Sterns Pleads Guilty to Fraud in ‘Diet Patch’ Case : Courts: He sold millions of shares of unregistered stock and hyped a number of bogus products. The maximum sentence is 15 years in prison and a $750,000 fine.

Six months after asserting his innocence and claiming that the government was conducting a “witch-hunt” against him, Orange County businessman David D. Sterns pleaded guilty Monday to charges of mail fraud, securities fraud and tax evasion in connection with the marketing of a “diet patch” product.

“Guilty as charged,” the 55-year-old defendant somberly responded as each of the three counts against him were read by U.S. District Judge Gary L. Taylor in Santa Ana.

Sentencing was scheduled for Dec. 16. He faces a maximum sentence of 15 years in prison and a fine of $750,000.

Last August, the Securities and Exchange Commission won a record judgment against Sterns that included more than $12 million in restitution payments for selling 36 million shares of unregistered stock to the public and for hyping a number of bogus products, including the diet patch.

Sterns pleaded guilty to masterminding a scheme in 1988 to sell a dime-size diet patch which, when placed behind the ear, purportedly acted as an appetite suppressant. He told distributors that the device had been approved by the U.S. Food and Drug Administration, when in fact it had not. Government prosecutors also charged that Sterns used a placebo substance in place of the chemical prescribed by the patch’s inventor, a UCLA researcher.

Distributors paid about $1 million for the patch to the Ultimate Business Network, a group of Sterns’ companies based in Laguna Hills. The distributors also bought another $1 million in stock of the companies supposedly manufacturing the patch.

According to government investigators, the diet patch scheme was part of a $10-million penny stock fraud through which Sterns bilked thousands of investors nationwide, including Olympic swimming champion Mark Spitz. Penny stocks, which typically sell for less than $1 per share, are usually thinly traded, high-risk stocks sold on the over-the-counter market.

“Sure, it (the guilty plea) surprised me,” said Assistant U.S. Atty. Paul L. Seave, who is prosecuting the case. “I’m always surprised when the big fish decides to come in and plead guilty. Especially in white-collar crime cases, people have a way of persuading themselves they did nothing wrong.”

Sterns and his lawyer, Robert J. Huston of Newport Beach, declined comment after the hearing. Sterns said in court, however, that he decided to plead guilty, in part, to end the government’s “harassment” of his daughter, Debra A. Sterns, who was president of one of the companies that marketed the diet patch.

Debra Sterns has been under investigation for her role in the scam. However, the plea agreement between David Sterns and prosecutors stipulates that no charges will be brought against the daughter in connection with the case.

“I was the so-called family guru and I think people had the right to rely on me to direct them from shark-infested waters. And I failed,” David Sterns said. “My family is a nervous wreck. It just needs to end, your honor.”