Attorney Sentenced to 17 Years in Prison for Multi-Million Dollar Stock Fraud
A California attorney was sentenced to serve 17 years in prison today in the Southern District of Florida for operating a five-year, multi-million dollar market manipulation and fraud scheme, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.
Mitchell J. Stein, 53, of Hidden Hills, California, was convicted by a jury on May 20, 2013, of conspiracy to commit mail and wire fraud, three counts of wire fraud, three counts of securities fraud, three counts of money laundering, and one count of conspiracy to obstruct justice. In addition to the prison sentence, U.S. District Judge Kenneth A. Marra of the Southern District of Florida ordered Stein to forfeit $5.3 million. Restitution will be determined at a later date.
“Lawyers for companies are supposed to guide their clients through the important reporting and regulatory requirements that ensure the integrity of our financial markets,” said Assistant Attorney General Caldwell. “Stein abdicated his responsibility, and instead abused his position of trust to defraud a public company, its shareholders, and the investing public of millions of dollars.”
“The ‘pump and dump’ scheme orchestrated by Stein and his co-conspirators was extremely elaborate,” said U.S. Attorney Ferrer. “In an effort to conceal his fraudulent financial scheme, Stein falsely testified before the SEC and used his position of trust to arrange for others to do the same. The sentencing announced today underscores the department's commitment to hold liable those individuals who profit from manipulating the financial markets and violating securities and other laws that are intended to protect investors and markets.”
According to evidence presented at trial, Stein’s wife held a controlling majority interest in Signalife Inc., a publicly-traded company currently known as Heart Tronics that purportedly sold electronic heart monitoring devices. While acting as Signalife’s outside legal counsel, Stein engaged in a scheme to artificially inflate the price of Signalife stock by creating the false impression of sales activity at the company. Specifically, the evidence at trial showed that Stein and his co-conspirators created fake purchase orders and related documents from fictitious customers, then caused Signalife to issue press releases and file documents with the Securities and Exchange Commission (SEC) trumpeting these fictitious sales. Evidence at trial also proved that in a further effort to create the false appearance of sales activity, Stein arranged to have Signalife products shipped to and temporarily stored with an individual who had not purchased any products.
Evidence at trial further proved that Stein disguised his selling of Signalife stock at artificially inflated prices by placing shares in purportedly blind trusts, and having a co-conspirator sell the shares after Stein caused the false sales information to be disseminated to the public. Stein also caused Signalife to issue shares to third parties so that those third parties could sell the shares and remit the proceeds to Stein. From one co-conspirator alone, Stein received illicit gains of over $1.8 million from those sales.
In addition, evidence at trial proved that Stein conspired to obstruct the SEC investigation into Heart Tronics by testifying falsely and arranging for others to testify falsely in an effort to conceal the fraud scheme.
This case was investigated by the U.S. Postal Inspection Service, with assistance from the Office of the Special Inspector General for the Troubled Asset Relief Program. The SEC referred this matter to the Justice Department, conducted a parallel investigation resulting in a civil enforcement action against Stein and others, and provided substantial assistance in this investigation. The Financial Industry Regulatory Authority’s Criminal Prosecution Assistance Group likewise provided substantial assistance in this matter.
This case was prosecuted by Assistant Chief Albert B. Stieglitz Jr., Assistant Chief Kevin B. Muhlendorf, and Trial Attorney Andrew H. Warren of the Criminal Division’s Fraud Section and Assistant Chief Darrin McCullough of the Criminal Division’s Asset Forfeiture and Money Laundering Section.