DISTRICT OF SOUTH CAROLINA GREENVILLE DIVISION ROBERT A ...securities.stanford.edu/filings-documents/1040/SGN_01/2009224_r01c_08... · 6:08-cv-02995-RBH Date Filed 02/24/09 Entry

6:08-cv-02995-RBH Date Filed 02/24/09 Entry Number 55 Page 1 of 67

UNITED STATES DISTRICT COURTDISTRICT OF SOUTH CAROLINA

GREENVILLE DIVISION

ROBERT A. LATHAM, Individually andon Behalf of All Others Similarly Situated,

Plaintiff, Case No. 08-ev-2995-RB14

V.

BILL MATTHEWS, PAMELA M.BUNES, ROBERT C. SCHERNE,KEVIN F. PICKARD, LOWELL T.HARMISON, MARVIN H. FINK,MITCHELL J. STEIN, BUDIMIR S.DRAKULIC, and SIGNALIFE, INC.

Defendants.

DARRYL K. ROTH, Individually and onBehalf of All Others Similarly Situated,

Plaintiff, Case No. 08-ev-3183-RBH

V.

BILL MATTHEWS, PAMELA M.BUNES, ROBERT C. SCHERNE,KEVIN F. PICKARD, LOWELL T.HARMISON, MARVIN H. FINK,MITCHELL J. STEIN, BUDIMIR S.DRAKULIC, and and SIGNALIFE, INC.

Defendants.

AMENDED CONSOLIDATED CLASS ACTION COMPLAINT


NATURE OF THE ACTION

1. Lead Plaintiffs Bryan D. Harris, Mark Taylor and Greg Taylor, collectively

the Taylor Signalife Investor Group ("Plaintiffs"), by their undersigned attorneys, bring

this action (the "Action") on behalf of themselves and all other similarly situated persons

or entities (the "Class," further defined infra) who purchased or otherwise acquired the

stock of Signalife, Inc., formerly known as Recom Managed Systems, Inc.

("Recom/Signalife" or the "Company"), from February 10, 2004 to April 14, 2008,

inclusive (the "Class Period") for violations of the federal securities laws. Plaintiffs seek to

recover damages caused to the Class by Defendants' false statements and failure to disclose

material facts about the Company in violation of §§10(b) and 20(a) of the Securities

Exchange Act of 1934, and SEC Rule 10b-5 promulgated thereunder.

2. The allegations made in this Consolidated Class Action Complaint are based

upon personal knowledge as to Plaintiffs and Plaintiffs' own acts, and upon information

and belief as to all other matters. Plaintiffs' information and belief is based on their

investigation (made by and through their attorneys), which investigation included, inter

alia, a review and analysis of: (1) public documents pertaining to Recom/Signalife and the

Individual Defendants, as defined herein; (2) filings by Recom/Signalife with the Securities

and Exchange Commission ("SEC"); (3) press releases published by Recom/ Signalife;

(4) analyst reports concerning Recom/Signalife; pleadings in other litigations where

Recom/Signalife is a party; (5) media coverage such as newspaper and magazine articles

and web logs regarding Recom/Signalife and the Individual Defendants; and (6) interviews

with persons with firsthand knowledge regarding the Company and the Individual

Defendants. Plaintiffs believe that substantial evidentiary support will exist for the

allegations set forth herein after a reasonable opportunity for discovery.

1


INTRODUCTION

3. Recom Managed Systems, Inc. was formed in 2002 for the purported purpose

of developing a heart-monitoring system based on a new technology (in mid-2005, Recom

Managed Systems, Inc. changed its name to Signalife, Inc.).' During the Class Period,

Recom/Signalife represented to investors that it was succeeding with development,

marketing and sale of a "revolutionary" heart monitor (called the "Model 100 Heart

Monitor"), in addition to other products. According to the Company, the Recom/Signalife

Model 100 utilized proprietary, patented "amplification" technology to collect

physiological data for electrocardiogram ("ECG'') tests. Combined with "Bluetooth"

technology, the Model 100 purportedly allowed a patient's heart to be continuously

monitored in a variety of clinical settings (such as hospitals, sports medicine clinics,

laboratories, etc.) over a period of 24 to 48 hours. Through Bluetooth cormectivity, the

Model 100 was touted to be able to transmit the physiological data to a personal computer

for analysis and storage. Although Recom/Signalife also maintained it was developing

other products based on the Model 100 that Defendants continually and misleadingly

asserted were on the precipice of being market-ready, the only product that

Recom/Signalife claimed to have successfully brought to market during the Class Period

was what they called the Fidelity 100, an integrated heart-monitoring system based on the

Model 100 technology. Recorn/Signalife was therefore a single-product Company.

4. Contrary to the statements made by Defendants throughout the Class Period,

however, Recom/Signalife never produced a fully-functional, saleable product and never

made sales that produced revenue for the Company. Defendant Lowell Harmison

("Harmison" ), who was at the time and remains CEO of the Company, admitted this fraud

' On November 10, 2008, the Company announced that it was changing its corporatename to HeartTronics, Inc.

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at the Company when he told Confidential Witness 42 ("CW#2") 2 after the end of the Class

Period that millions of dollars in sales orders reported by Recom/Signalife in press releases

and SEC filings did not exist. Although he was CEO of the Company, Harmison further

claimed that he somehow had not known about the press releases announcing the sales

during the Class Period or been responsible for issuance of the releases. Indeed,

Recom/Signalife was not actually controlled during the Class Period by the CEOs and

other executives who signed SEC filings and purported to run the Company. Instead, and

undisclosed to investors, the Company was controlled by a Los Angeles-based financier,

Defendant Mitchell J. Stein ("Stein"). According to former employees, a member of the

Board of Directors and a significant investor, Stein actively participated in controlling and

managing the Company, including without any meaningful oversight by, or accountability

to, Recom/Signalife's named executives.

S. Stein did not operate Reconi/Signalife for the purpose of developing and

selling products based on the Model 100 technology. Instead, Stein and a cadre of cohorts

used the Company as a vehicle for stock manipulation. Without being reported in SEC

filings, Stein is alleged to have traded heavily in Reconi/Signalife stock for the purpose of

manipulating the share price, including by "shorting" 3 the stock after pumping up the share

price by causing the Company to release false positive statements. In doing so, Stein

would profite in two ways. First, he profited as the stock rose as a result of coordinated,

2 The Confidential Witnesses are described with particularity herein under heading"Confidential Witnesses," below.

3 Investors who "short" stock profit when the price of the stock they are shortinggoes down. An investor "shorts" stock by borrowing shares from another party based on aparty to return the shares at some point in the future. The investor then sells the borrowedshares hoping the stock price will fall before the date on which the investor will be forcedto repurchase shares equal to the number borrowed. If the price has gone down, theinvestor profits from the difference between the price at which he originally sold the sharesand the lower price at which he repurchased.

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manipulative trading or the release of false positive information. Then, once the market

had digested false positive information, Stein would capitalize on the eventual decline in

the share price that necessarily follows false-positive statements by taking "short"

positions. The scheme combines the elements of a classic "pump-and-dump" scheme with

a short-selling strategy.

6. Post-Class Period revelations confirm that Recorr/Signalife never had any

products to sell, did not make any sales that produced any revenue and was little more than

a stock manipulation scheme, perpetrated by Stein, including by and through a succession

of Recom/Signalife executive officers. Based on Defendants' affirmative false statements

and failures to disclose, Reconi/Signalife-reached a Class Period high share price of $8.20

before dropping to below just $.75 in January 2008. But before the true state of

Reconn/Signalife became fully known to investors, Defendants pumped Recom/Signalife

stock back up by 45% to $1.34. After rebounding, the stock lost every penny of gain and

was again trading at $.75 on April 17, 2008, three days after the close of the Class Period

when the stock suffered a one-day 13% drop on unprecedented volume. On September 15,

2008, Recom/Signalife was de-listed and now trades as a penny stock on the Over-The-

Counter Bulletin Board, commonly referred to as the "Pink Sheets."

BACKGROUND AND SUMMARY

7. Recom/Signalife falsely represented to investors throughout 2004-2005 that

the Company was making progress toward production of a saleable heart monitoring

system based on the Model 100. In December 2004, the Company issued a release

claiming that "we have not only completed a fully functional and compliant Model 100

device, but have done so ahead of schedule, within budget and in alignment with the

FDA's Quality System Regulations." In May 2005, the Company asserted that the "pre-

production version" of the Model 100 system "satisfies all performance, safety,

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enviromnental and regulatory standards" and that "user-preference perfotiliance

comparison tests relative to top-end ECG systems" were underway "in anticipation of our

planned introduction of the Model 100 Monitor System to market."

8. Despite the Company's repeated claims that the "revolutionary" heart monitor

system was on the verge of being ready for manufacture and sale, no product was

forthcoming. Finally, on March 26, 2006, Recom/Signalife announced the imminent "roll

out" of its Fidelity 100 heart monitor and the execution of a sales and marketing agreement

with Rubbermaid Medical Solutions ("Rubbermaid"), a unit of the international

Rubbermaid, Inc. conglomerate. The Rubbermaid agreement provided for Rubbermaid to

pay Recom/Signalife $2 million up front for exclusive sales rights to the Fidelity 100 and

would guarantee Recom/Signalife had a significant and credible marketing partner with a

proven research and customer base. On announcement of the Rubbermaid agreement,

Reconi/Signalife stock increased 15% over the trading price just one week earlier. By

October 2006, Recom/Signalife reported to investors that the company had "recorded our

first revenues from product sales" of the Fidelity 100. At the same time, the Company also

announced that it would "complete final product modification activities" on its second

product based on the Model 100, the "Holter Monitor" (later branded the Fidelity 300) and

"introduce the final Signalife Holter Monitor to the market by the end of fiscal 2006." Just

weeks later, in the Company's 3Q06 Form 10-QSB filed with the SEC in November 2006,

Recom/Signalife indicated that it would "complete final product modification activities and

introduce the final Signalife Holter Monitor to market by the end of [1Q07]."

9. By January 2007, however, the Rubbermaid agreement had been terminated.

On January 24, 2007, Rubbermaid sued Recom/Signalife because, according to

Rubbermaid, Recom/Signalife had made "critical misrepresentations to Rubbermaid .. .

about the timing and state of its product development" and "the Fidelity 100 units have not

5


performed satisfactorily in any arm's length, objective trials." See Rubbermaid

Incorporated's Complaint Against Signalife, Inc., Docket Entry #1, Rubbermaid, Inc. v.

Signalife, Inc., Case No. 3:07-cv-00033-R.IC-DCK (W.D.N.C.). Based on

Recom/Signalife's refusal to provide any information about "alleged `sales' to certain

`customers` reported to investors in SEC filings as early as October 2006, Rubbermaid

further alleged that no such sales had occurred. Id. In disclosing the Rubbermaid litigation

to investors, however, Recom/Signalife reassured investors by stating that "Rubbermaid's

principal factual allegation is that Signalife failed to meet projections that the company

would independently sell 300 Fidelity 100 units in 2006" and that, contrary to

Rubbermaid's allegations that the Fidelity 100 was not commercially ready for sale,

"Signalife has been actively selling the [Fidelity 1001 through its in-house sales staff"

Defendants further assured investors by stating that it was Rubbermaid that had failed to

perform its sales obligations under the contract.

10. Following the Rubbennaid debacle, the Company issued a steady stream of

statements about its purportedly successful sales efforts throughout 2Q-4Q07 in order to

pump the price of Reconz/Signalife stock back up. First, in April 2007, Recom/Signalife

reinforced its prior claims to have made sales by reporting its first revenue from product

sales and gross profits in its SEC Form 10-KSB filing. Then, in May 2007,

Recom/Signalife issued a release entitled "Signalife Begins Penetration of Foreign

Markets," stating that the "physicians outside the United States . . . have ordered the

product" and that the Company "anticipate[s] great success in Mexico and the rest of Latin

America as we continue our sales effort in those markets." When Recom/Signalife

continued to flounder and Defendants were faced with de-listing from the American Stock

Exchange ("AMEX"), the Company became even more aggressive in its efforts to

artificially inflate the Company's stock price and investor interest. On August 31, 2007,

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Recom/Signalife issued a "Corporate Update" in which President and interim CEO

Defendant Lowell T. Harmison ("Harmison"} stated that "our sales funnel utilizing

marquee hospitals known to the Company and its Board [was] proceeding ahead of

schedule" and that "I anticipate our market penetration strategy over the next five quarters

will proceed more quickly than I had conservatively anticipated." In October 2007,

Recom/Signalife affirmatively represented that the Company was snaking sales and

actively producing revenue, stating in a release entitled "Signalife Continues to Procure

Purchase Orders, Revenues" that:

Signalife has received additional sales orders in excess of one half milliondollars ($551,500 to be exact), during CEO Lowell Harmison's most recentcross-country sales initiative. These purchase orders are currentlyresulting in revenues to the company.

Cumulatively, Defendants' false positive pronouncements had their intended effect as

Recom/Signalife stock rebounded from as low as $.65 to reach as high as $2.16 in early

October.

11. The Company's subsequent November 14, 2007 Form 10-QSB filing with the

SEC for 3Q07 detailed millions of dollars in recent sales and lease agreements for Fidelity

100 units and stated that "the orders should be fully filled by the end of the first quarter of

fiscal year 2008." Despite the claim that the purchase orders were "currently resulting in

revenues to the company," Recom/Signalife did not book any revenues from the sales over

3Q-4Q07. On this partial revelation of the fact that Recom/Signalife's reported results did

not appear to reflect the Company's prior statements, Recom/Signalife stock dropped back

to trade as low as $.75.

12. By January 2008, AMEX again warned Recom/Signalife that the Company's

stock would be delisted if the Company did not increase shareholders' equity to meet

4 Unless otherwise noted, all emphasis is added.7


minimum listing requirements. With Reconn/Signalife again in danger of going under,

Defendants embarked on another round of issuing false positive statements to increase the

Company's share price, beginning in earnest, again, with another "Corporate Update" in

which Defendants extolled the virtues of three products in addition to the Fidelity 100.

According to the February 26, 2008 release, mini-Holter aid Intra-Cardiae monitors had

been "developed" and the Fidelity 200, the Company's HealtTempo Card monitor, was in

the "pre-launch phase." Defendants claimed the Fidelity 400 Intra-Cardiac Monitor had

also been "developed" and was "in final performance evaluation and testing and . . .

expected to be submitted to the FDA later this year." Recom/Signalife did not mention the

Fidelity 300 Hotter Monitor that the Company had said in its 3QO7 Form IO-QSB would

be "introduced to the market by the end of fiscal 2007" along with the Fidelity 200

HeartTempo Card Monitor, but did announce that it had barely drawn on its $100 million

line of credit with "the Yorkville group of companies." The release also quoted Harmison

as claiming that Recom/Signalife was in the process of manufacturing the Fidelity 100,

would imininently be delivering shipments on prior product orders and was continuing to

expand its sales to international markets. The release stated:

Not only have we begun manufacturing and delivery schedules forexisting orders, but the Company has vigorously pursued and establishedproduct demand in Singapore, China, Indonesia, Western Europe,Eastern Europe, Korea and the United Kingdom. " The Company believesthat the worldwide markets are "explosive" (in the words of Dr. Harmison)and that this will be demonstrated in "the short, medium and long term."

13. Also in February, according to a lawsuit filed in June 2008 (after the end of

the Class Period), a fictitious entity named "Triple Play Stock Alert" began sending

unsolicited faxes for the sole purpose of seeking investments in Recom/Signalife stock.

See First Amended Class Action Complaint, Docket Entry 914, Peter Strojnik, P.C. V.

Signalife, Inc. et al., Case No. 2:08-cv-1116 (D. Ariz.). Plaintiffs in that case allege that

8


the unsolicited faxes were sent by a Pennsylvania entity for the purpose of manipulating

Recorn/Signalife stock, and that Recom/Signalife insiders were aware that the unsolicited

faxes were sent for that purpose.

14. On March 17, 2008, Recorn/Signalife issued another false positive press

release announcing that the Company had "received several formal purchase and

financial commitments" from both domestic and international customers. The release

quoted Harmison as stating that he "anticipate[d] closing these transactions in the

upcoming two to four weeks" and that "there are now numerous additional revenue streams

that have naturally become available to the Company."

15. Just one week later, Recon-r/Signalife issued another release. Under the title

"Signalife Wins More Business; Actively Shipping Orders," the Company stated that

"Signalife, Inc. has announced that it has been and continues to ship orders under what

Dr. Harmison calls an èfficient production line at its manufacturing facility."' The

Company further announced an additional $7.5 million in Fidelity 100 orders to be filled

over 2Q-3Q08, if not sooner. Harmison also confirmed Recorn/Signalife's production

capacity, stating in the release that he was "very comfortable with our production line

capabilities in terms of their immediate capacity," which "will be expanded to meet

growing demand." By March 28, 2008, Recor-ri/Signalife stock had rebounded to $1.15, a

35% increase over the share price when the unsolicited faxes seeking Recom/Signalife

investors were sent in February and the Company began again issuing false-positive

statements.

lb. Despite expressly stating that it had been shipping orders only days earlier,

RecomlSignalife did disclos in its April 3, 2008 Form 10-KSB filing that "[i]nitial

shipments of products under" the millions of dollars of purported orders placed during 3Q-

4Q07 "were delayed until the first quarter of 2008" because a laptop computer used as part

9


of the Fidelity 100 had been discontinued and the Company's contract manufacturer was

experiencing delays in setting up its manufacturing production lines. The announced

impediments directly contradicted not only previous Recom/Signalife statements about its

ongoing shipment and production of the Fidelity 100, but Recom/Signalife had also stated

in prior SEC filings that producing the Fidelity 100 was an uncomplicated manufacturing

process. For example, the Company stated in a December 6, 2007 Registration Statement

filed with the SEC that:

Most of the components of our products are standard parts which areavailable from multiple supply sources at competitive prices. This, coupledwith the lack of significant start-up costs attributable to the use ofcontractors, should minimize production and product costs.

17. On April 14, 2008, the last day of the Class Period, Recom/Signalife CEO

Lowell Harmison conducted an hour-long webeast. Harn-ison did not provide any

information about the status of the purported multi-million dollar 2007 purchase orders, the

multi-million dollar 1Q08 orders referred to in press releases, current sales efforts or the

accomplishments of a third-party sales organization (The Silve Group) that

Recom/Signalife had contracted with to replace Rubbermaid following the collapse of the

Rubbermaid sales and marketing agreement. Indeed, what was becoming apparent to

investors at the end of the Class Period was that there were no saleable products, no actual

sales, no manufacturing capacity, no sales plan and no explanation for millions of dollars

of sales that had evaporated. As a result, Recon-i/Signalife stock dropped 13% on

unprecedented volume.

18. CW#2 confronted Harmison following the webcast about the status of the

alleged sales previously reported by the Company, and Hannison stated to CW42 that he

had not discussed the orders because they did not exist. Moreover, Harmison claimed

ignorance about the press releases announcing the sales and asserted that he somehow had

not been responsible for their issuance. Events following the end of the Class Period10


confirm that Recom/Signalife was a long-running fraud. In total, Recom/Signalife has

reported zero revenue from sales of the Fidelity 100 during either fiscal year 2007 or the

first nine months of 2008 despite announcing millions of dollars in purported orders during

that time and even recording roughly $140,000 in revenue from alleged sales of the device

in 4Q06. Additionally, the various products, including the Fidelity 300 Holter Monitor and

Fidelity 200 HeartTempo Card, that were purportedly "developed" and/or would

imminently be ready for market are still not saleable products. Instead, according to

Recom/Signalife's latest SEC filing (occurring after the Class Period on November 14,

2008), the Company's "overall plan of operation for the twelve-month period going

forward commencing as of October 1, 2008" includes an effort to "ramp-up domestic and

international commercial marketing and sales efforts with respect to our Fidelity 100

Monitor System," "finalize development" of the Fidelity 200 HeartTempo Card device and

Fidelity 300 Hotter Monitor, and "continue product development" of the Fidelity 1000 and

400. According to the Company, it will need to raise $12 million to execute its business

strategy and, worse, the state of Recoin/Signalife's "circumstances raise substantial doubt

about" the Company's "ability to continue as a going concern in the event" that it is

"unable to raise the additional capital."

19. The Individual Defendants' and Reconx/Signalife's myriad falsehoods about

the Company's products and sales mirror their misrepresentations about the Company.

Most importantly, Stein actively participated in controlling and managing Recom/Signalife

during the Class Period, as he has since the inception of the Company in its current form.

In a sworn deposition given in the summer of 2004 in connection with a compensation

dispute,' fonner Recom/Signalife President and Board member Steven O. Sparks

("Sparks") explained in detail that Recom/Signalife was Stein's company, Stein controlled

5 Recom Managed Systems, Inc. v. Steven O. Sparks, Case No. SC-038642 (VenturaCo. Superior Court).

11


RecomlSignalife, and Stein was engaged in an ongoing campaign to manipulate the share

price. Sparks expressly stated that "Stein is Recom, alter ego," that "Stein made all the

decisions" and that "lie runs the entire company, that's obvious." Confidential Witness

#1 (CW#1), who Stein personally hired to work for RecomlSignalife as an independent

contractor during the Class Period, and CW#2, a significant investor in the Company

during the Class Period, also confirmed that Stein runs Recoin/Signalife. Additional

former employees who would have come forward to confirm Stein's control over

RecomlSignalife, Stein's active trading in and shorting of Recom/Signalife stock and the

Company's lack of salable products have declined to be identified even as confidential

witnesses in this Complaint because they fear for the safety of their property and person.

20. Having been formed as Mt. Olympus Enterprises, Inc. in 1976,

Recon-L/Signalife emerged from bankruptcy as an empty shell in 2001 with the help of a

cash infusion provided by financier Sim Farar — a close Stein associate — and acquired the

technology for the Model 100 from ARC Finance Group LLC ("ARC Finance") on

September 19, 2002 in exchange for 84.5% of the Company's stock. Tracy Hampton

("Hampton"), Stein's wife, had formed ARC Finance as a Delaware limited liability

company only four months earlier for the apparently sole purpose of acquiring the Model

100 technology developed by Defendant Dr. Budimir S. Drakulie ("Drakulic"), who has

been at all relevant times either Recom/Signalife's Chief Technology Officer, Chief

Scientist or the head of research and development at the Company. As former

Recom/Signalife President Sparks explained in his earlier-referenced deposition testimony,

that ARC Finance was actually Stein, not Hampton.

21. According to Sparks' sworn testimony, RecomlSignalife was the last in a

series of projects on which Sparks had worked with Stein over a multi-year period. Sparks

testified that his first involvement with Recom/Signalife was when Stein approached him

12


saying that "he had a great new project." According to Sparks, Stein controlled all aspects

of Recom/Signalife, including: dictating who served on the Board of Directors; authoring

and/or revising as a regular practice Recom/Signalife press releases, corporate documents

and SEC filings; directing corporate decision-making; and deterinining compensation and

corporate hiring decisions. Fortner Recom/Signalife employees and investors during the

Class Period confirmed that Stein never relinquished control of the Company to the

successive CEOs that he hired to be the titular heads of Recorn/Signalife. CW#1 explained

unequivocally that "[n]othing happens at Signalife without Stein's okay." Stein also

admitted in a deposition that he had personally negotiated the Rubbermaid sales and

marketing agreement a $2 million agreement that provided the bulk of the verifiable

revenue generated by Recorn/Signalife during its corporate existence.

22. According to Sparks' testimony, Stein also dictated that stock be awarded to

persons or entities who performed no services for Recom/Signalife, but who Sparks and

others, including Raul Silvestre ("Silvestre"), a California attorney who briefly served as

Secretary and Treasurer of Recom/Signalife and acted as securities counsel for a period of

years, believed were manipulating the share price of the Company's stock. Sparks further

testified that he and Silvestre also believed that Stein was selling hundreds of thousands of

shares of Recom/Signalife and actively trading in the stock for the purposes of

manipulating the share price. CW#1 also stated that Stein was "shorting" Recom/Signalife

stock. CW#2 stated that "blind trusts" created by ARC Finance were in reality vehicles for

Stein to trade heavily in Recom/Signalife stock, and that Stein farther used the blind trusts

to cover his short positions in the Company's stock.

23. Despite his control and influence over Recorn/Signalife, there are only three

passing references to Stein in Recom/Signalife SEC filings, and those references to Stein

occur in the context of vague disclosures regarding sales of stock and warrants to Stein by

13


the Company. Stein also claimed to CW#2 that he was the General Counsel of

Recom/Signalife. Recorn/Signalife has never disclosed Stein's control over the Company,

and the Sparks deposition transcript was not posted on the internet or otherwise readily

available during the Class Period. To the extent the deposition became public, it was when

it was cited in a July 2008 investigation focused on a cast of financiers and securities

dealers who were directly or indirectly involved in frauds at a series of small public

companies, including Recom/Signalife.

24. The July 2008 investigation revealed that Reconn/Signalife has a corporate

history populated by individuals tied to numerous fraudulent activities. Previously, Stein

controlled a limited liability company that was the largest shareholder of eMedosft, Inc., a

public company that later changed its name to Med Diversified, Inc. ("cMedsoft/Med

Diversified") and also served as a director of eMedsoft/Med Diversified. eMedsoft/Med

Diversified declared bankruptcy when its largest lender, National Century Financial

Industries, Inc., was revealed to be a fraud. As part of the fiasco, the CEO of

eMedsoft/Med Diversified pleaded guilty to criminal activities. According to Sparks, Stein

sold millions of shares of eMedsoft/Med Diversified stock based on non-public information

while actively recruiting new investors in the Company. Sparks also related his experience

with Stein with regard to a technology called "Pixbox" that was substantially similar to the

truth about Recom/Signalife — Stein touted a revolutionary new technology to Sparks and

asked Sparks to recruit investors, but the product never actually existed and was unsalable.

25. The July 2008 investigation further revealed additional undisclosed histories

and associations. For example, undisclosed to investors, Drakulic was liable for a more

than $800,000 judgment arising out of a civil suit for fraud at the time he joined

Recorn/Signalife in October 2002.

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26. Recom/Signalife was involved with Martin Surnichrast ("Sumichrast"), and

Ralph Olson ("Olson") through a March 2003 consulting agreement with Crown Reef

Holdings, a consulting firm headed by Sumichrast and Olson. Unknown to investors until

anecdotes of Sparks' deposition were made public as part of the July 2008 investigation,

neither Surnichrast nor Olson provided any services to Recom/Signalife in exchange for the

warrant they were awarded to buy 900,000 shares at $.50 (split-adjusted). According to

Sparks, Olson traded heavily in Recom/Signalife stock through various entities, including

another joint-Surnichrast and Olson entity, Lomond International, Inc., which Sparks

testified was also involved in eMedsoft/Med Diversified.

27. As further revealed in July 2008, Surnichrast and Olson have numerous ties to

companies at which principal investors and officers have either been convicted of or

charged with fraud as well as individuals who have themselves been charged with fraud.

For example, Sumichrast was a member of the board of directors of Al Internet.com , Inc.

The second-largest shareholder of Al Internet.com , hie. was convicted of fraud and three

other individuals, including the CEO, were convicted or pleaded guilty in a separate fraud

case involving sale of Al Internet.com , Inc. stock. Sumichrast and Olson were also

investors and major shareholders of American Corp. with Thomas T. Prousalis, Jr.

("Prousalis"). Prousalis was subsequently indicted for fraud in a scheme that also included

the President of Barron Chase Securities, Inc., who went to prison for his role. Barron

Chase Securities, Inc. had underwritten previous stock offerings involving Sumichrast,

including the attempted public offering of e-Net, Inc., which Sumichrast had helped to

finance. Regulators refused to allow the e-Net, Inc. public offering because Surnichrast

and other financiers were to be repaid $7 million for a $1 million "bridge" loan in less than

one year and the offering was underwritten by Stratton Oakmont, Inc., the principals of

which would later go to prison for, inter alia, manipulating share prices in public offerings.

15


Sumichrast and Olson also have extensive financial dealings through both Lomond

International, Inc. and Crown Reef Holdings with Si gn Farar (who provided the cash

infusion necessary to take Recom/Signalife out of bankruptcy in 2001), including in House

of Taylor Jewelry, Inc., a Nasdaq-traded company formed in May 2005 whose stock

collapsed from a high of $7.50 just six months after formation to less than a penny by July

2008. According to Sparks' deposition testimony, Farar and Stein were also involved in

numerous other business arrangements.

28. Unknown to investors watil the truth about Recorr /Signalife's lack of products

and sales finally became apparent in April 2008, the Company was, from at least

January 29, 2004, little more than a stock manipulation scheme. Investors who traded in

Recoir /Signalife stock on the basis of the public statements made by the Individual

Defendants and Recom/Signalife were unknowing victims of a major fraud.

JURISDICTION AND VENUE

29. Jurisdiction is conferred by §27 of the Securities Exchange Act of 1934 (the

"Exchange Act"). The claims asserted herein arise under §§10(b) and 20(a) of the

Exchange Act and Rule IOb-5. This Court has jurisdiction over the subject matter of this

action under 28 U.S.C. §§1331 and 1337, and §27 of the Exchange Act.

30. Venue is proper in this District pursuant to §27 of the Exchange Act and 28

U.S.C. §1391(b), as Recom/Signalife's principal offices are located in this District and

many of the acts and practices complained of herein occurred, in substantial part, in this

District.

31. In comrection with the acts and conduct alleged herein, Defendants, directly

and indirectly, used the means acid instrumentalities of interstate commerce, including the

United States mails and the facilities of the national securities exchanges.

16


PARTIES

32. The members of Lead Plaintiff Taylor Signalife Investor Group purchased

shares of Recom/Signalife common stock on the American Stock Exchange ("AMEX")

during the Class Period as set forth in the certifications previously lodged with the Court

and were damaged thereby.

33. Defendant Recom/Signalife, formerly known as Recom Managed Systems,

Inc., is a Delaware corporation with its executive offices located at 531 South Main Street,

Suite 301, Greenville, South Carolina 29601. Recom/Signalife common stock was

publicly traded on the AMEX under the ticker symbol "SGN" during the Class Period. On

September 15, 2008, Recom/Signalife stock was de-listed, and now Recom/Signalife stock

currently trades under the ticker symbol "SGNX" on the Over-The-Counter Bulletin Board,

or "Pink Sheets."

34. Defendant Stein is not listed as an officer, director or executive in

Recom/Signalife's SEC filings. Despite omission of his role, Stein exercised control over

Recom/Signalife from the formation of the Company through the end of the Class Period

and beyond. former President and member of the Board of Directors Sparks testified

under oath in a sworn deposition that, inter alia:

• Stein personally controlled who served on the Recom/Signalife Board ofDirectors and handpicked Officers and Directors;

• Stein personally authored Recom/Signalife press releases;

• Stein, as a matter of regular practice, personally authored and/or revisedRecom/Signalife corporate documents, including SEC filings;

• Stein personally directed Reconr/Signalife executives to take all mamler ofcorporate actions;

• Stein controlled the interactions and compensation of Officers and Boardmembers; and

17


• Stein personally directed that Recom/Signalife stock be awarded to personswho performed no services for Recom/Signalife (including Olson who tradedthrough various entities, including Lomond International Inc.), but whoinstead traded heavily in the stock in order to manipulate the share price.

Sparks specifically testified that, inter alia:

• Recon-iISignalife "wasn't being operated like a public company. It wasbeing operated like a private company. Stein made all the decisions, and,you know, I was concerned about that";

• "Stein is Recom, alter ego";

• "Mr. Stein's very careful about not creating documents, but he runs theentire company, and that's obvious";

• In Sparks' capacity as a director, "Stein pretty much instructed me as towhat I was to do and how I was to do it. I took my instructions fromStein";

• "Stein directed persons or companies to buy Recom stock shortly beforethe closing of the market at higher prices in order to artificially paint thetape and increase the stock price . . . He specifically did that in e-Medsoft'

• "the main thing I don't like about the news releases was that in nearly everycase, they came out with no warning whatsoever that to the board that therewas going to even be a news release. And it often would quote Marvin[Fink], and he didn't even know there was going to be a release";6

• "the thing about the public filings, I was always told by Stein that he'll doall the legal work and all the disclosure and all the flings. In faet, mostof the filings we never even got to see. A lot of the filings we'd see a draftor two and get a signature page;"

• "We [Sparks and Raul Silvestre] had many conversations that, you know,he hated the way Mitchell [Stein] wrote them [Recom/Signalife pressreleases] and didn't like it and he was not comfortable with it";

6 Marvin H. kink was the Chief Executive Officer, President and Chairman of theBoard of Recom/Signalife begim-iing October 12, 2002. On March 22, 2005, Fink retiredfrom the Board of Directors. Shortly thereafter, on March 28, 2005, Fink was abruptlyreplaced with Lowell T. Harmison as the Company's Chief Executive Officer andPresident.

1$


• "I question his current position. ARC'S [Finance's] position, which is him[Stein]";

• Sparks received "instructions from Mr. Stein that the voice message saysessentially Ì want you to buy 7,500 shares of Recom at 31 minutes afterthe opening, and no excuses. ... you're to buy 7,500 shares of Recomstock at 31 minutes after the opening. Call and confirm that you are. Youwill then file a form 4, and it has been okayed by John Sawyer who's thelawyer for the board and for the company"'; and

• "Raul [Silvestre] told me on a number of occasions that Mitchell [Stein]instructed him to buy stock and his father to buy stock, et cetera ... `Mitch[Stein] made us by stock today' or Ì had to be in the market buyingtoday."'

Former employees of the Company during the Class Period, including an independent

contractor hired to work for Recom/Signalife by Stein., confirmed that Stein controlled

Recom/Signalife. CW#1 and CW42 confirmed that Stein controlled Recom/Signalife

during the Class Period. CW#1 stated that "Nothing happens at Signalife without Stein's

okay."

35. Defendant Pamela M. Buses ("Bunes") was the President and Chief

Executive Officer ("CEO") of Recom/Signalife from April 15, 2005 until August 17, 2007

and also served as a Director of the Company during the Class Period. At certain relevant

times, Bunes was also a member of the Recom/Signalife Board of Directors. Bunes

signed Recorn/Signalife's false and materially misleading Fornrs 10-KSB for fiscal years

2004, 2005 and 2006 as well as the Company's false and materially misleading Forms 10-

QSB for 1Q-3Q05, 1Q-3Q06 and IQ-2Q07. Bunes also signed Sarbanes-Oxley

Certifications ("SOX Certifications") in connection with Recom/Signalife's false and

materially misleading Forms 10-KSB for fiscal years 2005 and 2006 as well as the

Company's Forms 10-QSB for 1Q-3Q05, lQ-3Q06 and IQ-2Q07. The SOX

Certifications stated, with respect to each filing, as applicable:

19


1. I have reviewed this annual report on [Fomi 10-KSB or Form 10-QSB,as applicable] of [Recom Managed Systems, Inc. or Signalife Inc., asapplicable];

2. Based on my knowledge, this report does not contain any untruestatement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under whichsuch statements were made, not misleading with respect to the periodcovered by this report;

3. Based on my knowledge, the financial statements, and other financialinformation included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible forestablishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(c) and 15d-15(e)) and internalcontrol over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and we have:

a) designed such disclosure controls and procedures, or causedsuch disclosure controls and procedures to be designed under oursupervision, to ensure that material infonnation relating to theregistrant, including its consolidated subsidiaries, is made knownto us by others within those entities, particularly during the periodin which this report is being prepared;

b) designed such internal control over financial reporting, orcaused such internal control over financial reporting to be designedunder our supervision, to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of financialstatements for external purposes in accordance with generallyaccepted accounting practices;

c) evaluated the effectiveness of the registrant's disclosure controlsand procedures and presented in this report our conclusions aboutthe effectiveness of the disclosure controls and procedures, as ofthe end of the periods covered by this report based on suchevaluation; and

d) disclosed in this report any change in the registrants internalcontrol over financial reporting that occurred during the periodcovered by the annual report that has materially affected, or is

20


likely to materially affect, the registrants internal control overfinancial reporting.

5. The registrant's other certifying officers and I have disclosed, based onour most recent evaluation of internal control over financial reporting, tothe registrant's auditors and the audit committee of the registrant's boardof directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in thedesign or operation of internal control over financial reporting,which are reasonably likely to adversely affect the registrant'sability to record, process, summarize and report financialinformation; and

b) any fraud, whether or not material, that involves management orother employees who have a significant role in the registrant'sinternal control over financial reporting.

36. Defendant Lowell T. Harmison ("Harmison") has served as a member of

the Reconi/Signalife Board of Directors continuously since June 6, 2003. Harmison was

also CEO of the Company from August 17, 2007 until May 2008 following Bunes'

departure from Recorn/Signaiife. Previously, Harmison had been interim CEO of

Reconi/Signalife from March 26, 2005 until April 15, 2005, and co-CEO with Bunes from

April 15, 2005 until July 15, 2005 when Bunes became the Company's sole CEO.

Harmison signed Recom/Signalife's false and materially misleading Forms 10-KSB for

fiscal years 2003-2007 as well as the Company's materially false and misleading Form 10-

QSB for 3Q07. Harmison also signed SOX Certifications as set forth above with respect to

Recom/Signalife's Forms 10-KSB for fiscal years 2004 and 2007 and Form 10-QSB for

3Q07.

37. Defendant Kevin F. Pickard ("Pickard") has been Interim CFO of

Recom/Signalife since October 23, 2006. Pickard was also a member of the

Recom/Signalife Board of Directors during the Class Period. Pickard signed

Recom/Signalife's false and materially misleading Forms 10-KSB for fiscal years 2006-

2007 as well as the Company's materially false and misleading Form 10-QSB for 3Q-21


4Q06, 1Q-3Q07 and 1Q-3Q08. Pickard also signed SOX Certifications as set forth above

with respect to Recoin/Signalife's Forms 10-KSB for fiscal years 2006-2007 and Forms

10-QSB for 3Q-4Q06 and lQ-3Q07.

38. Defendant Robert C. Scheme ("Scheme") was Interim Chief Financial

Officer ("CFO") of Recom/Signalife from January 12, 2005 until October 23, 2006. Scheme

was also a member of the Recom/Signalife Board of Directors during the Class Period.

Scheme signed Recom/Signalife's false and materially misleading Forms 10-KSB for

fiscal years 2004-2005 as well as the Company's materially false and misleading Forms

10-QSB for IQ-3Q05 and IQ-3Q06. Scheme also signed SOX Certifications as set forth

above with respect to Recom/Signalife's Forms 10-KSB for fiscal years 2005-2006 and

Forms 10-QSB for lQ-3Q05 and IQ-3Q06.

39. Defendant Drakulic was, at all relevant times, Chief Technology Officer,

Chief Scientist of the head of research and development. Drakulic developed the

technology for the Model 100 and was primarily responsible for development of the

Fidelity 100 as well as the other products that Recom/Signalife falsely asserted were

developed, ready for manufacture, saleable and/or being sold during the Class Period.

40. Defendant William `Bill" R. Matthews ("Matthews") has been the

Recom/Signalife Director of Regulatory Affairs since July 2004.

41, Stein, Buries, Hannison, Pickard, Scheme, Drakulic and Matthews are

collectively referred to herein as the "Individual Defendants." Collectively, the Individual

Defendants and Recorn/Signalife are referred to herein as "Defendants." Because of their

positions and access to material, non-public information available to them, the Individual

Defendants knew the adverse facts specified herein had not been disclosed to, and were

being concealed from, the public, and that the affirmative representations which were being

made were then materially false and misleading. The Individual Defendants are liable for

22


the false statements pleaded herein, as each was either made by the particular Individual

Defendants or was "group-published" information, the result of the collective actions of the

Individual Defendants.

CONFIDENTIAL WITNESSES

42. CW#1 was an independent contractor retained by Recom/Signalife during the

Class Period. According to CW#1, he was Hired by Stein and "[n]othing happens at

Signalife without Stein's okay." CW41 did not speak or otherwise interact with the CEO

of Recom/Signalife before he was hired by Stein to work for the Company. CW#1 also

stated that he knew Stein to be "shorting" Recom/Signalife stock during the Class Period.

43. CW#2 was a significant investor in Recom/Signalife during the Class Period

who had frequent and direct personal communications with Stein and Hannison, who was

then CEO of the Company, regarding Reconi/Signalife. CW42 stated that Stein controls

Recom/Signalife and was "shorting" RecorriISignalife stock during the Class Period,

including by using shares transferred to purportedly "blind trusts" by ARC Finance.

SUBSTANTIVE ALLEGATIONS

False and Misleading Statements

44, Until November 2, 2005, Signalife was known as Recom Managed Systems,

Inc. (hereinafter referred to as "Recom/Signalife"). On January 29, 2004, Recom/Signalife

announced that "it had received approval from the Food and Drug Administration ("FDA")

to proceed with sales and marketing of its first medical device — a 12-lead, 24-hour ECG

medical device that the Company believes is the premier ambulatory 12-lead ECG device

in the industry." Fink described the Company's ECG device as "revolutionary."

45. On February 10, 2004, Recom/Signalife filed with the SEC a Form 10-KSB

signed by Harmison for the Company's fiscal year ended December 31, 2003, The

Company stated in the 2003 Forrn 10-KSB that it had recently completed development of

23


the "front end" (i.e., hardware portion) of its Model 100 heart monitor and had received

FDA approval to market that portion of the device in the United States on January 28,

2004. The Company also stated that it was "currently developing the `back end' or

software portion" of its Model 100 heart monitor. According to Recom/Signalife, FDA

approval was generally not required for the back end, software portion of its monitor. The

Company stated:

Once we have completed these steps, we must design and engineer a`production' model for mass manufacturing which will be durable, reliableand maintenance-free, and competitively priced. We anticipate that wewill complete a production model of our model 100 Heart monitor,integrating both back-end and front-end functions, by the end of fiscal2005, and will have also commenced commercial marketing efforts bythe end of that period.

In the longer term, we will also market heart monitors for each of theexercise and clinical (resting) segments of the ECG market.

46. On the Company's announcement that it would soon begin commercial

marketing, the stock immediately began an upward ascent and climbed from $3.65 to

$8.20 by mid-April 2004.

47. On May 17, 2004, Recom/Signalife filed its quarterly report on SEC Form

10-QSB for the period ended March 31, 2004. In the Form IO-QSB, the Company stated,

in relevant part:

We have recently completed development of the "front-end" or hardwareportion of our model 100 heart monitor, and received FDA 510(k) marketingapproval on January 28, 2004 to market that portion of the device in theUnited States on the basis of it being substantially equivalent to other deviceson the market. The "front-end" portion of the heart monitor amplifies,collects, processes and records data. We are currently developing the "back-end" or software portion of our model 100 heart monitor, which allows themanagement and interpretation of the data. We intend to use and integrateinto our system commercially available software for which FDA approval hasalready been received by original manufacturer, to manage and interpret thisdata. We do not believe that integration of this software into our system will

24


regAre additional FDA approval. Once we have completed these steps, wemust design and engineer a "production" model for amass manufacturingwhich will be durable, reliable and maintenance-free, and competitivelypriced. We anticipate that we will complete a production model of our model100 heart monitor, integrating both back-end and front-end functions, bythe end of fiscal 2005, and will have also commenced commercial marketingefforts by the end of that period

48. On December 16, 2004, Recom/Signalife issued a press release entitled

"Recom Completes Fabrication of Its Model 100 Heart Monitor — Technology to Now Be

Transferred to Manufacturing." The press release stated that "[t]he design has

successfully passed all applicable regulatory safety testing requirements of the Food and

Drug Administration (FDA) recognized voluntary consensus standards for general

requirements for the safety of medical electrical equipment and IEC 60601-1, and now

can now proceed to market." The press release quoted Matthews as stating:

The completion of pre-production prototype is a significant milestone. Inconjunction with Battelle Memorial Institute, we have not onlycompleted a fully functional and connpliant Model 100 device, but havedone so ahead of schedule, within budget and in alignment with FDA'sQuality System Regulations. Today's announcement follows theCompany's recent press releases that it had achieved compliance with allregulatory requirements and industry consensus standards now allowingfor a technology transfer to manufacturing. This included the successfulpassing of the stringent Federal Communications Commission (FCC)requirements for Human Exposure to Radiofrequency (RF), the medicaldevice industry's voluntary consensus standards for electromagneticcompatibility (EMC), the consensus standards for ambulatory heartmonitoring devices (EC-38), and the safety standard relating to medicalelectrical equipment (IE 60601-1). Moreover, our test results validateour device can be used in a transport setting.

49. On March 31, 2005, Recom/Signalife filed its 2004 Form 10-KSB for the

fiscal year ended December 31, 2004 with the SEC, signed by Hannison, Scheme and

Bunes. Hannison and Scheme signed SOX Certifications in connection with the filing.

In the Form 10-KSB, the Company stated, in relevant part;

25


The pre-production model of our Model 100 Module was tested anddeter-fined to comply with all applicable performance, safety,environmental and regulatory standards, including the FDA-recognizedconsensual ANSI/AAMI EC-38 industry standards for ambulatory ECGdevices, Federal Communications Commission ("FCC") requirements forHuman Exposure to Radiofrequency (RF), the FDA-recognizedconsensual industry standards for electromagnetic compatibility formedical devices (EMC), the FDA-recognized IE 60601-1 internationalsafety standard relating to medical electrical equipment, and the FDA'sQuality System Regulations. These testing results also satisfied ourobligation under our abbreviated 510(k) submission to have supportingdata in our files before marketing the Model 100 Module as part of theModel 100 Monitor System. As part of our contract with BattelleMemorial Institute, it also manufactured 24 pre-production patientmodules which we will use for user preference testing with physicians,hospitals and clinics as discussed below. We anticipate that we willintroduce our Model 100 Monitor System to the market at the AmericanCollege of Cardiology Convention to be held in March 2005, and willstart selling the devices in early 2006. In anticipation of formal productintroduction, we must make a final determination as to the FDA-approvedECG analysis software system that we will recommnend that cardiologistsuse with our Model 100 Monitor System, and finalize third-party contractmanufacturing arrangements.

50. On May 16, 2005, Recon-t/Signalife filed its quarterly report on SEC Form 10-

QSB for the period ended March 31, 2005, Bunes and Scheme signed Fonn 10-QSB and

also signed SOX Certifications in connection with the filing. With regard to the Model

100 device, the Company stated, in relevant part:

The pre production version satisfies all performance, safety,environmental and regulatory standards. We are now in the process ofconducting various user preference performance comparison tests relativeto top-end ECG systems in anticipation of our planned introduction of theModel 100 Monitor System to market. We do not anticipate that we willintroduce our Model 100 Monitor System to the market until March2005, and will not start selling the device until late 2005.

51. On August 15, 2005, Recom/Signalife filed its quarterly report on SEC

Form 10-QSB for the period ended June 30, 2005. Buries and Scherne signed the Form

26


10-QSB and also signed SOX Certifications in connection with the filing. With regard to

the Model 100 device, the Company stated, in relevant part:

The pre production version satisfies all performance, safety,environmental and regulatory standards. We are now in the process ofconducting various user preference performance comparison tests relativeto top-end ECG systems in anticipation of our planned introduction of theModel 100 Monitor System to market. While we have recentlyintroduced our Model 100 Monitor System to the market, we will notstart selling the device until late 2005.

52. Effective November 2, 2005, Recorn/Signalife became Signalife. On

November 15, 2005, Recom/Signalife filed its quarterly report on SEC Form 10-QSB for

the period ended September 30, 2005, Bunes and Scherne signed the Form 10-QSB and

also signed SOX Certifications in connection with the filing. With regard to the Model

100 device, the Company stated, in relevant part:

In October 2005 we entered into a contract manufacturing agreement with aprivate-label manufacturer to manufacture Model 100 Modules and topackage our Model 100 Monitor System, and have placed our first orderto purchase 100 Model 100 Modules under this agreement. Weanticipate that these devices will be manufactured and commerciallyavailable for sale in the first week of December 2005.

53. Defendants' foregoing statements were false and materially misleading

because Defendants knew and/or recklessly disregarded and concealed true facts

about Recom/Signalife, including that:

(a) Stein actively participated in controlling and managing the

Company, including without oversight by Reconr/ Signalife executives;

(b) The Individual Defendants had no intention of bringing any saleable

product to market because Reconi/Signalife was a stock manipulation scheme; and

(c) the Company had no means to manufacture or market any kind of

saleable Fidelity 100 devices.

27


54, On February 15, 2006, ARC Finance filed a Schedule 13G for the year ended

December 31, 2006 and reported ownership of 22,605,800 shares of Signalife common

stock. In the Schedule 13G, ARC Finance reported that 975,000 shares were held by two

separate revocable "blind trusts." The Schedule 13G stated, in relevant part:

Included in the shares deemed beneficially held by ARC Finance Groupare an aggregate of 975,000 shares held by two separate revocable blindtrusts established by ARC Finance Group over which ARC Finance Groupretains the power to vote the shares. These trusts:

(1) have the sole and exclusive power to manage and deal in suchshares without the direction or knowledge of ARC Finance Group(including its officers, directors and members (owners)),

(2) have the sole and exclusive discretionary power to sell (or toretain) such shares without the direction or knowledge of ARCFinance Group (including its officers, directors and members(owners)), and

(3) have the sole and exclusive discretionary power to utilize theassets of the trust, or otherwise, to acquire the shares of any companyincluding, without limitation, the shares of the issuer without thedirection or knowledge of ARC Finance Group (including its officers,directors and members (owners)) provided that the trustees areobligated to comply with all reporting obligations under the securitieslaws to the extent they acquire or reach certain thresholds underSections 13 and 16 of the Act.

While the trustees have periodic reporting requirements to ARCFinance Group under the blind trusts, ARC Finance Group, and itsofficers, directors and members (owners), otherwise have noknowledge of trust transactions in the issuer's securities. BecauseARC Finance Group maintains voting control over the shares and theright to revoke the blind trusts, it retains beneficial control of theshares under the control of the blind trustees for purposes of reportingunder Section 13 of the Act, and it is accordingly listed as thebeneficial owner of such shares under this Schedule 13G.

The aforesaid trusts were established by ARC Finance Group for twopurposes. The primary purpose was to provide enhanced protectionfor ARC Finance Group and its officers, directors and members(owners) from potential third-party insider trading claims under the

28


federal securities laws by ensuring that the reporting person and itsofficers, directors and members (owners) had no control or knowledgeof selling or buying activities with respect to the sale, purchase,hypothecation or other transfer or disposition of the securities of theissuer. This objective was particularly important given theregistration for sale of shares by ARC Finance Group under an SB-2resale registration statement filed by the issuer, although such poweralso extends to power of the trustee to sell or purchase othersecurities. A secondary purpose was to facilitate estate plamiingobjectives of the members (owners) of ARC Finance Group within thelimitations afforded by the primary purpose. The trusts were notestablished for the purpose of changing or influencing the control ofthe issuer in any manner other than that previously held by ARCFinance Group. While the effect of granting exclusive voting controlto the trustees of the blind trusts could arguably be asserted to reducethe ability of ARC Finance Group to influence control over the issuer,the fact that ARC Finance Group otherwise retains majority controlover the issuer through its continued holding of shares over which thevoting trusts did not obtain voting or investment control, (a) mitigatesthis perceived effect and (b) thus provides ARC Finance Group with asalutary ability to achieve the objectives encouraged under applicablelaw, i.e., to both avoid the appearance of impropriety regardingcontrol of buying and selling decisions of the issuer's stock, as well asto concurrently establish estate planning approaches for the benefit ofthe members (owners) of ARC Finance Group and the immediateaffiliates and family of such members (owners).

55. On March 30, 2006, Recorn/Signalife issued a press release entitled

"Rubbermaid and Signalife Enter Into Marketing Partnership - Exclusive Agreement

Signals Inunediate Joint Marketing, Branding and Sales of Award-Winning ECG

Monitor." According to the press release, which included a statement by Buries, the

multi-year agreement between Recom/Signalife and Rubbermaid Medical Solution

("Rubbermaid") included the following:

[T]he firms have jointly entered into a multi-year, exclusive marketingand sales agreement involving the nationwide rollout of Signalife'sflagship Fidelity 100 ECG heart manitor and other Signalife products.

29


Rubbermaid shall be responsible for substantially all marketing and salesefforts to vigorously market the Signalife devices nationwide, andpossibly beyond, including marketing, advertising, promotions, media,trade shows, exhibits and most importantly the maintenance of a salesforce commensurate with the planned sales effort. Signalife shallmaintain responsibility for sales support, technical support,manufacturing and quality control and product fulfillment.

56. Upon the Company's release, Recom/Signalife's stock climbed rose 5% to

$3.25 on extremely heavy trading volume.

57. On April 3, 2006, Recom/Signalife filed its 2005 Form 10-KSB for its fiscal

year ended December 31, 2005, with the SEC. Bunes, Scheme, Harmison and Pickard

signed the Form 10-KSB. Bunes and Scheme also signed SOX Certifications in

connection with the filing. RecomlSignalife discussed the Rubbermaid marketing

partnership, stating in relevant part:

Our Fidelity 100 Monitor Systems and our Recom/Signalife HolterMonitor will be marketed in the United States by Rubbermaid Inc.("Rubbermaid"), a subsidiary of Newell Rubbermaid Inc., pursuant to theterms of a Sales and Marketing Services Agreement entered into onMarch 26, 2006. The initial term of the agreement is for one year, andmay be renewed by Rubbermaid on an annual basis for up to nineadditional years, subject to satisfaction of modest performancebenchmarks and other conditions. Under this agreement, Rubbermaidwill, at its cost, put together a national sales force to market the Fidelity100 Monitor System and the first Signalife Holter Monitor, and will alsoadvertise and otherwise vigorously promote these products in medicalliterature, at trade shows, and through other mechanisms as set forth inthe agreement. This marketing arrangement may be extended tointernational sales or other parties upon the mutual consent of bothparties. Other conditions, including provisions for Rubbermaid to bid onour other products pursuant to a right of first refusal, and provisionscontemplating the distribution of Rubbermaid's proprietary medical carts,are set forth in the agreement as well. In compensation for these services,Rubbermaid will receive 35% of net product sales, as defined in theagreement. Signalife will, in turn, handle all product manufacturing,fulfillment and product servicing functions. This arrangement is seen as agood fit for Signalife due to Rubbermaid's more than 100-year history insuccessfully branding and marketing products worldwide.

30


58. Additionally, Recom/Signalife's 2005 Form 10-KSB stated, "We formally

initiated marketing of the Fidelity 100 Monitor System by presenting the system at the

annual meeting of the American College of Cardiology held at Atlanta, Georgia, from

March 12-14, 2006, and anticipate that our first orders will be received in the second

quarter of fiscal 2006."

59. On May 15, 2006, Recom/Signalife filed its quarterly report on SEC Form

10-QSB for the period ended March 31, 2006. Bunes and Scherne signed the Form 10-

QSB and also signed SOX Certifications in connection with the filing. The Company

stated, in relevant part:

We have recently commenced commercial marketing of our first Heartmonitoring "system" using our Model 100 Module—the Fidelity 100Monitor System.

Our Fidelity 100 Monitor System will be marketed in the United Statesby Rubbermaid Inc. ("Rubbermaid"), a subsidiary of Newell RubbermaidInc., pursuant to the terms of a Sales and Marketing Services Agreemententered into on March 26, 2006. The initial term of the agreement is forone year, and may be renewed by Rubbermaid on an annual basis forup to nine additional years, subject to satisfaction of modestperformance benchmarks and other conditions. Under this agreement,Rubbermaid will, at its cost, put together a national sales force tomarket the Fidelity 100 Monitor System, and will also advertise andotherwise vigorously promote these products in medical literature, attrade shows, and through other mechanisms as set forth in theagreement. This marketing arrangement may be extended tointernational sales or other parties upon the mutual consent of bothparties. In compensation for these services, Rubbermaid will receive35% of net product sales, as defined in the agreement. Signalife will, inturn, handle all product manufacturing, fulfillment and product servicingfunctions.

We are also completing development of an ambulatory Holter device (the"Signalife Holter Monitor"), which also operates using our Model 100Module as its core component, and which will also be marketed in theUnited States by Rubbermaid. This device acquires, processes, amplifies

31


and stores ECG data relating to arrhytlunia and other transient heartdisease over a period of 24 to 48 hours while the patient carries out his orher daily activities away from the physicians' office or hospital. Thesignal data can be either stored on a storage chip contained in the deviceand downloaded by the physician at a later date when the patient returnsto the physician's office, or transmitted to a patient monitoring center thatwill forward the data or otherwise make it available to the physician overthe Internet. Although we have developed a production version of theSignalife Holter Monitor, we are still conducting physician preferencetesting studies on selected features of that device, and anticipate that wewill snake some minor modifications to that design before we commencemarketing the product. We anticipate that we will complete finalproduct mod cation activities and introduce the final Signalife HolterMonitor to market by the end of fiscal 2006. In the interim, physicianscould use the Model 100 Module contained in the Fidelity 100 MonitorSystem in out-patient ambulatory settings should they choose to do so,although it would not have all of the features we would otherwisesuggest for out patient applications.

60. On July 19, 2006, Recom/Signalife filed its Definitive Proxy Statement on

Form 14A. Recom/Signalife stated, with respect to ARC Finance:

ARC Finance Group is owned and controlled by Ms. Hampton. Asreported in the schedule 13D, the blind trusts were established pursuant tosection 16 of the Securities and Exchange Act of 1934 in principal part toensure that ARC Finance Group and its principals and affiliates have nocontrol or knowledge of selling or buying activities with respect to thesale, purchase, hypothecation or other transfer or disposition of commonshares held by the trustee, thereby allowing ARC Finance Group to avoidthe appearance of any impropriety relative to the use of inside informationin connection with such decisions and activities in view of ARC FinanceGroup's putative ability as majority shareholder to procure insideinformation. In order to maintain the confidentiality of all transactions bythe trustee of the blind trusts and to protect itself from even the appearanceof insider trading, the trustee is legally prohibited from providing to ARCFinance Group, and ARC Finance Group is legally prohibited fromrequesting from the trustee, any information regarding the holdings of theblind trusts or transactions in the company's securities. As a consequence,the holdings reported may over- or under-report the shares actually heldby the trustee of the blind trusts.

61. On August 17, 2006, Recorn/Signalife filed its quarterly report on SEC

Form 10-QSB for the period ended June 30, 2006. Bunes and Scherne signed the Form32


10-QSB and also signed SOX Certifications in connection with the filing. The Company


We have recently commenced commercial marketing of our first heartmonitoring "system" using our Model 100 Module—the Fidelity 100Monitor System, and are projecting receipt of revenues from productsales in the third quarter of 2006.

Our Fidelity 100 Monitor System will be marketed in the United Statesby Rubbermaid Inc. ("Rubbermaid"), a subsidiary of Newell RubbermaidInc., pursuant to the terms of a Sales and Marketing Services Agreemententered into on March 26, 2006. The initial term of the agreement is forone year, and may be renewed by Rubbermaid on an annual basis forup to nine additional years, subject to satisfaction of modestperformance benchmarks and other conditions. Under this agreement,Rubbermaid will, at its cost, put together a national sales force tomarket the Fidelity 100 Monitor System, and will also advertise andotherwise vigorously promote these products in medical literature, attrade shows, and through other mechanisms as set forth in theagreement. This marketing arrangement may be extended tointernational sales or other parties upon the mutual consent of bothparties. In compensation for these services, Rubbermaid will receive35% of net product sales, as defined in the agreement. Signalife will, inturn, handle all product manufacturing, fulfillment and product servicingfunctions.

We are also completing development of an ambulatory Holter device (the"Signalife Holter Monitor"), which also operates using our Model 100Module as its core component, and which will also be marketed in theUnited States by Rubbermaid. This device acquires, processes, amplifiesand stores ECG data relating to arrhythmia and other transient heartdisease over a period of 24 to 48 hours while the patient carries out his orher daily activities away from the physicians' office or hospital. Thesignal data can be either stored on a storage chip contained in the deviceand downloaded by the physician at a later date when the patient returnsto the physician's office, or transmitted to a patient monitoring center thatwill forward the data or otherwise make it available to the physician overthe Internet. Although we have developed a production version of theSignalife Hotter Monitor, we are still conducting physician preferencetesting studies on selected features of that device, and anticipate that wewill make some minor modifications to that design before we commence

33


marketing the product. We anticipate that we will complete finalproduct modification activities and introduce the final Signalife MolterMonitor to market by the end of fiscal 2006. In the interim, physicianscould use the Model 100 Module contained in the Fidelity 100 MonitorSystem in out patient ambulatory settings should they choose to do so,although it would not have all of the features we would otherwisesuggest for out patient applications.

62. On October 11, 2006, Recom/Signalife filed a Form S-8 Registration

Statement and Re-offer Prospectus with the SEC. Bunes and Scheme signed the Fonn S-

8, which contained false disclosures substantially identical to the disclosures made by

the Company in its August 17, 2006 Form 10-QSB. RecomlSignalife stated, in pertinent

part:

We have recently commenced commercial marketing of our first heartmonitoring "system" using our Model 100 Module—the Fidelity 100Monitor System, and recorded our first revenues from product sales inOctober 2006.

Our Fidelity 100 Monitor System will be marketed in the United Statesby Rubbermaid Inc. ("Rubbermaid"), a subsidiary of Newell RubbermaidInc., pursuant to the terms of a Sales and Marketing Services Agreemententered into on March 26, 2006. The initial term of the agreement is forone year, and may be renewed by Rubbermaid on an annual basis forup to nine additional years, subject to satisfaction of modestperformance benchmarks and other conditions. Under this agreement,Rubbermaid will, at its cost, put together a national sales force tomarket the Fidelity 100 Monitor System, and will also advertise andotherwise vigorously promote these products in medical literature, attrade shows, and through other mechanisms as set forth in theagreement. This marketing arrangement may be extended tointernational sales or other parties upon the mutual consent of bothparties. In compensation for these services, Rubbennaid will receive35% of net product sales, as defined in the agreement. Signalife will, inturn, handle all product manufacturing, fulfillment and product servicingfunctions.

We are also completing development of an ambulatory Holter device (the"Signalife Holter Monitor"), which also operates using our Model 100Module as its core component, and which will also be marketed in the

34


United States by Rubbermaid. This device acquires, processes, amplifiesand stores ECG data relating to arrhythmia and other transient heartdisease over a period of 24 to 48 hours while the patient carries out his orher daily activities away from the physicians' office or hospital. Thesignal data can be either stored on a storage chip contained in the deviceand downloaded by the physician at a later date when the patient returnsto the physician's office, or transmitted to a patient monitoring center thatwill forward the data or otherwise make it available to the physician overthe Internet. Although we have developed a production version of theSignalife Holler Monitor, we are still conducting physician preferencetesting studies on selected features of that device, and anticipate that wewill make some minor modifications to that design before we commencemarketing the product. We anticipate that we will complete finalproduct modification activities and introduce the final Signalife HolterMonitor to market by the end of fiscal 2006. In the interim, physicianscould use the Model 100 Module contained in the Fidelity 100 MonitorSystem in out patient ambulatory settings should they choose to do so,although it would not have all of the features we would otherwisesuggestfor out patient applications.

63. On November 13, 2006, Recoin/Signalife filed its quarterly report on SEC

Form 10-QSB for period ended September 30, 2006. Buries and Pickard signed the Form

10-QSB and also signed SOX Certifications in connection with the filing. The Company


We have recently connnenced comnnercial marketing of our first heartmonitoring "system" using our Model 100 Module—the Fidelity 100Monitor System, and recorded our first revenues from product sales inOctober 2006.

We are currently marketing our products and services through ourcompany sales team, which we are in the process of forming and training,and in certain cases on a co-exclusive basis through Rubbermaid Inc.("Rubbermaid"), a subsidiary of Newell Rubbermaid Inc. In the lattercase, Rubbermaid has co-exclusive rights with the company to market ourFidelity 100 Monitor System izn the United States pursuant to a Sales andMarketing Services Agreement dated March 26, 2006. Rubbermaid iscurrently in the process of developing and training its sales staff underthis agreement.

We are also completing development of an ambulatory Holter device (the"Signalife Holter Monitor"), which also operates using our Model 100

35


Module as its core component, and which will also be marketed in theUnited States by Rubbermaid. This device acquires, processes, amplifiesand stores ECG data relating to arrhythmia and other transient heartdisease over a period of 24 to 48 hours while the patient carries out his orher daily activities away from the physicians' office or hospital. Thesignal data can be either stored on a storage chip contained in the deviceand downloaded by the physician at a later date when the patient returnsto the physician's office, or transmitted to a patient monitoring center thatwill forward the data or otherwise make it available to the physician overthe Internet. Although we have developed a production version of theSignalife Holter Monitor, we are still conducting physician preferencetesting studies on selected features of that device, and anticipate that wewill make some minor modifications to that design before we commencemarketing the product. We anticipate that we will complete finalproduct modification activities and introduce the final Signalife HolterMonitor to market by the end of the first quarter of fiscal 2007 In theinterim, physicians could use the Model 100 Module contained in theFidelity 100 Monitor System in outpatient ambulatory settings shouldthey choose to do so, although it would not have all of the features wewould otherwise suggest for out patient applications.

[O]ur plan of operation for the twelve month period commencing October1, 2006 is to commence our marketing and sales activities with respectto our Fidelity 100 Monitor System and Signalife Holter Monitorprincipally through Rubbermaid ...

64. On January 29, 2007, Recom/Signalife issued a press release entitled

"Signalife Procures $10 Million Credit Facility; Announces Termination of Marketing

Agreement With Rubbermaid." The Company stated, in relevant part:

Signalife also announces that its Marketing Agreement with Rubbermaid,Inc., under which Rubbenmaid was granted the exclusive third-party rightto market Signalife's Fidelity 100 heart monitor system, was terminatedon January 24, 2007, and that Signalife has filed suit againstRubbermaid for its failure to perform under that agreement.

65. Also on January 29, 2007, Recom/Signalife issued an 8-K in which the

Company stated, in relevant part:

36


On January 24, 2007, our Sales and Marketing Services Agreement (the"Marketing Agreement") entered into with Rubbermaid, Inc.("Rubbermaid"), a subsidiary of Newell Rubbermaid Inc., on March 26,2006, pursuant to which Rubbermaid was appointed as the company'sexclusive third-party agent to nationally market our Fidelity 100 Monitor,was terminated. As a result of the termination of this agreement, Signalifeis now fully free to engage in discussions and negotiations withprospective strategic partners with significant experience in sellingmedical devices who have indicated a high interest in marketing theFidelity 100. These matters will supplement the company's existingmarketing efforts and activities.

On January 24, 2007, Signalife filed a complaint against Rubbermaid,captioned Signalife, Inc., plaintiff, vs Rubbermaid Inc., NewellRubbermaid Inc., Gary Scott and David Hicks, Superior Court Division ofthe General Court of Justice of the State of North Carolina, County ofMecklenburg, alleging fraud, breach of fiduciary duty, breach of contractand unfair trade practices, and seeking damages of $20 million.Signalife's complaint is grounded in Rubbernlaid's failure and refusal, asSignalife's exclusive third-party agent, to put together at its cost a nationalsales force to market Signalife's Fidelity 100 Monitor System, and toadvertise and otherwise use con-imercially reasonable efforts to vigorouslypromote the sale and marketing of the Fidelity 100, as required under theMarketing Agreement.

In anticipation of Signalife's action, Rubbermaid also filed a complaintagainst Signalife on January 24, 2007, captioned RubbermaidIncorporated, plaintiff, vs. Signalife, Inc., defendant; United States DistrictCourt, Western District, North Carolina, alleging negligentmisrepresentation, breach of representation and warranty, and breach ofcontract, and seeking damages in excess of $75,000. Signalife denies thevalidity of Rubben-naid's allegations, and believes that they are merely apretext raised by Rubbermaid in anticipation of Signalife's complaint, andto otherwise enable Rubbermaid to avoid performing its obligations underthe Marketing Agreement (which Signalife had previously estimated in itsSEC flings would cost approximately $4-5 million to perform).

66. On April 2, 2007, Signalife filed with the SEC its Form 10-KSB for the

fiscal year ended December 31, 2006, signed by Bunes, Pickard and Harmison. Bunes and

Pickard also signed SOX Certifications in connection with the filing. With regard to

Rubbermaid the filing, the Company stated, in relevant part:

37


On January 24, 2007, Signalife filed a complaint in the General Court ofJustice of the State of North Carolina captioned Signalife, Inc., plaintiff,vs Rubbermaid Inc., Newell Rubbermaid Inc., Gary Scott and DavidHicks, Superior Court Division of the General Court of Justice of theState of North Carolina, County of Mecklenburg, alleging fraud, breachof fiduciary duty, breach of contract and unfair trade practices, andseeking damages of $20 million. Signalife's complaint is grounded in thefailure and refusal of Rubber maid, Inc. ("Rubbermaid"), a subsidiary ofNewell Rubbermaid Inc., as Signalife's exclusive third-party agent undera Sales and Marketing Services Agreement (the "Marketing Agreement")entered into with Rubbermaid on March 26, 2006, to put together at itscost a national sales force to market Signalife's Fidelity 100 MonitorSystem, and to advertise and otherwise use commercially reasonableefforts to vigorously promote the sale and marketing of the Fidelity 100,as required under the Marketing Agreement. Rubbermaid concurrentlyfiled a complaint against Signalife on January 24, 2007 in the UnitedStates District Court of North Carolina captioned RubbermaidIncorporated, plaintiff, vs. Signalife, Inc., defendant; United StatesDistrict Court, Western District, North Carolina, alleging negligentmisrepresentation, breach of representation and warranty, and breach ofcontract, and seeking damages in excess of $75,000. Rubbermaid'sprincipal factual allegation is that Signalife failed to meet projectionsthat the company would independently sell 300 Fidelity 100 units in2005. Rubbermaid makes this assertion notwithstanding that there is norepresentation, covenant or undertaking in the extensive, comprehensiveand thoroughly negotiated Marketing Agreement requiring Signalife tosell any Fidelity 100 units whatsoever, much less 300 units, and that theMarketing Agreement also contains an integration clause that wouldpreclude Rubbermaid from making any such claim if not otherwisecontained in the agreement. Rubbermaid also alleges, without providingany support, that the Fidelity 100 was not commercially ready for sale.Rubbermaid makes this assertion notwithstanding extensive product duediligence by Rubbermaid in entering into the Marketing Agreement, thefact that Signalife has been actively selling the units through its in-housesales staff, and the fact that Signalife has provided to Rubbermaidextensive documentation as to all operational and technical issues,including attestation as to the commercial use and results of the Fidelity100 by a number of physicians who use the units in their practices.

Signalife further stated, in relevant part:

Since January 1, 2007, pursuant to a previously negotiated arrangementthat had been suspended during the Rubbermaid negotiations andcontractual undertakings, we have issued a total of 696,553 common

38


shares to or for the benefit of the principal of The Silve Group ascompensation for the provision of product marketing and distributionservices rendered by that company during the first quarter of fiscal2007 in connection with organizing, introducing us to and procuringspecific international sales and distribution channels, partners andrelationships. The contractual relationship did not take effect until thebeginning of 2007, when Signalife requested that the company beginperforming services.

67. On May 15, 2007, Recoim/Signalife filed its quarterly report on SEC Form

10-QSB for the period ended March 31, 2007. Buries and Pickard signed the Fonm 10-

QSB and also signed SOX Certifications in connection with the fling. In the Form 10-

QSB, the Company made the same false and materially misleading disclosures concerning

Rubbermaid as it had in its 2006 Form 10-KSB. In addition, Recom/Signalife further

stated:

During the three-month interim period ended March 31, 2007,pursuant to a previously negotiated arrangement that had beensuspended during the Rubbermaid negotiations and contractualundertakings, we have issued a total of 896,583 common shares to or forthe benefit of the principal of The Silve Group as advances for futuresales commissions during the first quarter of 2007 in connection withorganizing, introducing us to and procuring specific internationalpurchase orders, sales and distribution chamiels, partners andrelationships. These shares were valued at $1,698,951 based upon the fairmarket value of the shares determined as the closing stock price asreported by AMEX at the dates of issuance. Under our agreement withThe Silve Group, they are entitled to 20% of all contract revenues theyprocure. Under that agreement, we will from time-to-time makeprepayments against expenses, costs and other factors, which will beoffset against contract revenues when received. The contractualrelationship did not take effect until the beginning of 2007, whenSignalife requested that The Silve Group begin performing services.

68. On May 30, 2007, Reconi/Signalife issued a press release entitled "Signalife

Begins Penetration of Foreign Markets." Recom/Signalife stated, in relevant part:

Signalife, Inc. amlounced that physicians outside the United States areexcited to have access to the company's proprietary signal processing

39


technology in the Fidelity 100 ECG System and have ordered the productfor use in both practices and clinics.

During a recent patient evaluation, a physician using the Fidelity 100 on apatient indicated that she believed the patient had a variety of heartcomplications, but prior to use of the Fidelity 100, she had been unable toidentify the condition adequately. She immediately ordered the Fidelity100 for her practice and indicated that many patients in Mexico wouldbenefit from its availability.

"It is exciting to witness the physician delight with Signalife's technologyand to realize how it will impact their patients' lives. In the US, we have agreat variety of diagnostic tools for physicians use, but in Mexico, theECG is considered a valuable diagnostic tool that is well utilized byphysicians. Even the subtleties of the device and its signal processingcapabilities are highly valued and recognized," stated Pain Bunes, CEO ofSignalife, Inc. "We anticipate great success in Mexico and the rest ofLatin America as we continue our sales effort in those markets."

69. Also on May 30, 2007, Recom/Signalife filed a Definitive Proxy Statement

on SEC Form 14A. The Company stated, in relevant part:

[The Ownership of Management and Principal Shareholders table][i]ncludes 20,448,900 common shares directly held by ARC FinanceGroup, LLC, and 2,156,900 common shares that we believe weretransferred by ARC to, and are currently held by, an independent trusteeof revocable blind trusts established by ARC finance Group as reportedby ARC Finance Group in a schedule 13D filed with the SEC on February15, 2006. ARC Finance Group is owned and controlled by Ms. Hampton-Stein. As reported in the schedule 13D, the blind trusts were establishedpursuant to section 16 of the Securities and Exchange Act of 1934 inprincipal part to ensure that ARC Finance Group and its principals andaffiliates have no control or knowledge of selling or buying activities withrespect to the sale, purchase, hypothecation or other transfer or dispositionof common shares held by the trustee, thereby allowing ARC FinanceGroup to avoid the appearance of any impropriety relative to the use ofinside information in connection with such decisions and activities in viewof ARC Finance Group's putative ability as majority shareholder toprocure inside information. In order to maintain the confidentiality of alltransactions by the trustee of the blind trusts and to protect itself fromeven the appearance of insider trading, the trustee is legally prohibitedfrom providing to ARC Finance Group, and ARC Finance Group islegally prohibited froze requesting from the trustee, any information

40


regarding the holdings of the blind trusts or transactions in the company'ssecurities. As a consequence, the current holdings of the trustee of theblind trusts in our cornmon shares may be less or more than the 2,156,900shares reported as being transfer red to the trustee for purposes ofpreparing this table.

70. On July 3, 2007, Recom/Signalife filed an 8-K with the SEC, signed by

Hannison. The 8-K stated, in relevant part:

On June 27, 2007, Signalife received a deficiency letter from theAmerican Stock Exchange ("AMEX") pursuant to which it indicated thatthe company 's current stockholder's equity of approximately $3.2 millionhad fallen to less than the $4 million and $6 million required for continuedlisting under AMEX Rules 1003(a)(ii) and (a)(iii), respectively. Theseminimum stockholders' equity thresholds were triggered by the recentdecline of Signalife's market capitalization to less than $50 million, whichpreviously exempted Signalife from these requirements. Pursuant to theletter, Signalife will be required to submit to AMEX by July 27, 2007 forits review and acceptance of a plan for so increasing the company'sstockholder's equity, which plan will need to be implemented byDecember 29, 2008 or such earlier date as AMEX deems reasonable. Ifthe company's market capitalization were to return to levels above $50million, then the plan will not need to be implemented. Signalife ispresently preparing a plan to submit to AMEX to address these matters.No guarantee can be given that AMEX will accept the plan, which wouldlead to a delisting of Signalife's common shares from AMEX.

71. On August 10, 2007, Recom/Signalife filed its quarterly report on SEC Form

10-QSB for the period ended June 30, 2007. Bunes and Pickard signed the Form 10-QSB

and also signed SOX Certifications in connection with the filing. The Form 10-QSB

substantially repeated the same false and materially misleading disclosures concerning

Rubbermaid that Recom/Signalife had made in both the 2006 Form 10-KSB and I Q07

Form IO-QSB. In addition, Recorn/Signalife further stated, in relevant part:

During the six-month interim period ended June 30, 2007, pursuant to apreviously negotiated arrangement that had been suspended during theRubbermaid negotiations and contractual undertakings, we have issued atotal of 1,406,583 connnon shares to or for the benefit of the principal ofThe Silve Group as advances for future sales commissions during thesix-month interim period ended June 30, 2007 in connection with

41


organizing, introducing us to and procuring specific internationalpurchase orders, sales and distribution channels, partners andrelationships. These shares were valued at $2,498,651 based upon thefair market value of the shares determined as the closing stock priceas reported by AMEX at the dates of issuance. Under our agreement withThe Silve Group, they are entitled to 20% of all contract revenues theyprocure. Under that agreement, we will from time-to-time makeprepayments against expenses, costs and other factors, which will beoffset against contract revenues when received. The contractualrelationship did not take effect until the beginning of 2007, whenSignalife requested that The Silve Group begin performing services.

72. On August 31, 2007, Recom/Signalife issued a press release entitled

"Signalife Provides Corporate Update." The release stated, in relevant part:

Lowell T. Harmison, President and acting Chief Executive, has release[d]the following corporate update since his matriculation into the Presidencylast month:

1. Dr. Harrison has already "cleaned house" and haseliminated several positions that were producing no revenuewhatsoever and no hope of any positive results for theCompany, in his view. That was done inunediately by Dr.Harmison and was done by the Dr. personally. "We are nowoperating within five separate departments: Sales, R&D,Operations, FDA, Regulatory. These positions are nowcompartmentalized and operating efficiently under my directsupervision."

2. As promised, and as announced, Dr. Harmison hasparticipated in obtaining a $102 million financing vehicle forthe Company. Dr. Harmison calls this an "extremelyvaluable" facility because it enables the company to choosethe market conditions — and stock price — at which it shallexchange its stock for capital. Dr. Harmison continues: "Weare thank to the AMEX for so efficiently and in good faithevaluating and approving our financial transaction. Themarket appears to be getting the message that — when anysales initiatives bear fruit in the upcoming near term — theobtaining of $100 million at the market price is a testament toour technology — referred to as a "modern medical miracle"by NBC. Any other result would have been unfair to ourshareholders, and I promised that I would create a new era

42


for our shareholders — one with revenues, earnings, profits,growth and corporate accolades."

3. According to Dr. Hannison, "our sales funnel utilizingmarquee hospitals known to the Company and its Board" isproceeding ahead of schedule. These are some of theprestigious institutions in the country and allow themarvelous Fidelity 100 to be utilized in areas where lives andoutcomes can be changed for the better. I anticipate ourmarket penetration strategy over the next five quarters willproceed more quickly than I had conservatively anticipatedat the beginning of any tenure."

4. The technology division is also moving on its holderdevices as well as its intra-cardiac monitor — and otherdevices — with extraordinary acuity and speed. The division— possibly the core of the Company — "only gets moreefficient as the secrets of the patented tecluiologies becomemore known and understood in the quality of the signal fromheart patients of all ages."

"In short, I have achieved more than I anticipated in several short weeks,and the momentum toward device approvals, ventures, sales andearnings are at the center of that gaining momentum."

73. On October 10, 2007, Recont/Signalife issued a press release entitled

"Signalife Continues to Procure Purchase Orders, Revenues." The release stated, in

relevant part:

Signalife has received additional sales orders in excess of one halfmillion dollars ($551,500 to be exact), during CEO Lowell Harminson'smost recent cross-country sales initiative. These purchase orders arecurrently resulting in revenues to the company such that the companyanticipates achieving break-even status by the end of January, 2008, or atthe very latest the end of 2008 first quarter.

74. On November 14, 2007, ReconnISignalife filed its Form IO-QSB for the

quarter ended September 30, 2007 with the SEC. Hannison and Pickard signed the Form

lO-QSB and also signed SOX Certifications in connection with the filing. The Form 10-

QSB substantially repeated the false and materially misleading disclosures concerning

43


Rubbermaid that the Company had been issuing in each and every SEC filing since its 2006

Form 10-KSB. In addition, Recom/Signalife stated, in relevant part:

During the nine-month interim period ended September 30, 2007,pursuant to a previously negotiated arrangement that had been suspendedduring the Rubbermaid negotiations and contractual undertakings, wehave issued a total of 1,546,583 common shares to or for the benefit ofthe principal of The Silve Group as advances for future salescommissions during the nine-month interim period ended September 30,2007 in connection with organizing, introducing us to and procuringspecific international purchase orders, sales and distribution channels,partners and relationships. These shares were valued at $2,637,251based upon the fair market value of the shares determined as theclosing stock price as reported by AMEX at the dates of issuance.Under our agreement with The Silve Group, they are entitled to 20% ofall contract revenues they procure. Under that agreement, we will fromtime-to-time make prepayments against expenses, costs and other factors,which will be offset against contract revenues when received. Thecontractual relationship did not take effect until the beginning of 2007,when Signalife requested that The Silve Group begin performingservices.

Since the end of the third quarter of fiscal 2007, we issued a total of250,000 common shares to the principal of The Silve Group ascompensation for the provision of product marketing and distributionservices rendered by that company during the second quarter inconnection with organizing, introducing us to and procuring specificinternational sales and distribution channels, partners andrelationships.

75. In the November 14, 2007 Fonii 10-QSB, the Company also disclosed the

receipt of purchase orders as follows:

PENDING PURCHASE ORDERS

On September 14, 2007, Signalife received a purchase order from ahospital/medical group purchasing organization for a finance lease forFidelity 100 units. The gross proceeds to Signalife, assuming exercise ofpurchase rights, will be $1,980,000. Under the temis of the purchaseorder, the hospital/medical group paid a$50,000 deposit (included in

44


accounts payable), and will prospectively pay $1,750,000 in 24 monthlylease payments (amortized on a per unit basis) commencing upondelivery of the units, plus an additional $180,000 to purchase the units atthe end of the lease (amortized on a per unit basis subject to certainminimums).

On September 24, 2007, Signalife received a purchase order from ahospital/medical group purchasing organization for a finance lease forFidelity 100 units. The gross proceeds to Signalife, assuming exercise ofpurchase rights, will be $3,300,000. Under the terms of the purchaseorder, the hospital/medical group will prospectively pay a $30,000deposit, an additional $2,970,000 in 24 monthly lease payments(amortized on a per unit basis) cominencing upon delivery of the units,and an additional $300,000 to purchase the units at the end of thelease (amortized on a per unit basis subject to certain minimums). Thehospital/medical group purchasing organizations noted above work withcertain of the hospitals and medical groups we have contacted to handletheir requirements. Payments under the above financing leases willcommence upon delivery of the Fidelity 100 units. Based upon currentanticipated production rates through Signalife's contract manufacturer,we anticipate that the orders should be fully filled by the end of the firstquarter of fiscal 2008. We intend to investigate factoring or otherwiseleveraging the finance leases to accelerate cash flows from the leases.We will commence recognizing sales revenue with respect to the aboveorders upon shipment of the products.

SUBSEQUENT EVENTS

On October 4, 2007, Signalife received a purchase order from ahospital/medical group purchasing organization for a finance lease forFidelity 100 units. The gross proceeds to Signalife, assuming exercise ofpurchase rights, will be $564,000. Under the temis of the purchaseorder, the hospital/medical group will prospectively pay a $12,500deposit, an additional $514,000 in 24 monthly lease payments (amortizedon a per unit basis) commencing upon delivery of the units, and anadditional $50,000 to purchase the units at the end of the lease (amortizedon a per unit basis subject to certain minimums). The notedhospital/medical group purchasing organization works with certain of thehospitals and medical groups we are marketing to handle theirrequirements. Payments under the above financing leases willcommence upon delivery of the Fidelity 100 units. Based upon currentanticipated production rates through Signalife's contract manufacturer, we

45


anticipate that the orders should be fully filled by the end of the firstquarter of fiscal 2008. We anticipate factoring out or otherwiseleveraging the finance leases so we can recognize the full amount oflease payments associated with each unit delivered upon delivery ofsuch unit.

76. The Company also represented h-i its November 14, 2007 Form 10-QSB that:

"Based upon current anticipated production pates through Signalife's contract

manufacturer, we anticipate that the orders should be fully filled by the end of the first

quarter of fiscal 2008."

77. On December 6, 2007, Recom/Signalife filed a Form SB-2 Registration

Statement with the SEC. The Registration Statement stated, in relevant part:

Manufacturing Capacity

We intend to manufacture our products both domestically and off-shoreusing third party FDA-certified contract manufacturers or joint-venturepartners. Most of the components of our products are standard partswhich are available from multiple supply sources at competitive prices.This, coupled with the lack of significant start-up costs attributable to theuse of contractors, should minimize production and product costs.Currently, we have engaged one contract manufacturer, Ventrex, Inc.,which has been manufacturing the Model 100 Modules used in ourFidelity 100 Monitor System since December 2005.

78. On January 14, 2008, Recom/Signalife issued a press release entitled "AMEX

Notifies Signalife that It Will Need to Comply with Minimum Stockholders' Equity

Requirement." The release stated, in relevant part:

The American Stock Exchange ("AMEX") issued a deficiency letter toSignalife pursuant to which it advised Signalife that it would need tocomply with the $6 million stockholders' equity threshold required forcontinued listing under AMEX Rules 1003(a)(iii). This notification wastriggered by the recent decline of Signalife's market capitalization to lessthan $50 million, which previously exempted Signalife from meeting theminimum stockholders' equity requirement.

46


The deficiency letter is the second instance in which AMEX noted thedecline in Signalife's market price to below the $50 million level.Signalife received the earlier deficiency letter in June 2007, pursuant towhich Signalife provided a plan to AMEX which was not rejected byAMEX and which Signalife will amend and resubmit in response to thislatest notice. This earlier deficiency was cured in October 2007 as a resultof the return of Signalife's market capitalization to above $50 million.

79. On February 26, 2008, Recom/Signalife issued a press release entitled

"Signalife Provides Corporate Update." The release stated, in relevant part:

Signalife, Inc. — through its President and Chief Executive OfficerDr. Lowell Harmison — has just issued the following corporate update.

Signalife Products

Fidelity 1000 —New Product

The Company has developed a modular solution to evaluate existingECG devices by development of a module -- called the Fidelity 1000 —that would effectively enable testing of the fidelity of ECG devices. Dr.Hanilison commented: "We would like to provide scientific evidenceregarding the ability of our devices to reproduce known eCG signals withthe highest fidelity. We are building a database of important ECG shapesthat can be used together with other publicly available databases forevaluation of our technology but also of other devices on the market."The Fidelity 1000 is expected to support and expand Signalife's footprintinto the cardiovascular disease marketplace worldwide. Further, Dr.Harmison commented: "Much like the urgency of 62K eight years ago,there is a movement toward assuring all ECG machines of every kind willcome into compliance with clinical standards issued by the AHA.Signalife's technologies are uniquely suited to do that, and the Companyis moving to solve the problem."

Fidelity 100 — Original 12-Lead Award Winning Product

The Company has completed upgrades and is now manufacturingupgraded units for outstanding orders for its FDA-cleared Fidelity 100.These upgrades have undergone vigorous evaluation and testing and donot modify the device. "We have made our device more congruent withthe objectives across the health care industry, and expect to get even moreattention in the marketplace than today."

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Fidelity 200 — Unique Non-Prescription Credit Card Heart Monitor

For the Fidelity 200, the Company has chosen its last group of productmanufacturers, the schematics have been completed, the pre-launch hasbeen started and many key steps will be completed in the next 30 days asthe Company now enters final negotiations to acquire its call center tolaunch the Heart Tempo(TM) Card, otherwise known as the Fidelity 200.

Fidelity 350 — New Product

Signalife has developed a digital, mini Holter monitor that incorporatesthe award-winning technologies of the Company. This device has thecapability to record for 30 days, work on a fully wireless network, and bereduced to the size of a very small pager. In an era of socialized healthcare across Europe — and a constant pressure of cost reduction in theUnited States — this is a device "whose time has come" according to Dr.Harrnison. The product is beyond prototype and is expected to besubmitted to the FDA shortly.

Fidelity 400 — Intra-Cardiac Monitor

Developed in conjunction with the Cleveland Clinic, this importantdevice -- unveiled at the Heart Rhythm Society Convention — is in finalperformance evaluation and testing and is expected to be submitted tothe FDA later this year. It is anticipated that this device will enable theacquisitions of new data and development of new approaches to theelectrophysiological studies of the heart that are performed inelectrophysiological labs around the world.

Financing Partnership

Subsequent to entering into the $100 million contractual relationship withthe Yorkville group of companies, Signalife has accessed less than$500,000 (five hundred thousand dollars) of its $100,000,000 line ofcredit. As Dr. Harmison remarked: "We are pleased with our relationshipwith Yorkville. The Yorkville companies have done everything accordingto the letter of the contract, and have been very supportive of Signalife.We anticipate accessing the Yorkville equity line from time to time, andonly then will additional shares be issued to Yorkville."

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Signalife Markets

In addition to the North American markets for Signalife products, theworld is --- as Dr. Hannison remarks — "becoming smaller." The CEOcontinued: "Not only have we begun manufacturing and deliveryschedules for existing orders, but the Company has vigorously pursuedand established product demand in Singapore, China, Indonesia,Western Europe, Eastern Europe, Korea and the United Kingdom."The Company believes that the worldwide markets are "explosive" (inthe words of Dr. Harmison) and that this will be demonstrated in "theshort, medium and long term," the CEO added.

80. On March 17, 2008, Recom/Signalife issued a press release entitled "Signalife

Seeks Accretive Purchase and Financial Commitments." The release stated, in relevant

part:

Signalife, Inc. announced earlier today that it has received severalformal purchase and financial commitments with respect to acquisitionsof the Company's technology licenses, devices and services. Thesecommitments have come internationally, including in Japan, other partsof Asia and Europe, as well as domestically.

Dr. Harmison, the Company's President and CEO, stated: "I anticipateclosing these transactions in the upcoming two to four weeks, whichcomprise significant business for the Company. With the experientialbase developed during my tenure regarding the ECG data generated fromthe usage of our technologies — not only by health care providers but alsothrough numerous Athletes for Life-sponsored mobile health carescreenings — there are now numerous additional revenue streams thathave naturally become available to the Company. "

81. On March 25, 2008, Recom/Signalife issued a press release entitled "Signalife

Wins More Business; Actively Shipping Orders."

Signalife, Inc. has announced that it has been and continues to shiporders under what Dr. Harmison calls an "efficient production line atits manufacturing facility. " Additionally, the Company has received anadditional $7.5 million in Fidelity 100 device delivery orders in themonth of March, 2008, which the company intends to fill during thenext two quarters. The Company said it may fill these orders sooner.

49


Dr. Harmison stated: "I am very comfortable with our production linecapabilities in terms of their immediate capacity - which will now rampup to a minimum of 125 production model Fidelity 100 devices per monthand grow from there. This capability will be expanded significantly tomeet growing demand."

The Company also added that it is continuing discussions with itsEuropean and Asian partners (and prospective ones), and Dr. Harmison"anticipates that these opportunities will bear fruit ten days from today. Iam pleased to be able to provide this update."

82. On April 3, 2008, Recom/Signalife filed its 2007 Form 10-KSB for the

fiscal year ended December 31, 2007 with the SEC. Hannison and Pickard signed the

Form 10- KSB and also signed SOX Certifications in connection with the filing. The

Company stated the following regarding the purchase orders referred to in the

September 30, 2007 Form 10-QSB:

Initial shipment of products under the above orders were delayed untilthe first quarter of 2008 as a consequence of (i) the discontinuance ofa laptop computer to be used as part of the Fidelity 100 units, andthe need to procure another laptop from another computer manufacturerthat would afford comparable integrated bluetooth interoperability andother features as the discontinued Dell model, and (ii) delays by thecompany's contract manufacturer in setting up its manufacturingproduction lines.

83. With respect to the Company's products other than Fidelity 100, the April 3,

2008 Form I O-KSB stated, in relevant part:

We anticipate commencing production of the Fidelity 200 within thenext 120 days, having chosen our last group of product manufacturers,completed production designs and schematics, and commencing pre-launch.

We anticipate that we would commence marketing the Fidelity 350 bythe end offiscal2008.

50


We developed and successfully tested a proto-type version of this productfthe Fidelity 400 Intracardiac Monitor] ...

The Fidelity 1000 Module is being developed for the dual purpose ofproviding a data base to compare our signal quality to that of ourcompetitors, and the longer-terni objective of offering a product as a frontend and add-on which will enable our competitor's access to our front endtechnology and other heart monitoring devices to meet American HeartAssociation guidelines.

84. Defendants' foregoing statements were false and materially misleading

because Defendants knew and/or recklessly disregarded and concealed true facts about

Recom/Signalife, including that:

(a) Stein actively participated in controlling and managing the Company,

including without oversight by Recom/Signalife executives;

(b) the Individual Defendants had no intention of bringing any saleable

product to market because Recom/Signalife was a stock manipulation scheme;

(c) the Company had no means to manufacture or market any kind of

saleable Fidelity 100 device;

(d) there were no orders for the Fidelity 100 or any of Recom/S ignali fe' s

heart monitoring products that would produce any revenue;

(e) the Company was not filling orders by shipping Fidelity 100 devices

or any other products to customers;

(f) Stein and associates were manipulating the price of Recon-I/Signalife

stock for their own benefit by releasing false information about the Company, trading on

non-public, inside information and shorting Recom/Signalife stock;

(g) The "blind trusts" established by ARC Finance were a mechanism for

Stein to trade in Recoin/Signalife stock;

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(h) Neither the Fidelity 300 Holter Monitor nor the Fidelity 200

HeartTenipo Card Monitor had been developed, and both were still in a concept phase,

were not ready for field trials, were not salable products and were not close to either

manufacture or reaching the market; and

(i) The Fidelity 1000 and Fidelity 400 had not been "developed" and

were still in the concept phase.

The Truth Emerges

85. On April 14, 2008, Recom/Signalife conducted a webcast in which

Harmison provided no information concerning the tens of millions of dollars of purchase

orders announced by the Company in press releases and SEC filings during 3Q-4Q07

and1Q08 or the production delays announced only ten days earlier. Harmison also said

nothing about the efforts or accomplishments of The Silve Group or Recom/Signalife's in-

house sales force. Instead, Harmison stated that Recorn/Signalife expected to realize

more than $40 million of gross revenue over "the next four to five quarters," but provided

no facts to support the Company's long tenn projection.

86. Defendants' silence regarding the delivery delays and 3Q-4Q07 and 1Q08

sales signaled to the market that RecomJSignalife had experienced yet another quarter

without actually making any sales that would produce revenue, despite the Company's

statements in its quarterly filings and press releases. As a result, it was apparent that the

"the Fidelity 100 was not commercially ready for sale," as Rubbermaid had alleged — and

Recorn/Signalife had repeatedly denied — in its lawsuit.

87. As a result of revelation of the truth about Reconi/Signalife, the Company's

stock dropped 13% on April 14, 2008 to close at $1.34 on unprecedented volume.

Recom/Signalife stock has subsequently been delisted from the AMEX.

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Post Class-Period Events

88. Events following the end of the Class Period confirm that Recom/Signalife

was a long-running fraud. In total, Recoin/Signalife has reported zero revenue from sales

of the Fidelity 100 during either fiscal year 2007 or the first nine months of 2008 despite

announcing millions of dollars in purported sales orders and recording more than $140,000

in revenue from alleged sales of the device in 4Q06. Hannison admitted to the fraud when

he told CW42 that he had not discussed the orders on the April 14, 2008 webeast because

they did not exist. Moreover, Hannison — CEO of the Company — also told CW42 that he

had not known about the press releases announcing the sales and had not been responsible

for their issuance.

89. Various products, including the Fidelity 300 Holter Monitor and Fidelity 200

HeartTempo Card, that Recom/Signalife said had been "developed" and/or would

imminently be ready for the market are still not saleable products. Instead, according to

Recon-lISignalife's latest SEC filing (occurring after the Class Period on November 14,

2008), the Company's "overall plan of operation for the twelve-month period going

forward commencing as of October 1, 2008" includes an effort to:

• "ramp-up domestic and international commercial marketing and salesefforts with respect to our Fidelity 100 Monitor System";

• 'finalize development" of the Fidelity 200 HeartTempo Card device andFidelity 300 Holter Monitor; and

• "continue product development with respect to our Fidelity 400Intracardiac Monitor, Signalife Cardiac Vest and Fidelity 1000 Moduleproducts."

According to the Company, it will need to raise $12 million to execute its business

strategy, and the state of Recom/Signalife's "circumstances raise substantial doubt about"

the Company's "ability to continue as a going concern in the event" that it is "unable to

raise the additional capital."53


LOSS CAUSATION / ECONOMIC LOSS

90. As detailed herein, Defendants made false and materially misleading

statements during the Class Period that artificially inflated Recom/Signalife's stock price

and operated as a fraud or deceit on the Class. As farther detailed herein,

Recom/Signalife's stock price fell when Defendants' prior false statements, material

misrepresentations and fraudulent conduct began to reach the market and artificial inflation

in the stock price was removed. As a direct result, Plaintiffs and the Class suffered

economic loss, i.e., damages, wider the federal securities laws.

SCIENTER

91. Defendants had both the motive and opportunity to conduct fraud, as well as

actual knowledge thereof, during the Class Period. Stein, who participated in the control

and management of Recom/Signalife, was actively trading in Recom/Signalife stock (either

directly or through entities under his control) based on inside, non-public information and

was manipulating the stock price for the benefit of his stock trades. Such trading was not

disclosed to investors because Stein did not file any SEC forms in connection with his

trading. Stein associates, including Olson, were also trading in Recom/Signalife stock as

part of a coordinated effort with Stein to manipulate Recom/Signalife stock. Stein was also

"shorting" Recom/Signalife stock. The Individual Defendants, other than Stein,

participated in the fraud, including by acting at Stein's direction and permitting Stein to act

without oversight by executive management, and had actual knowledge of the falsity of the

statements they and Stein made and/or acted in reckless disregard of the truth or falsity of

such statements.

92. As alleged herein, Defendants violated the federal securities laws by, inter

alia, knowingly and/or recklessly disregarding that the public documents and statements

issued or disseminated by the Individual Defendants, including in the name of

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Recont/Signalife, were false and materially misleading, including as to Stein's control over

the Company, and that such statements or documents would be issued or disseminated to

the investing public. The false and materially misleading statements issued by the

Individual Defendants during the Class Period about Recom/Signalife's business concerned

the Company's core business operations in that only product that Recom/Signalife

purported to market and sell (the Fidelity 100) and no more than five other products were

ever allegedly under development, and all were based on the same underlying technology

(the Model 100 technology). Because the Fidelity 100 was the only product that

Recom/Signalife ever purported to bring to market and the Company was developing a

very limited number of related products, the Individual Defendants received confidential,

proprietary information or were otherwise privy to such information reflecting the truth

about sales of the Fidelity 100 and development of the related products, which contradicted

public statements made by the Individual Defendants and/or the Company.

NO SAFE HARBOR

93. To the extent Defendants made or issued oral or written forward-looking

statements accompanied by purported statutory "safe harbor" warnings, such warnings

were ineffective to shield those statements from liability. Defendants are liable for false or

materially misleading forward-looking statements made during the Class Period because

the speaker or issuer knew that the forward-looking statement was false or misleading,

and/or such forward-looking statements were authorized and/or approved by an executive

officer who knew that the forward-looking statement was false. Defendants also did not

make or issue contemporaneous, meaningful cautionary "safe harbor" statements

identifying important factors that could cause actual results or circumstances to differ

materially from those in the forward-looking statements.

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APPLICABILITY OF PRESUMPTION OF RELIANCE:

FRAUD-ON-THE -MARKET DOCTRINE

94. At all times relevant hereto, the market for Recom/Signalife stock was an

efficient market in that the market promptly digested current information regarding

Recom/Signalife from all publicly-available sources and the price of Recom/Signalife

stock reflected such information. During the Class Period:

(a) Recom/Signalife stock met the requirements for listing, and was

listed and actively traded on the AMEX, a highly efficient and automated market;

(b) Recorm/Signalife, a regulated issuer, filed periodic public reports with

the SEC and the AMEX; and

(c) Recorm/Signalife communicated with public investors and the market

via established mechanisms, including through regular disseminations of press

releases on the national circuits of major newswire services and through other wide-

ranging public disclosures, such as communications with the financial press and

other similar reporting services.

95. As a result of Defendants' misconduct (including Defendants' false and

materially misleading statements), the market for Recom/Signalife stock was artificially

inflated. Under such circumstances, all persons or entities who purchased Reconi/Signalife

stock during the Class Period suffered similar injuries, and the presumption of reliance

available under the "fraud-on-the-market" theory applies.

96. Plaintiffs and the Class relied on the integrity of the market price for

Recoin/Signalife stock. Plaintiffs and the Class were damaged as a direct and proximate

result of their purchases of ReconVSignalife securities at artificially inflated prices and the

subsequent decline in the value of those securities upon disclosure of the truth about

Recorm/Signalife.

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97. Plaintiffs and the Class would not have purchased Recom/Signalife securities

at inflated prices had Plaintiffs and the Class known of the material adverse information

that Defendants did not disclose or been aware of the truth that lay behind Defendants'

false and materially misleading statements.

98. Plaintiffs are also entitled to the Affiliated Ute presumption of reliance to the

extent that Defendants' statements were materially misleading in failing to disclose

material facts about Recon-t/Signalife that would have caused Plaintiffs and the Class not to

have purchased Recom/Signalife stock at the- artificially inflated prices at which such

securities traded during the Class Period.

CLASS ACTION ALLEGATIONS

99. Plaintiffs bring this Action as a class action under Federal Rules of Civil

Procedure 23(a) and 23(b)(3) on behalf of all persons who purchased or acquired the

securities of Recom/Signalife during the Class Period and were damaged thereby (the

"Class"). Excluded from the Class is Recoin/Signalife, the Individual Defendants, any

entity in which a Defendant has or had a controlling interest, members of the Individual

Defendants' fainilies and the legal representatives, agents, affiliates, heirs and successors-

in-interest or assigns of any such excluded party.

100. The members of the Class are so numerous that joinder of all members is

impracticable. The disposition of their claims in a class action will provide substantial

benefits to the parties and the Court. During the Class Period, thousands of persons owned

the outstanding shares of Recom/Signalife. Record owners and other class members may

be identified from records maintained by Recoin/Signalife and/or its transfer agents, and

such owners and class members may be notified of the pendency of this Action by mail,

using a form customarily used in securities class actions.

57


101. Plaintiffs' claims are typical of the claims of the Class. Plaintiffs and all

members of the Class sustained damages as a result of Defendants' misconduct alleged

herein.

102. Plaintiffs will fairly and adequately protect the interests of the Class and have

retained competent counsel with significant experience in class action litigation and

litigation involving alleged violations of the federal securities laws. Plaintiffs have no

interests that are contrary to, or in conflict with, those of the Class that Plaintiffs seek to

represent in this Action.

103. A class action is superior to all other available methods for the fair and

efficient adjudication of this controversy, including because joinder of all members of the

Class is impracticable and damages suffered by individual Class members may be

relatively small whereas the expense and burden of individual litigation make it virtually

impossible for the members of the Class to individually redress the wrongs done to them by

Defendants. There will be no difficulty in the management of this Action as a class action.

104. There is a well-defined conirnunity of interest in the questions of law and fact

involved in this Action. The questions of law and fact conunon to the members of the

Class which predominate over questions that may affect individual Class members are:

(a) whether Defendants' acts and omissions complained of hercin

violated the federal securities laws;

(b) whether Defendants misrepresented material facts;

(c) whether documents, including, inter alia, the Company's SEC filings

and press releases, and Defendants' other public statements made during the Class

Period contained misstatements of material fact or omitted to state material facts

necessary to make the statements, in light of the circumstances under which they

were made, not misleading;

58


(d) whether the market price for Recorn/Signalife stock was artificially

inflated during the Class Period due to the false and materially misleading

statements, including non-disclosures, complained of herein;

(e) with respect to Plaintiffs' claims under Section 10(b) of the Exchange

Act, whether Defendants acted with the requisite state of mind in making false and

materially misleading statements, including non-disclosures, in documents filed

with the SEC, press releases and other public statements;

(f) with respect to Plaintiffs' claims pursuant to Section 20(a) of the

Exchange Act, whether Defendants named in such claims are controlling persons of

Reconi/Signalife; and

(g) whether the members of the CIass have sustained damages as a result

of the misconduct complained of herein and, if so, the appropriate measure of such

damages.

CLAIM IFor Violations of Section 10(b) of the Exchange Act and Rule 1Ob-5

Against Recom/Signalife and the Individual Defendants

105. Plaintiffs repeat and reallege each and every allegation set forth above as if

fully set forth herein.

106. Plaintiffs bring this Claim pursuant to Section 10(b) of the Exchange Act and

Rule l Ob-5 promulgated thereunder by the SEC on behalf of Plaintiffs and members of the

Class who purchased Recom/Signalife securities during the Class Period against

Recom/Signalife and the Individual Defendants.

107. Throughout the Class Period, Defendants individually and together, directly

and indirectly, by the use and means of instrumentalities of interstate commerce and the

facilities of a national securities exchange: employed devices, schemes and artifices to

59


defraud; made untrue statements of material fact; materially misrepresented facts, including

by omitting to state material facts necessary to make statements not misleading; and

engaged in acts, practices and a course of business which operated as a fraud and deceit

upon Plaintiffs and the Class. Such acts were in violation of Section 10(b) of the Exchange

Act and Rule 10-b5 promulgated thereunder by the SEC.

108. Defendants' false and materially misleading statements were made with

scienter and were intended to and did: deceive the investing public, including Plaintiffs

and the Class; artificially create, inflate and maintain the market for and market price of

ReconiISignalife securities; and cause Plaintiffs and the Class to purchase Reconi/Signalife

securities at artificially inflated prices.

109. Defendants were individually and collectively responsible for making the

statements and omissions alleged herein by virtue of having prepared, approved, signed

and/or disseminated documents which contained untrue statements of material facts and/or

omitted material facts necessary to make the statements contained therein not misleading.

110. During the Class Period, Defendants were executives at Recom/Signalife and

had access to, and were provided with, non-public infomlation concerning the Company.

Each of them knew or recklessly disregarded the adverse facts specified herein and omitted

to disclose those facts.

111. As set forth herein, Defendants made false statements and materially

misleading statements, including by omitting to state material facts, knowingly and

intentionally or in an extremely reckless manner as to constitute willful deceit and fraud

upon Plaintiffs and the Class who purchased Recom/Signalife common stock during the

Class Period. Throughout the Class Period, Defendants had a duty to disclose new,

material information that rendered their prior statements to the market materially false and

misleading. There is a substantial likelihood that disclosure of these omitted facts would

60


have been viewed by Plaintiffs and the Class, as reasonable investors, as significantly

altering the `total mix' of information available about the Company.

112. Defendants made the false and materially misleading statements, including

omissions of material facts, complained of herein in connection with the purchase or sale of

the Company's securities.

113. Plaintiffs and the Class purchased Recom/SignaIife stock at artificially

inflated prices during the Class Period in ignorance of the false and materially misleading

nature of Defendants' statements and upon the integrity of the market price for

Recom/Signalife securities. Plaintiffs and the Class would not have purchased

Reconi/Signalife securities but for Defendants' fraud.

114. As described in detail herein, the market price for Recom/Signalife stock

declined materially upon public disclosure of the facts that Defendants had previously

misrepresented or omitted to disclose.

115. Plaintiffs and the Class were damaged as a direct and proximate result of their

purchases of Recom/Signalife securities at artificially inflated prices and the subsequent

decline of the value of such securities when the truth about the Company was disclosed.

116. Accordingly, Defendants have violated Section 10(b) of the Exchange Act

and Rule 10b-5 promulgated thereunder by the SEC, and are liable to Plaintiffs and the

Class. This claim was brought within two years after discovery of Defendants' fraud and

within five years of the making of the statements alleged herein to be false and/or

materially misleading.

CLAIM II

For Violations of Section 20(a) of the Exchange ActAgainst the Individual Defendants

117. Plaintiffs repeat and reallege each and every allegation set forth above as if

fully set forth herein.

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118, Plaintiffs bring this claim pursuant to Section 20(a) of the Exchange Act

against the Individual Defendants on behalf of Plaintiffs and the Class who purchased

Recom/Signalife securities during the Class Period.

119. As set forth herein, Recom/Signalife is liable to Plaintiffs and the Class who

purchased Recom/Signalife stock based on the false and materially misleading statements,

including omissions, set forth above, pursuant to Section 10(b) of the Exchange Act and

Rule I Ob-5 promulgated thereunder by the SEC.

120. Throughout the Class Period, the Individual Defendants were controlling

persons of Recom/Signalife within the meaning of Section of 20(a) of the Exchange Act

and culpable participants in the fraud at Reconn/Signalife, as set forth above.

121. Each Individual Defendant exercised control over Recom/Signalife during the

Class Period by virtue of, inter alia, their executive positions with the Company, the key

roles they played in the management of Recom/Signalife and their direct involvement in

the Company's operations, including its financial reporting and accounting functions.

122. Given then the Individual Defendants' personal and collective responsibilities

for managing Recom/Signalife during the Class Period, the Individual Defendants (other

than Stein) were regularly presented to the market as the persons responsible for

Recom/Signalife's day-to-day business and operations and the Company's overall strategic

direction. The Individual Defendants (including Stein) presented quarterly and annual

results, set guidance for future reporting periods and assured the market about the state of

the Company and its prospects for the future. At Recon-i/Signalife, the Individual

Defendants (including Stein) had ultimate responsibility for, and control over, the

Company's internal activities and public statements, and no one else at Recom/Signalife

exercised similar degrees of responsibility and control.

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123. As set forth herein, the Individual Defendants' false and materially

misleading statements, including omissions, artificially inflated the market price of

Recoin/Signalife securities during the Class Period. As more fully described above, the

presumption of reliance available under the "fraud on the market theory" applies under

such circumstances. Plaintiffs and the Class relied upon either the integrity of the market

or upon the statements and reports of the Individual Defendants in purchasing

Recom/Signalife securities at artificially inflated prices.

124. Accordingly, each of the Individual Defendants are liable to Plaintiffs and the

Class, each of whom has been damaged by the underlying violations of the federal

securities laws. This claim was brought within two years after discovery of the Individual

Defendants' fraud and within five years of the making of the statements alleged herein to

have been false and/or materially misleading.

PRAYER FOR RELIEF

WHEREFORE, Plaintiffs on behalf of themselves and the Class, prays for judgment

as follows:

A. Declaring this Action to be a class action properly maintained pursuant to

Rule 23 of the Federal Rules of Civil Procedure.

B. Awarding Plaintiffs and other members of the Class compensatory damages;

C. Awarding Plaintiffs and members of the Class pre-judgment and post-

judgment interest, as well as reasonable attorneys' fees, expert witness fees and other costs

and disbursements;

D. Awarding extraordinary, equitable and/or injunctive relief as permitted by

law, equity and the federal statutory provisions sued hereunder, pursuant to Fed. R. Civ. P.

64 and 65 and any appropriate state law remedies to assure that the Class has an effective

remedy; and

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E. Awarding Plaintiffs and other members of the Class such other relief as this

Court may deem just and proper under the circumstances.

JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

Dated: February 23, 2009

RICHARDSON PATRICK WESTBROOK &BRICKMAN LLC

/s/ Terry E. Richardson, Jr. Terry E. Richardson, Jr. (#3457)1730 Jackson StreetBarnwell, SC 29812Tel: (803) 3417850Fax: (803) [email protected]

Liaison Counsel for Plaintiffs

Joseph GuglielmoSCOTT + SCOTT, LLP29 West 57th Street, 14th FloorNew York, NY 10019Tele: (212) 223-6444Fax: (212) [email protected]

David R. Scott (DS 8053)SCOTT + SCOTT, LLP108 Norwich. AvenueP.O. Box 192Colchester, CT 06415Tel: (860) 537-5537Fax: (860) 537-4432drscott@scott-scoff. com

Arthur L. Shingler IIISCOTT + SCOTT LLPLuis E. Lorenzana600 B Street, Suite 1500San Diego, California 92101Tel.: (619) 233-4565

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Fax: (619) [email protected] [email protected]

Lead Counsel for Plaintiffs

65


CERTIFICATE OF SERVICE

I hereby certify that on Dated: February 23, 2009, I electronically filed the

foregoing with the Clerk of the Court using the CM/ECF system which will send

notification of such filing to the e-mail addresses denoted on the Electronic Mail Notice

List, and I hereby certify that I have mailed the foregoing document or paper via the United

States Postal Service to the non-CM/ECF participants indicated on the Manual Notice List.

I certify under penalty of perjury under the laws of the United States of America

that the foregoing is true and correct. Executed on Dated: February 23, 2009.

/s/ Terry E. Richardson, Jr. RICHARDSON PATRICK WESTBROOK &BRICKMAN LLC1730 Jackson StreetBarnwell, SC 29812Tel: (803) 341-7850Fax: (803) 541 -9625

[email protected]

1

Documents

DISTRICT OF SOUTH CAROLINA GREENVILLE DIVISION ROBERT A ...securities.stanford.edu/filings-documents/1040/SGN_01/2009224_r01c_08... · 6:08-cv-02995-RBH Date Filed 02/24/09 Entry