Former NFL Player Still Faces Pump-and-Dump Charges

Willie Gault has tried unsuccessfully to shake three SEC claims.

Nancy Crotti

A federal judge in California has dismissed former NFL wide receiver Willie Gault's motion for summary judgment in a civil case accusing Gault of violating U.S. securities laws.

Gault, a former U.S. Olympian, played for the Chicago Bears and Los Angeles Raiders, retiring from professional football in the early 1990s.

In October 2008, he became co-CEO of cardiac device maker Heart Tronics/Signalife, Inc. The Securities and Exchange Commission alleges that shortly thereafter, Gault participated in a scheme to artificially inflate the company's stock price and defraud an investor.

When the SEC first raised questions about Heart Tronics in 2011, it also accused California-based attorney Mitchell J. Stein of controlling most of the company's business activities "behind the scenes," hiring promoters to tout Heart Tronics stock on the Internet, and "reaping nearly $8 million from secret trades that he orchestrated unbeknownst to investors."

Stein, was recently sentenced by a Florida federal court to 17 years of jail time for his involvement in the scheme. The court ordered Stein to forfeit $5.3 million and pay restitution, according to a report by law360.com.

According to California-based federal judge James V. Selna, Heart Tronics never sold a single device and took on "massive debts," wrote in his motion to dismiss Gault's summary judgment request.

In late 2008, Heart Tronics gave five "convertible promissory notes" to investor Robert Kolinek, in exchange for loans to the company. As part of the deal, Heart Tronics gave Kolinek the right to convert the outstanding debt to Heart Tronics stock and gave him "warrants" buy more stock, according to the ruling.

The SEC also alleges that Gault tricked Kolinek into lending the company money and secretly diverted it for his personal use. Because the agency claims that the warrants constitute securities, it accused Gault of violating federal securities laws.

Gault claims that the SEC has erroneously described the loan as a "purchase and sale of securities" and filed in December 2014 for summary judgment on three of the agency's claims.

"Although Gault claims that warrants were 'merely incidental' to the loan transaction... the evidence proffered by Gault in support of this argument does not convince the Court to reach the same conclusion," Selna wrote in denying Gault's motion for summary judgment.

Nancy Crotti is a contributor to Qmed and MPMN.

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