Gault, 51, also fraudulently diverted one investor’s money for his personal use, the SEC said.
Defendants in the case include Heart Tronics chief executive J. Rowland Perkins II, who was a founder of Creative Artists Agency (CAA), a powerful Hollywood talent firm. The two abdicated their legal responsibilities as executives, the SEC said.
Jared J. Scharf, a lawyer who represents Gault, Perkins and Heart Tronics, said in an interview that “nobody was misled.”
“Mr. Gault and Mr. Perkins have nothing in their hearts other than charity and saving lives,” Scharf said.
“They have not benefited,” he added.
Gault was a first-round draft pick for the Bears in 1983 who made the U.S. Olympic team but missed his shot at a track medal when the United States boycotted the 1980 games. He later took up bobsledding and went on to a career in television, including appearances on the White House drama “The West Wing,” according to entertainment industry database IMDb.com. He also played for the Los Angeles Raiders.
Behind the scenes, Heart Tronics was controlled by lawyer Mitchell J. Stein, who concocted phony revenue while reaping millions of dollars from the sale of company stock, the SEC said. Stein was assisted by an unlicensed electrician who also served as his handyman and chauffeur, the SEC said.
Stein was arrested Dec. 18 at Los Angeles International Airport and charged with several crimes related to the alleged stock manipulation, the Justice Department said. He could not be reached for comment, and an SEC spokesman said the agency did not know of any lawyer representing him.
Heart Tronics, once known as Signalife, purportedly marketed a heart-monitoring device called the Fidelity 100, but its business was largely an illusion, the SEC said.
For example, in 2007, the firm contracted to sell almost $2 million of the devices, but Heart Tronics never shipped the products and the customer canceled the order, the SEC said.
To preserve the illusion that the sale was on track involving a buyer in Tokyo, the SEC said, Stein had the chauffeur make a one-day trip to mail a letter back to the company from Japan.
In another bogus transaction, the company shipped about 15 of the devices to a fictional buyer called “IT Healthcare” in Ohio, the SEC said. The address was the home of a high school friend of the chauffeur, who ran a landscaping business and had agreed to store the shipment as a favor, the SEC said.
In May 2008, an executive at Heart Tronics wondered why a landscaper would want $3.8 million of medical equipment. The executive shared his concerns with Perkins and Stein, “but he was told to stop investigating and was accused by Stein of trying to damage the company,” the SEC said.
Although e-mails reveal that Perkins was skeptical when the company predicted that it would generate more than $40 million in revenue over five fiscal quarters, he went along with the company’s financial disclosures, the SEC said.
When questioned by the SEC, Perkins testified,“We didn’t know what to do. We figured doing nothing was the best way to handle it,” according to the SEC lawsuit.
“I mean, we didn’t want to put fuel on the fire,” Perkins testified, according to the suit.
In 2008, an investor put more than $150,000 into the company based on false statements by Stein and Gault, the SEC said. Although they had told the investor they would use the money for corporate expenses, Gault transferred almost all of it to a personal brokerage account and used it to trade Heart Tronics stock, the SEC said.