Securities & Exchange Commission v. BIH Corporation et al

Filing 189

OPINION AND ORDER denying without prejudice as to defendant Wayne A. Burmaster, Jr. to allow plaintiff to move for a default and default judgment and denying as to defendant Edward W. Hayter 67 Plaintiff Securities and Exchange Commission's Motion for Summary Judgment Against Defendants BIH Corporation, Wayne A. Burmaster, Jr., and Edward W. Hayter and the Relief Defendants. Signed by Judge John E. Steele on 3/13/2014. (AAA)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
vs.

Case No.

2:10-cv-577-FtM-29DNF

BIH CORPORATION, WAYNE A.
BURMASTER, EDWARD W. HAYTER, NORTH
BAY SOUTH CORPORATION, BIMINI REEF
REAL ESTATE, INC., RIVERVIEW
CAPITAL INC., CHRISTPHER L. ASTROM,
DAMIAN B. GUTHRIE, BARON
INTERNATIONAL INC., THE CADDO
CORPORATION, BEAVER CREEK FINANCIAL
CORPORATION,
Defendants.
___________________________________
OPINION AND ORDER
This matter comes before the Court on Plaintiff Securities and
Exchange

Commission’s

Motion

for

Summary

Judgment

Against

Defendants BIH Corporation, Wayne A. Burmaster, Jr., and Edward W.
Hayter and the Relief Defendants (Doc. #67) filed on March 2, 2012.
Defendants Burmaster and Hayter filed a joint Opposition (Doc.
#136) and Response to the Securities and Exchange Commission’s
Statement of Undisputed Facts in Support of its Motion for Summary
Judgment (Doc. #137) on February 14, 2013.1

On November 21, 2013,

plaintiff filed a Notice of Filing Supplemental Evidence in Further

1

On December 13, 2013, the Court entered an Opinion and Order
(Doc. #168) striking the Declaration of Wayne Burmaster (Doc. #137,
pp. 34-37) and Affidavit of Christian Gallo (Doc. #137, pp. 38-44)
attached to defendants’ Response.

Support of

its

Motion

for

Summary

Judgment

and

Statement

of

Undisputed Facts in Support of its Motion for Summary Judgment
(Doc. #167).
I.
Summary

judgment

is

appropriate

only

when

the

Court

is

satisfied that “there is no genuine issue as to any material fact
and that the moving party is entitled to judgment as a matter of
law.”

Fed. R. Civ. P. 56(c).

“An issue of fact is ‘genuine’ if

the record taken as a whole could lead a rational trier of fact to
find for the nonmoving party.”

Baby Buddies, Inc. v. Toys “R” Us,

Inc., 611 F.3d 1308, 1314 (11th Cir. 2010).

A fact is “material”

if it may affect the outcome of the suit under governing law.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In ruling on a motion for summary judgment, the Court views
all evidence and draws all reasonable inferences in favor of the
non-moving party.

Scott v. Harris, 550 U.S. 372, 380 (2007); Tana

v. Dantanna’s, 611 F.3d 767, 772 (11th Cir. 2010).

However, “if

reasonable minds might differ on the inferences arising from
undisputed facts, then the court should deny summary judgment.”
St. Charles Foods, Inc. v. America’s Favorite Chicken Co., 198 F.3d
815, 819 (11th Cir. 1999)(quoting Warrior Tombigbee Transp. Co. v.
M/V Nan Fung, 695 F.2d 1294, 1296-97 (11th Cir. 1983)(finding
summary judgment “may be inappropriate where the parties agree on
the basic facts, but disagree about the factual inferences that

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should be drawn from these facts”)).

“If a reasonable fact finder

evaluating the evidence could draw more than one inference from the
facts, and if that inference introduces a genuine issue of material
fact, then the court should not grant summary judgment.”

Allen v.

Bd. of Pub. Educ., 495 F.3d 1306, 1315 (11th Cir. 2007).
II.
Plaintiff Securities and Exchange Commission (plaintiff or
SEC) filed a five-count Complaint (Doc. #1) against defendants
Wayne A. Burmaster, Jr. (Burmaster), Edward W. Hayter (Hayter), BIH
Corporation (BIH), North Bay South Corporation (North Bay), Bimini
Reef Real Estate, Inc. (Bimini Reef), Riverview Capital Inc.
(Riverview Capital), Christopher L. Astrom (Astrom), and Damian B.
Guthrie (Guthrie), and relief defendants Baron International, Inc.
(Baron International), The Caddo Corporation (Caddo), and Beaver
Creek

Financial

Corporation

(Beaver

Creek)

for

violations

of

Sections 5(a), 5(c), and 17(a) of the Securities Act and Section
10(b) of the Exchange Act and Rule 10b-5 thereunder.2

The SEC

seeks a judgment from the Court enjoining each defendant from
future

violations

of

Sections

5(a),

2

5(c),

and

17(a)

of

the

On October 25, 2010, the Court entered consent judgments
against Riverview Capital, Bimini Reef, Guthrie, and Astrom.
(Docs. ## 24, 25.) On September 26, 2012, the Court entered an
Opinion and Order granting default judgments against BIH, North
Bay, Caddo, and Beaver Creek; however, the Court withheld entry of
the judgment pending submission of a motion by plaintiff. (Doc.
#121.) On December 19, 2012, the Court entered a default judgment
against Baron International. (Doc. #132.) Therefore, plaintiff’s
only pending claims are against defendants Hayter and Burmaster.
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Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5
thereunder,
imposing

requiring

a

monetary

disgorgement
penalty,

of

and

the

ill-gotten

barring

gains,

defendants

from

participating in any future offering of a penny stock.
In response, defendants Burmaster and Hayter, joined by other
defendants, filed a Motion to Transfer or Dismiss (Docs. ##28, 29),
which was denied (Doc. #45).

Burmaster and Hayter then joined the

other defendants in filing an Answer and Affirmative Defenses (Doc.
#61).

Subsequently,

Affirmative

Defenses

Burmaster
to

filed

Complaint

and

an

Amended

Crossclaim

Answer

and

Against

BIH

Corporation (Doc. #93), and Hayter filed an Amended Answer and
Affirmative Defenses (Doc. #95).

On March 25, 2013, the Court

entered an Opinion and Order (Doc. #145) striking a number of
Burmaster

and

Hayter’s

affirmative

defenses

and

Burmaster’s

counterclaim.
On March 4, 2014, the Court entered an Order (Doc. #185)
striking Burmaster’s Amended Answer and his remaining Affirmative
Defenses (Doc. #93).

Thus, the Court will deny without prejudice

the motion for summary judgment as to defendant Burmaster to allow
plaintiff to move for a default and default judgment.

The Court

will only consider the motion for summary judgment as to defendant
Hayter.

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III.
The relevant undisputed facts are as follows:
BIH was a Nevada corporation that was headquartered in Fort
Myers, Florida; during the relevant time period, BIH was a penny
stock that traded on the pink sheets; BIH’s website stated that
someone called Cris Galo, an “accomplished entrepreneur” with
interests in numerous businesses, served as BIH’s president and
CEO; BIH’s website further claimed that Galo had a benevolent
business

philosophy,

since

he

only

did

“mutually

beneficial

agreements that result in a positive outcomes [sic] for everyone,”
under “no circumstances will” he enter any agreement that will not
benefit BIH’s shareholders, and that Galo maintained business
investments

in

various

states,

including

Florida;

Burmaster’s

brother-in-law’s name is Christian Gallo; on March 18, 2008, a
press release was issued stating that a company called Prime
Restaurants was changing its name to BIH; on April 22, 2008, a
press release was issued stating that “after tedious negotiations
[BIH] has just agreed to expend several million dollars to complete
its acquisition of Baron;” on April 29, 2008, a press release was
issued stating that Baron was awarded a contract for the “complete
installation of beverage systems for all fifty (50) concession
locations” at Citi Field in New York City, and that “revenues from
this job are very substantial;” on June 20, 2008, a press release
was issued stating that BIH had received an unsolicited offer to

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pay up to 20 cents a share for its stock and its board of directors
would meet over the weekend to consider the offer; on June 23,
2008, a press release was issued stating that BIH’s board of
directors, including Galo, had held a strategic meeting over the
weekend

regarding

decisions”

will

this

offer

consider

the

for
best

BIH’s

stock

interest

of

and

that

the

“all

company’s

shareholders; on June 25-26, 2008, press releases were issued
stating that BIH was going to sell Baron for between 19 and 23
cents a share and that if the sale is completed BIH would pay a
onetime cash dividend of between 7 and 9 cents a share; on August
19, 2008, a press release was issued stating that additional
revenues Baron generated would create a higher than previously
announced sales price; on November 11, 2008, a press release was
issued stating that the potential purchase price of Baron had been
increased

due

to

“several

lucrative

new

major

accounts

and

increased revenue;” on November 13, 2008, a press release was
issued stating that Baron had “signed a multi-million dollar
renovation deal to supply and provide labor and materials for 20
Applebee’s outlets;” on or about December 7, 2008, a press release
was issued stating that “BIH will still pay its shareholders a
dividend;” on December 10, 2008, a press release was issued stating
that Galo would use all his powers as majority shareholder to make
sure

the

dividend

payment

included

both

a

stock

and

a

cash

dividend; on December 18, 2008, a press release was issued stating

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that BIH would pay a $0.005 cash dividend by December 31, 2008 from
“earnings;” on January 7, 2009, a press release was issued stating
that BIH would make the dividend payment; on January 12, 2009, a
press

release

was

issued

stating

that

BIH

had

provided

the

FINRA/NASDAQ dividend department with the requisite notice to issue
a cash dividend; and BIH did not issue a cash dividend.

(Doc.

#179, pp. 11-14.)
III.
As against defendant Hayter, plaintiff alleges claims of: (1)
sales of unregistered securities in violation of Sections 5(a) and
5(c) of the Securities Act (Count I); (2) fraud in violation of
Section 17(a)(1) of the Securities Act (Count II); (3) fraud in
violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act
(Count III); (4) fraud in violation of Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder (Count IV); and (5) aiding
and abetting BIH’s violations of Section 10(b) of the Exchange Act
and

Rule

10b-5

thereunder

(Count

V).

As

the

moving

party,

plaintiff bears the burden of demonstrating that there is no
genuine issue about any material fact necessary to establish
liability.
A.

Count I: Sales of Unregistered Securities in Violation of
Sections 5(a) and 5(c) of the Securities Act
“In order to establish a prima facie case for a violation of

§ 5 of the Securities Act, the SEC must demonstrate that (1) the
defendant

directly

or

indirectly
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sold

or

offered

to

sell

securities; (2) through the use of interstate transportation or
communication and the mails; (3) when no registration statement was
in effect.”

SEC v. Calvo, 378 F.3d 1211, 1214-15 (11th Cir.

2004)(citations omitted).

Liability for offerors and sellers is

strict, “regardless of . . . any degree of fault, negligent or
intentional, on the seller's part.”

Id. at 1219 (quoting Swenson

v. Engelstad, 626 F.2d 421, 424 (5th Cir. 1980)).

The defendant

need not have directly sold the unregistered security “if it can be
shown that he was a ‘necessary participant’ or a ‘substantial
factor’ in the offering or selling. . . .”

SEC v. Friendly Power

Co., 49 F. Supp. 2d 1363, 1372 (S.D. Fla. 1999)(quoting SEC v.
Holschuh, 694 F.2d 130, 139 (7th Cir. 1982)).
Plaintiff asserts that Hayter was a necessary participant to
the issuance of BIH’s stock to Riverview, Bimini Reef, and North
Bay because: (1) Hayter found the individuals, Astrom and Guthrie,
to issue the shares to; (2) Hayter structured the transactions
where Astrom and Guthrie would pay no upfront consideration for the
shares and then had them wire a portion of the sale proceeds; (3)
Hayter found Astrom a broker to sell tens of millions of shares;
(4) Hayter was the only person Guthrie interacted with to have BIH
issue shares to him, while Astrom dealt only with Hayter and
Burmaster; (5) after selling the stock, Bimini Reef and Riverview
Capital each wired over $200,000 of the sales proceeds to Hayter;
and (6) Hayter helped direct the promotional campaign that pumped

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up the price of BIH stock.

(Doc. #67, pp. 5, 14.)

In support,

plaintiff primarily cites to Astrom and Guthrie’s sworn statements
(Docs. ## 67-88, 67-89).3
Astrom

and

Guthrie,

Hayter responds by admitting that: (1)

through

their

companies

Bimini

Reef

and

Riverview Capital, each wired over $200,000 of the sales proceeds
to Hayter in order to satisfy debt owed to him by BIH, (Doc. #137,
pp. 2,

3,

4,

26,

28,

32,

33);

(2)

he

provided

the

contact

information for a broker to Astrom’s father, (id., p. 33); and (3)
he was involved with writing some of BIH’s press releases and
disseminating them, (id., p. 28).

However, Hayter denies that he

approached Astrom and Guthrie or structured the transactions,
citing his declaration.

(Id., ¶¶ 24-26.)

After drawing all possible inferences in favor of defendant
Hayter, the

Court

finds

that

there

remain

genuine

issues

of

material fact as to whether Hayter was a “necessary participant” or
a “substantial factor” in the offering or selling of the BIH

3

Plaintiff also requests that the Court draw an adverse
inference to Hayter’s assertions of the Fifth Amendment in his
investigative testimony, particularly regarding: (1) interactions
he had with Galo; (2) the number of BIH’s operating subsidiaries;
(3) knowledge of BIH’s finances; (4) his role in sending out
communications on behalf of BIH; (5) his involvement with BIH’s
promotional activities; (6) whether he solicited investments for
BIH; (7) who was involved in providing content for BIH’s website;
and (8) whether he had input into or wrote certain press releases
for BIH. (Doc. #67, p. 11.) Hayter was subsequently deposed and
there is no indication in the record that he asserted the Fifth
Amendment during his testimony. (Doc. #67-77; Doc. #137, ¶ 10.)
The Court therefore declines to draw the requested adverse
inference.
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stocks.
B.

Therefore, summary judgment will be denied as to Count I.

Counts II-IV: Fraud in Violation of Sections 17(a)(1)-(3) of
the Securities Act, Section 10(b) and Rule 10b-5 of the
Exchange Act
Section 17(a) of the Securities Act, Section 10(b) of the

Exchange Act, and Rule 10b–5 all proscribe fraudulent conduct in
the purchase or sale of securities.

Section 10(b) of the Exchange

Act makes it unlawful:
... for any person, directly or indirectly, by the use of
any means or instrumentality of interstate commerce or of
the mails, or of any facility of any national securities
exchange ... (b) To use or employ, in connection with the
purchase or sale of any security ... any manipulative or
deceptive device or contrivance in contravention of such
rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for
the protection of investors.
15 U.S.C. § 78j(b).

The SEC’s Rule 10b–5, promulgated thereunder,

states that:
It shall be unlawful for any person, directly or
indirectly, by the use of any means or instrumentality of
interstate commerce, or of the mails or of any facility
of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances
under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business
which operates or would operate as a fraud or deceit upon
any person,
in connection with the purchase or sale of any
security.
17 C.F.R. § 240.10b–5.

“Section 10(b) was designed to protect
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investors involved in the purchase and sale of securities by
requiring full disclosure.”

SEC v. DCI Telecomms., Inc., 122 F.

Supp. 2d 495, 498 (S.D.N.Y. 2000)(citing Santa Fe Indus., Inc. v.
Green, 430 U.S. 462, 477–78 (1977)).

The scope of liability is the

same under Section 10(b) and Rule 10b–5.

SEC v. Merch. Capital,

LLC, 483 F.3d 747, 766 n.17 (11th Cir. 2007); SEC v. Zandford, 535
U.S. 813, 816 n.1 (2002).

To prove a violation under Rule 10b-5,

the SEC must show: (1) that defendant engaged in one of the three
prohibited types of conduct set forth in Rule 10b-5, (2) in
connection with the purchase or sale of securities, (3) made with
scienter.4

Merch. Capital, 483 F.3d at 766 (citing Aaron v. SEC,

446 U.S. 680, 695 (1980)).
Section 17(a) “requires substantially similar proof.”

SEC v.

Wolfson, 539 F.3d 1249, 1256 (10th Cir. 2008)(quoting SEC v. First
Jersey Sec., Inc., 101 F.3d 1450, 1467 (2d Cir. 1996)).

Section

17(a) of the Securities Act provides that it is unlawful for any
person, directly or indirectly, in the offer or sale of securities:
(1)

to

employ

any

device,

4

scheme,

or

artifice

to

“Scienter may be established by a showing of knowing
misconduct or severe recklessness.” SEC v. Carriba Air, Inc., 681
F.2d 1318, 1324 (11th Cir. 1982). Recklessness requires a showing
of conduct that was an extreme departure from standards of ordinary
care which presented a danger of misleading buyers or sellers that
either was known or was so obvious that the company must have been
aware of it. Id. (citing SEC v. Southwest Coal & Energy Co., 624
F.2d 1312, 1321 (5th Cir. 1980)).
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defraud,5 or
(2) to obtain money or property by means of any untrue
statement of a material fact or any omission to state a
material fact necessary in order to make the statements
made, in light of the circumstances under which they were
made, not misleading; or
(3) to engage in any transaction, practice, or course of
business which operates or would operate as a fraud or
deceit upon the purchaser.
15 U.S.C. § 77q(a).
Plaintiff asserts that Hayter, along with BIH and Burmaster,
committed

securities

misrepresentations

and

fraud

by:

omissions

(1)
on

making

BIH’s

a

website

series
and

of

press

releases regarding Galo, whether Burmaster and Hayter were running
the company, claims about reducing the number of outstanding BIH
shares, potential business transactions, contracts, and Baron being
a wholly-owned subsidiary; and (2) carrying out a scheme that
operated as a fraud by creating a fictitious person, Galo, forging
his name on documents, hiding Burmaster and Hayter’s involvement in
BIH, and issuing shares in a scheme to evade Section 5.

(Doc. #67,

pp. 22-23.) Further, plaintiff asserts that Hayter, along with BIH

5

The Court notes that the proof for this element differs among
the various subsections.
Section 17(a)(1) includes the terms
“device,” “scheme” and “artifice” which the Supreme Court has
interpreted to mean “knowing or intentional misconduct” and, thus
requiring the SEC to establish that defendant acted with scienter.
Aaron, 446 U.S. at 696-97. Sections 17(a)(2)and 17(a)(3) require
only negligence. See Merch. Capital, 483 F.3d at 766; see also
Wolfson, 539 F.3d at 1257 (“The principal difference between §
17(a) and § 10(b) lies in the element of scienter, which the SEC
must establish under § 17(a)(1), but not under §17(a)(2) or
§17(a)(3).”).
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and Burmaster, have displayed a high degree of scienter by knowing
or were severely reckless in not knowing that: (1) Galo was not
running the company; (2) Baron was not a wholly-owned subsidiary of
BIH; (3) BIH could not have been buying its shares on the public
market or pay a cash dividend; and (4) there was no contract to
purchase Baron for BIH.

(Doc. #67, p. 24.)

Hayter states in his

declaration that: (1) he was involved with writing some of BIH’s
press releases and disseminating them, but that the press releases
involved

information

he

received

from

Baron

and

that

the

information seemed plausible to him, (Doc. #137, pp. 28, 29, 31,
32); (2) he was a consultant to BIH and did not run the company,
(id., pp. 27-31); and (3) Galo is not a fictitious person and was
the majority shareholder and director during the relevant time
period,

(id.).

The Court finds that there remains a genuine issue of material
fact

as

to

whether

defendant

Hayter

engaged

in

one

of

the

prohibited types of conduct set forth in Rule 10b-5 or Section
17(a)

and

whether

Hayter

acted

with

scienter

or

negligence.

Therefore, the motion for summary judgment will be denied as to
Counts II-IV.
C.

Count V: Aiding and Abetting BIH’s Violations of Section 10(b)
and Rule 10b-5 of the Exchange Act
“A defendant who is not himself a primary violator, but has

knowledge

of

a

primary

violation

and

provides

substantial

assistance in it, is liable as an aider and abettor.”
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SEC v.

Monterosso, 768 F. Supp. 2d 1244, 1269 (S.D. Fla. 2011).

Any

person guilty of aiding and abetting a violation of the securities
laws may be subject to the same penalties.

See 15 U.S.C. § 78t(e)

(“[A]ny person that knowingly or recklessly provides substantial
assistance to another person in violation of a provision of this
title, or of any rule or regulation issued under this title, shall
be deemed to be in violation of such provision to the same extent
as the person to whom such assistance is provided.”).

To prove a

claim for aider and abettor liability, the SEC must show that (1)
a principal committed a primary violation; (2) the aider and
abettor provided “substantial assistance” to the violator; and (3)
the aider and abettor acted with scienter.

SEC v. Johnson, 530 F.

Supp. 2d 315, 322 (D.D.C. 2008)(citing Graham v. SEC, 222 F.3d 994,
1000 (D.C. Cir. 2000)).
Again, the Court finds that there remains a genuine issue of
material fact as to whether defendant Hayter acted with scienter.
Therefore, the motion for summary judgment will be denied as to
Count V.
Accordingly, it is now
ORDERED:
Plaintiff Securities and Exchange Commission’s Motion for
Summary Judgment Against Defendants BIH Corporation, Wayne A.
Burmaster, Jr., and Edward W. Hayter and the Relief Defendants
(Doc. #67) is DENIED without prejudice as to defendant Wayne A.

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Burmaster, Jr. to allow plaintiff to move for a default and default
judgment and is DENIED as to defendant Edward W. Hayter.
DONE AND ORDERED at Fort Myers, Florida, this 13th day of
March, 2014.

Copies:
Counsel of record
Pro se parties

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