A jury in Florida has found Mitchell J. Stein guilty on all 14 counts related to a multimillion-dollar manipulation scheme involving shares of Heart Tronics Inc. (Pink Sheets: HRTT), formerly known as Signalife Inc.
Signalife was featured in a Sharesleuth investigation in 2008. That story presented evidence that Stein, a lawyer who split his time between Florida and California, secretly controlled the company. It also suggested that Stein and others had engaged in market manipulation with the help of consultants who got millions of dollars in stock.
Stein was arrested in December 2011 under an indictment charging him with securities fraud, mail fraud, money laundering, conspiracy to commit mail fraud and wire fraud, and conspiracy to obstruct justice.
The Securities and Exchange Commission also filed a civil case against Stein, the company and its co-chief executives, alleging that they falsified sales, issued misleading press releases and committed numerous other violations. That case is pending.
Prosecutors in the criminal case alleged that from mid-2005 to mid-2010, Stein and others perpetrated a scheme to defraud investors by:
–artificially inflating the price and demand for Signalife’s stock.
–concealing their ownership and trading of Signalife’s stock.
–misappropriating Signalife’s assets.
–testifying falsely to the SEC to conceal their conduct.
During part of that period, Signalife was known by yet another name, Recom Managed Systems Inc.
According to SEC filings, the company’s biggest shareholder was an entity called ARC Finance Group LLC. Those filings listed Stein’s wife, Tracey Hampton-Stein as the managing member.
Federal prosecutors alleged in their case against Mitchell Stein that he deposited millions of shares of Signalife stock owned by ARC Finance into a number of purportedly blind trusts. They said he secretly retained discretion over the trusts, however, and caused them to sell more than $5 million in stock.
Prosecutors also alleged that Stein and others falsified documents to create the appearance the Signalife had received bona fide orders for its main product, an external heart-monitoring device. Between 2006 and 2008, the company announced millions of dollars worth of sales that never materialized.
In addition, they said Stein and others misappropriated assets by causing Signalife to enter into sham agreements with consultants that were paid in cash or stock. According to the indictment, one person who performed no consulting services got $680,000 in cash and several million shares of stock.
That person then gave $1.5 million to Stein, an amount that represented most of the original cash payment, plus proceeds from the sale of stock.
Stein is scheduled to be sentenced in early August.