressures. It had operating losses of $14.7 million in 2005 and $13.6 million in 2006.

The company said it owed more than $6 million in back taxes and could incur significant expenses because it was contractually obligated to pay legal fees for former officers and directors.

According to the company’s independent auditor, there is “substantial doubt about the company’s ability to continue as a going concern.”

Endocare spokesman Clawson said the company was not at risk of going out of business.

“We have access to capital that isn’t reflected on our financial statements,” he said.

daniel.costello@latimes.com