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Mitchell Stein, Mass Joinder Lawyer, Charged by SEC in Heart Tronics Scheme Along With Wife

The Securities and Exchange Commission today charged a purported heart monitoring device company and six individuals involved in a series of fraudulent schemes to artificially inflate the company’s stock. Among those charged are a former pro football player, a Hollywood talent agent, and an attorney who masterminded the scheme.

The SEC alleges that Heart Tronics installed former pro football player Willie Gault as a figurehead co-CEO along with former Hollywood executive J. Rowland Perkins in order to generate publicity for the company and foster investor confidence. Meanwhile behind the scenes, California-based attorney Mitchell J. Stein was controlling most of the company’s business activities, hiring promoters to tout Heart Tronics stock on the Internet, and reaping nearly $8 million from secret trades that he orchestrated unbeknownst to investors.

According to the SEC’s complaint filed in federal court in Los Angeles, Gault and Perkins rarely questioned Stein’s fraudulent agenda and abdicated their fiduciary responsibilities under the Sarbanes-Oxley Act. Stein and Gault together defrauded one investor into making a substantial investment in Heart Tronics based on false representations that his money would fund the company’s operations. Instead, Stein and Gault diverted the investor’s proceeds for personal use, including the purchase of Heart Tronics stock in Gault’s personal brokerage account “Catch 83” to create the false appearance of volume and investor demand for the stock.

“Stein took advantage of Gault’s celebrity to further prop up the image of Heart Tronics as a successful enterprise,” said Stephen L. Cohen, Associate Director in the SEC’s Division of Enforcement. “Stein secretly sold millions of dollars in stock while peddling false claims of Heart Tronics’s lucrative sales orders, and has been living the high life off his illicit proceeds with multiple homes, exotic cars, and private jets.”

In addition to Heart Tronics, Stein, Gault and Perkins, the SEC charged three other individuals involved in the scheme, including Stein’s chauffer and handyman Martin B. Carter of Boca Raton, Fla., who carried out the fraud with him. The SEC also charged stock promoter Ryan A. Rauch of San Clemente, Calif., as well as Mark C. Nevdahl of Spokane, Wash., who was the trustee and stockbroker for a number of nominee accounts that Stein used to unlawfully sell Heart Tronics stock.

In a parallel criminal investigation, the U.S. Department of Justice today announced the arrest of Stein.

According to the SEC’s complaint, Heart Tronics was known as “Signalife” during most of the scheme’s time period from December 2005 to December 2008. Heart Tronics common stock was formerly listed on the American Stock Exchange but is now quoted on the OTC Link under the symbol HRTT.PK.

The SEC alleges that Heart Tronics fraudulently and repeatedly announced millions of dollars in sales orders for its product between 2006 and 2008 when, in fact, the company never had viable sales orders from actual customers. Stein and Carter fabricated numerous documents to support the false disclosures to the public, going so far as to have Carter make a one-day round-trip to Japan at Stein’s direction to mail back a letter from a fictitious customer in order to deceive management, disclosure counsel, and auditors. They also arranged to ship products to one of Carter’s friends to create the illusion that the company was delivering a heart monitoring device to a bona fide customer. Stein also profited by causing Heart Tronics to unlawfully pay Carter approximately $2 million in cash and Heart Tronics stock in a sham consulting agreement, and Carter paid nearly all of the proceeds back to Stein in the form of a kickback.

The SEC alleges that Stein hired Rauch to solicit numerous investment advisers, retail and institutional brokers, and other investors to buy Heart Tronics stock. Rauch failed to disclose that he was being paid by Heart Tronics in exchange for promoting company stock to investors. While Stein was orchestrating his campaign of misinformation and other schemes designed to inflate Heart Tronics’ stock price, his wife as the company’s majority shareholder directed the sale of more than $5.8 million worth of Heart Tronics stock while failing to disclose the sales as required under federal securities laws.

According to the SEC’s complaint, Stein enlisted Nevdahl to act as trustee for a number of purportedly blind trusts to create the façade that the shares were under the control of an independent trustee. The trusts were blind in name only, and Nevdahl met Stein and his wife’s regular demands for cash by continually selling Heart Tronics stock though the trusts.

The SEC’s complaint charges the defendants with various violations of the federal securities laws and seeks disgorgement of ill-gotten gains with prejudgment interest financial penalties and permanent injunctive relief. The SEC seeks permanent officer-and-director bars and penny stock bars against Stein, Gault, and Perkins as well as a permanent penny stock bar against Carter and Rauch. The SEC’s complaint also seeks the return of ill-gotten gains from nine relief defendants including Stein’s wife Tracey Hampton-Stein and her company ARC Finance Group LLC, which is the majority shareholder of Heart Tronics.

The SEC’s investigation was conducted by Adam Eisner and Rachel Nonaka under the supervision of Charles Cain. The SEC’s litigation will be headed by Mark Lanpher. The SEC acknowledges the assistance of the U.S. Department of Justice’s Fraud Section and the U.S. Postal Inspection Service.

The name Tracey Hampton-Stein is also a party to the mass joinder complaint Stein filed against Bank of America and is believed to be his wife.

According to the extensive SEC complaint filed, Stein held himself out as Heart Tronics’ outside counsel and claimed not to be a Company officer or director; however, in practice, Stein was a de facto officer who controlled many of Heart Tronics’ business decisions and public disclosures. In that capacity, Stein orchestrated the repeated announcement of fictitious sales orders for Heart Tronics’ products in public filings with the Commission, press releases, and other public broadcasts, all designed to make it appear that Heart Tronics was more successful than it actually was. Stein also installed former professional football player Willie Gault (“Gault”) as a figurehead co-CEO along with former Hollywood executive J. Rowland Perkins (“Perkins”) in order to generate publicity for the company and foster investor confidence. Through this and other fraudulent schemes described below, Stein was able to obtain for himself millions of dollars in ill-gotten gains at the expense of public investors.

In 2002, Stein’s wife, relief defendant Tracey Hampton-Stein (“Hampton-Stein”), became the largest shareholder of Heart Tronics, owning approximately 85% of the Company’s common stock. She owned this stock through a holding company, relief defendant ARC Finance Group, LLC (“ARC Finance”). From at least December 2005 through September 2008, while Stein was orchestrating a campaign of misinformation designed to inflate the price of Heart Tronics stock, Stein and Hampton-Stein (collectively, “the Steins”) directed the sale of more than $5.8 million worth of Heart Tronics stock without disclosing it to the public as required by law. To conceal their purchases, the Steins used accounts in the name of purportedly blind trusts and other nominee entities, identified above as relief defendants. The Steins used the proceeds of the sales to fund their lavish lifestyle, which included multiple homes, exotic cars, and private jets.

To accomplish this, Stein enlisted defendant Mark Nevdahl (“Nevdahl”), a registered representative of a broker-dealer registered with the Commission (stock broker) to act as the trustee on the blind trust accounts. This created the façade that the Steins’ Heart Tronics stock was held by separate legal entities under the control of an independent trustee, when, in fact, the trusts were “blind” in name only. Nevdahl met the Steins’ regular demands for cash by continually selling Heart Tronics stock through the trusts. The blind trusts were further designed as part of a scheme to avoid the required regular public disclosures under the federal securities laws of ARC Finance’s sales.

Stein was also aided in his fraudulent schemes by, among others, defendant Martin Carter (“Carter”). For example, Stein and Carter fabricated documents designed to make it appear to Company officers that Heart Tronics had entered into viable sales orders for millions of dollars worth of Heart Tronics products when, in fact, it did not.

At the same time, Stein drafted false and misleading press releases and other public statements for the Company to announce sales orders, or directed other Company officers to draft public statements based on false and misleading information he provided.

In late 2008, Stein and Gault also defrauded an individual investor into making a substantial investment in Heart Tronics based on, among other things, materially false representations that the proceeds of the investment would be used for the Company’s operational expenses. Instead, Stein and Gault diverted the investor’s proceeds for their personal use, including the purchase of Heart Tronics stock on the open market to create the appearance of active trading volume and to inflate Heart Tronics’ stock price.

in the complaint filed by the SEC, Stein is described as: Mitchell Jay Stein (“Stein”) is a California attorney who has purportedly acted as outside counsel to Heart Tronics from approximately 2002 to the present. From at least December 2005 through December 2008, Stein effectively controlled Heart Tronics and its officers, but nominally was not an officer, director or shareholder of the Company. Stein is married to relief defendant Tracey Hampton-Stein. Stein is a United States citizen living in Hidden Hills, California.

Stein’s wife is described: Tracey Hampton-Stein (“Hampton-Stein”), the wife of Stein, is the sole managing member of ARC Finance Group LLC, Heart Tronics’ largest shareholder. Hampton-Stein is believed to be unemployed. Hampton-Stein is a United States citizen living in Hidden Hills, California. Hampton-Stein was unjustly enriched by receiving the proceeds of the unlawful sale of Heart Tronics stock.

You can read the full SEC complaint against Mitchell Stein here.

Mitchell Stein, Mass Joinder Lawyer, Charged by SEC in Heart Tronics Scheme Along With Wife
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Mel Content

    Just the tip of the iceberg, folks. Wait until they connect all the dots. If I told you what Mitch was involved in or who he was involved with, you’d think it was tin-foil hat day at the Trilateral Commission. However, someone helped Lance Poulsen and Rebecca Parrett convert billions from a privately owned ponzi scheme (National Century) into publicly tradeable shares of stock (e-Medsoft, etc.) Read an article at stocksleuth.com called History and Mystery by Chris Carey and Justin McLachlan. If you can sift through all the minutiae, the depth and scope of the crimes is ominous. It connects to fellas like Adnan Khashogi, Political money men( Sim Farar) and highly experienced networks of penny stock securities gypsies like Regis Possino, Amador  Pastrana, Martin Sumichrast, Sherman Mazur and so many others. The Mortgage scam was just what Mitch got into when the capital markets became unfriendly to penny stock movement.

    • skelatons in the closet

      Mitch has plent “xplain to do” as Ricki once said.  Mel Content is right Farr, Sumichrist, a Sumichrist buddy Ralhp Olson, Carrey provided a good overview at shareslueth a few years back.  Maybe Mitch will call Wendy Feldman for a little help in how to prepare for prison life because that’s where he’s headed. 

      • Mel Content

        Regis Possino runs Geneva Securities and Cohiba Partners, LLC. His right hand man at Cohiba is a guy named Colin Nix. Check out The ownership structure of ADS Media, Inc.  Premium Holdings, Inc. World Trust Investments and The Beverly National Trust.  CUSIP 636327 is what you’re looking for. Nix family trusts all over the place. If you know how this world operates, you know they are all connected by their shell corps. until someone gets their laundry machine started. Then they all trade private placement shares with each other to get in on the action and trade each others worthless shares from “blind” offshore trusts. (Offshore in this case, “offshore” can mean Toronto or Vancouver, Canada, too)…just ask Irving Kott. But make no mistake. Wilshire Blvd and the surrounding area is crawling with these guys. It’s kinda like  their securities version of World of Warcraft.

      • Mel Content

        Regis Possino runs Geneva Securities and Cohiba Partners, LLC. His right hand man at Cohiba is a guy named Colin Nix. Check out The ownership structure of ADS Media, Inc.  Premium Holdings, Inc. World Trust Investments and The Beverly National Trust.  CUSIP 636327 is what you’re looking for. Nix family trusts all over the place. If you know how this world operates, you know they are all connected by their shell corps. until someone gets their laundry machine started. Then they all trade private placement shares with each other to get in on the action and trade each others worthless shares from “blind” offshore trusts. (Offshore in this case, “offshore” can mean Toronto or Vancouver, Canada, too)…just ask Irving Kott. But make no mistake. Wilshire Blvd and the surrounding area is crawling with these guys. It’s kinda like  their securities version of World of Warcraft.

  • Mel Content

    Just the tip of the iceberg, folks. Wait until they connect all the dots. If I told you what Mitch was involved in or who he was involved with, you’d think it was tin-foil hat day at the Trilateral Commission. However, someone helped Lance Poulsen and Rebecca Parrett convert billions from a privately owned ponzi scheme (National Century) into publicly tradeable shares of stock (e-Medsoft, etc.) Read an article at stocksleuth.com called History and Mystery by Chris Carey and Justin McLachlan. If you can sift through all the minutiae, the depth and scope of the crimes is ominous. It connects to fellas like Adnan Khashogi, Political money men( Sim Farar) and highly experienced networks of penny stock securities gypsies like Regis Possino, Amador  Pastrana, Martin Sumichrast, Sherman Mazur and so many others. The Mortgage scam was just what Mitch got into when the capital markets became unfriendly to penny stock movement.

  • SteinStoleYourMoney

    Steve,

    You’ve done a great job at making the public aware. If half the people who feel for the mortgage scam would had just done an internet search past the first page with his name, then they would not be out of thousands of dollars. That money is gone. It was probably used to fuel Stein’s jet, buy his wife some weave, or to pay to fly Carter to Japan for a day to mail a letter so it could have a stamp from Japan on the envelope.

    • http://GetOutOfDebt.org Steve Rhode

      Thank you for the compliment.

      Some have been critical of me for my reporting on Stein. And I’ll admit it’s difficult along the way to compartmentalize background information I sometimes know and the moment at hand. It might appear I’m heavy handed when I know what’s coming.

      The SEC has worked for years on this case and the allegations made lay out a damning course of business actions where some of the hype and sell techniques could be applied to the mass joinder scheme we just lived through.

      I don’t know Stein from a hole in the ground but what seems to be clear is that he’s a smart guy that could have done more to help consumers rather than harm them as he’s been accused of on multiple fronts.

      • Dont Drop The Soap

        They are going to get Mitch Stein on bankruptcy fraud and the IRS will be coming for him and his fake Christian wife soon. What is his bankruptcy court going to say on January 10, 2010 in West Palm Beach! Chapter 7 or a dismissal of bankruptcy by the trustee before or after those bankrupty fraud charges?

        This cartoon character has been scamming people since the late 1990s. This isn’t new. Had the SEC looked into eMedsoft years ago, Mitch would had been showing Bernie the ropes of federal prison as they exchange tales how they hatched stock scams before Mitch planned to scam homeowners with that other crook, Philip Kramer, and Kenin Spivak.

        With Mitch being such a ladies man it’s going to be popcorn entertaining to see what women come forward with tales of Mitch’s past. That baby momma blog referenced stock manipulation before his arrest.

        Maybe, Mitch will realize how he should had gone to see his son after the kid attempted suicide as he rot away in prison.

        There was no way this phony was going to save anyone’s home. He was going to run off with the money to the Cayman Islands before his final destination.

        Con men don’t change only the victims’ names.

  • Mandelman

    Well, I have to say… that’s just off the charts hysterical! And here I’ve been waiting to find out whether Stein was part of the Kramer mass joinder fiasco financially. LMAO. Oh my God, I am cracking up over here. He said he was suing the banks but as it turns out he was robbing them! And I went to the same High School with him. It’s like finding out you went to HS with Chuck Keating. And his wife Tracy too? OMG.

    So, what’s the deal on his arrest by Justice? I think I’ll send him a subscription to American Banker. LOL

    Steve, did you write this? If so, wow… that’s a lot of work, and you did a great job.

    • Piggybankblog

      LMAO Martin!  ROTFL! (Rolling On The Floor Laughing)  at your comment!

    • OnHisWayToGetPoked

      I’ve actually been following some of the commenters for a while and can’t believe that some fell into Stein’s B.S. This shouldn’t be a major surprise. It’s been stories on the internet about him dating back to at least five years. There’s no room left for excuses of being screwed over by the biggest jackbutt in the room. Egos are the downfall of weak men. Yahoo alone has thread after thread about his stock scam.

  • Mel Content

     
    Ah, waiter, I’d like another dish of the revenge Tartare for the lawyer who thought he was the smartest guy in the room. Sadly, he was mitchtaken. Hee hee hee.

    Put it it on my bill.

  • Piggybankblog

    No way Steve!  None of this true!
    .
    eeeeeehhhhh…..just kidding.  (Wink)
    .
    I heard yesterday from one of my contacts that he was arrested, but I did not know the details until reading your article here and hearing from others who read the complaint.  Your version sounds consistent with what people told me who have read it.
    .
    I have been trying to contact Stein before I write mine.
    .

    My name is John Wright AND I AM FIGHTING BACK!

    • http://GetOutOfDebt.org Steve Rhode

      The complaint is linked on the bottom of the article. It’s full of specific details. A little light reading for a winter night.

      • Piggybankblog

        Thank
        you Steve.  I will definitely read it.

        .

        I also
        wanted to say that I thought you did a good job on this article today Steve. It
        seemed very balanced and fair from the articles that I have read about it in
        regards to the allegations.  You seem to
        have just told the story using the facts that were presented out there.  In fact, I am thinking of actually maybe just
        putting a link to your article from my blog, while I write more about my
        reaction and feelings to the latest developments about Stein’s arrest.  This seems more appropriate, since mine is
        more like a daily journal, but also because I am going to be trying very hard
        to not get all caught up in this story too much, since it does not have
        anything to do with my protest or my lawsuit. 
        As I announced in my blog not too long ago, I am trying to move away
        from the Brookstone vs. Stein fight. 
        This is because Stein is no longer my attorney on my BofA lawsuit.  Therefore, any blogs about him could sort of
        blur what my protest is about at this time. 
        For example, I want people to focus more on the allegations about Bank
        of Stealing My American Dream, instead the drama surrounding an attorney that
        no longer is on my lawsuit.     

        .

        With
        that being said, I am of course very sad to hear about the allegations about Mitchell
        J. Stein, but if true, I am even sadder if there are victims.  Certainly, these allegations are of a much
        more serious nature than the mailer allegations, but to be honest, I feel it is
        a little bit over my head.  At the end of
        the day, it has nothing to do with my BofA lawsuit, which is why I am guessing
        you will not probably hear to many comments from me on articles that you write
        about this issue.  However, I will be
        happy to always give you any information that I get from any potential Stein interview
        for my next blog if he calls me back.    

        .

        In
        closing, I thought you did a nice job Steve.

        .

        Respectfully,

        John
        Wright

        Piggybankblog.com

      • http://GetOutOfDebt.org Steve Rhode

        I’d love to take credit for the piece but it comes from the SEC press release and then taking portions from the actual complaint itself.

        It was a deadline rush job.

        If I get more time I’ll go back through the full complaint but I linked to it for people to read. Frankly, I have no fixation on Stein and I’ve got a ton of other stuff to work on.

        I’ve known about this effort by the SEC for quite some time and there are more issues in the wing that I can’t report on yet.

  • Heidi

    So much blame placed on CESI, but Careone doesn’t take any responsibility for there actions. No one has mentioned care one selling CESI accounts to Persels & Associates. If CESI wants to blow this lawsuit out of the courts, they should review those accounts transferred to Persels or find one of the many employees abandoning ship over at care one.

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