SEC charges Heart Tronics Inc., formerly Signalife Inc., alleging “brazen series of frauds”

The Securities and Exchange Commission has brought fraud chargesagainst Heart Tronics Inc. (Pink Sheets: HRTT.PK), its co-chief executives and the husband of its majority shareholder, alleging that the company falsified sales, issued misleading press releases and committed numerous other violations.

The company, previously known as Signalife Inc. and Recom Management Systems Inc., was featured in a Sharesleuth investigation in 2008. That story presented evidence suggesting that Mitchell J. Stein, a California attorney, secretly controlled the company, and that it had engaged in market manipulation with the help of consultants who got millions of dollars in stock.
The SEC said in its complaint that Stein did indeed control the company, even though he was not listed as an officer or director. The agency also alleged that he used a collection of trusts to sell at least $5.8 million in stock owned by his wife, Tracey Hampton-Stein, without publicly disclosing those sales.
The company’s shares formerly traded on the American Stock Exchange.
Another of the defendants in the SEC case is Willie Gault, a former professional football player and Olympic gold medalist. Gault was co-chief executive of Heart Tronics, which purported to make heart-monitoring devices that could detect irregularities and help prevent heart attacks.
The Justice Department, meanwhile, announced that Stein was arrested at Los Angeles International Airport over the weekend in connection with what it described as a “multi-million dollar market manipulation fraud scheme.” Those charges include mail fraud, wire fraud, securities fraud, money laundering and conspiracy to obstruct justice.
The SEC’s complaint alleged that Stein and an associate, Martin B. Carter, engaged in an elaborate scheme to fool investors — and even the company’s executives — into believing that it had legitimate orders for millions of dollars worth of the heart monitoring devices.
Those schemes included creating fictitious companies, with fax numbers that went to Carter’s house, and even sending Carter to Japan to mail a letter from one of the companies so it would appear that the company was actually based in that country, as Stein had claimed.
The SEC also alleged that Stein caused the company to pay $600,000 in cash and $1.47 million in stock to Carter under a sham consulting contract. According to the complaint, Carter kicked back most of that cash and most of the proceeds from the sale of those shares to Stein.
Earlier this year, the California Attorney General’s office filed a complaint against Stein, allegeing that he and others participated in an unrelated scheme to deceive desperate homeowners into paying thousands of dollars each to join dubious class-action suits against mortgage lenders.
According to the complaint, the lawyers and telemarketers involved in the scheme led the homeowners to believe that the suits would halt foreclosures on their homes, reduce their loan balances, bring them financial settlements and possibly eliminate their mortgages entirely.

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