SAN FRANCISCO – The conviction and sentencing of a Hidden Hills attorney who allegedly "masterminded" a multimillion-dollar market manipulation and fraud scheme that involved former pro-football player Willie James Gault was recently upheld by the 9th U.S. Circuit Court of Appeals.
The three-judge panel rejected attorney Mitchell Jay Stein’s arguments that the U.S. District Court for the Central District of California had abused its discretion when it denied a continuance pending further discovery and his motion for summary adjudication.
"Stein's criminal conviction conclusively established all of the facts the Securities Exchange Commission was required to prove with respect to the specified securities fraud claims," the appeals court said in its 20-page opinion handed down Oct. 11. "Accordingly, we affirm the district court's summary judgment. All pending motions are denied as moot."
U.S. Appeals Judge John Clifford Wallace wrote the opinion, and Judge Marsha Berzon and Judge Consuelo Callahan concurred.
Stein and Gault were among six individuals and heart monitoring device company Heart Tronics charged by the SEC in late 2011 in a series of allegedly fraudulent "pump and dump" schemes to artificially inflate the company's stock. Stein, referred to in a December 2011 SEC press release as the "attorney who masterminded the scheme," allegedly reaped nearly $8 million in secret Heart Tronic shares sales, according to the press release.
"Stein took advantage of Gault's celebrity to further prop up the image of Heart Tronics as a successful enterprise," Stephen Cohen, associate director in the SEC’s Division of Enforcement, was quoted in the press release as saying. "Stein secretly sold millions of dollars in stock while peddling false claims of Heart Tronics' lucrative sales orders, and has been living the high life off his illicit proceeds with multiple homes, exotic cars, and private jets.”
Stein initially entered a not guilty plea. The California Supreme Court suspended his law license in October 2013 following his conviction on mail, wire and securities fraud, money laundering and obstruction of justice charges.
The 9th U.S. Circuit Court of Appeals upheld his conviction before the district court, which handed down summary judgment on six of the SEC's claims after finding Stein's prior criminal conviction precluded a contest over allegations in the civil case.
Gault lost his own appeal in September before the same appeals court panel, which found the former Chicago Bears and Oakland Raiders player, despite his assertions otherwise, was "responsible for establishing and maintaining internal controls" at Heart Tronics.