Securities & Exchange Commission v. BIH Corporation et al

Filing 266

OPINION AND ORDER granting 149 Plaintiff's Motion for Final Judgment Against North Bay South Corporation. The Clerk shall enter judgment in favor of Plaintiff and against Defendant North Bay South Corporation as set forth in this Opinion and Order and in 121 the Court's September 26, 2012 Opinion and Order, terminate all pending motions and deadlines as moot, and close the file. Signed by Judge John E. Steele on 1/28/2015. (MAW)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
FORT MYERS DIVISION
SECURITIES
COMMISSION,

&

EXCHANGE

Plaintiff,
v.

Case No: 2:10-cv-577-FtM-29DNF

EDWARD W. HAYTER, NORTH BAY
SOUTH CORPORATION, THE CADDO
CORPORATION,
and
BEAVER
CREEK FINANCIAL CORPORATION,
Defendants.
OPINION AND ORDER
This matter comes before the Court on Plaintiff Securities
and Exchange Commission’s Motion for Final Judgment Against North
Bay South Corporation (Doc. #149) filed on April 19, 2013.1
response has been filed and the time to respond has expired.

No
For

the reasons set forth below, the motion is granted.
I.
This case is a civil enforcement action brought by the
Securities

and

Exchange

Commission

(the

Commission

or

SEC)

concerning a scheme to “pump and dump” shares of BIH Corporation’s

1

The motion also seeks final judgments against Defendants Bimini
Reef Real Estate, Inc., Riverview Capital Inc., Christopher L.
Astrom, and Damian B. Guthrie. The Court addressed that portion
of the motion in a separate Order. (Doc. #265.)

(BIH) stock on the investing public.

The basic underlying facts,

as set forth in the Complaint,2 are as follows:
BIH, which traded as a penny stock, claimed to be a holding
company specializing in the restaurant and hospitality industry.
BIH’s website stated that an individual named Cris Galo, an
accomplished entrepreneur, was the president and CEO of BIH.

In

reality,

A.

Defendants

Edward

W.

Hayter

(Hayter)

and

Burmaster (Burmaster) controlled every aspect of BIH.

Wayne

During 2008

and 2009, in order to effectuate the pump and dump scheme, Hayter
and Burmaster issued numerous fraudulent press releases on behalf
of BIH.

The press releases dramatically increased the price and

trading volume of BIH shares.
During the same time period, Hayter and Burmaster sold tens
of

millions

of

unregistered

shares

of

companies for little or no consideration.

BIH

stock

to

various

One of those companies,

Defendant North Bay South Corporation (North Bay), was controlled
by Burmaster.

In turn, those companies sold the newly-received

stock to unwitting investors at prices inflated by BIH’s fraudulent
press releases.

All told, those companies sold 89.8 million BIH

2

On September 26, 2012, following its default, the Court entered
a Judgment against Defendant North Bay South Corporation. (Doc.
#121.) A defendant, by his default, admits the plaintiff’s wellpleaded allegations of fact, is concluded on those facts by the
judgment, and is barred from contesting on appeal the facts thus
established.”
Eagle Hosp. Physicians, LLC v. SRG Consulting,
Inc., 561 F.3d 1298, 1307 (11th Cir. 2009) (quotation omitted).

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shares for a total of $1,121,051.

The companies retained a portion

of the sales proceeds and sent the remaining funds to entities
controlled by Burmaster and Hayter.

Of relevance here, North Bay

received more than $110,000 from selling shares of BIH.
Following its default, the Court entered a Judgment against
North

Bay

permanently

enjoining

it

from

committing

further

securities law violations; ordering it to pay disgorgement; and
imposing a civil penalty in an amount to be determined by the Court
upon a motion by the Commission.

(Doc. #121.)

The Commission

filed its motion (Doc. #149) on April 19, 2013, and an evidentiary
hearing was held on January 27, 2015.
II.
“Civil

penalties

are

intended

to

punish

the

individual

wrongdoer and to deter him and others from future securities
violations.”
2014).

SEC v. Monterosso, 756 F.3d 1326, 1338 (11th Cir.

Section 20(d) of the Securities Act and Section 21(d) of

the Exchange Act authorize three tiers of civil monetary penalties
against violators of the Acts. 15 U.S.C. § 77t(d); 15 U.S.C. §
78u(d).

The first tier applies to any violation of the Acts.

Id.

The second tier applies to violations involving “fraud, deceit,
manipulation, or deliberate or reckless disregard of a regulatory
requirement.”
satisfying

the

Id.

The third tier applies to any violation

second-tier

criteria

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that

also

“resulted

in

substantial losses or created a significant risk of substantial
losses to other persons.”

Id.

The amount of the civil penalty is determined by the district
judge “in light of the facts and circumstances” and subject to
statutorily-prescribed maximums.
78u(d).

15 U.S.C. § 77t(d); 15 U.S.C. §

For violations occurring between February 2005 and March

2009, the time period at issue here, the statutory penalties are:
$6,500 for each first tier violation; $65,000 for each second tier
violation; and $130,000 for each third tier violation.
§ 201.1003, Tbl. III.

17 C.F.R.

However, the maximum statutory penalty may

be exceeded up to and including the “gross amount of pecuniary
gain to the defendant as a result of the violation.”
77t(d);

15

U.S.C.

§

78u(d).

In

evaluating

the

15 U.S.C. §
facts

and

circumstances of the case, the Court looks to factors such as:
(1) the egregiousness of the violations at issue,
(2) defendants' scienter, (3) the repeated nature
of the violations, (4) defendants' failure to admit
to their wrongdoing, (5) whether defendants'
conduct created substantial losses or the risk of
substantial
losses
to
other
persons,
(6)
defendants' lack of cooperation and honesty with
authorities, if any, and (7) whether the penalty
that would otherwise be appropriate should be
reduced due to defendants' demonstrated current and
future financial condition.
SEC v. Aerokinetic Energy Corp., No. 08-CV-1409, 2010 WL 5174509,
at *5 (M.D. Fla. Dec. 15, 2010) (quotation omitted), aff'd, 444 F.
App'x 382 (11th Cir. 2011).

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It is indisputable that the pump and dump scheme involved
fraud.

Thus, North Bay is subject to either a second or third

tier penalty depending upon whether the scheme resulted in, or
created a significant risk of, substantial losses to other persons.
15 U.S.C. § 77t(d); 15 U.S.C. § 78u(d).

While the Acts do not

define the term “substantial loss,” the prevailing view in this
District is that the $1.1 million loss in this case is sufficiently
substantial to subject North Bay to third tier penalties.

SEC v.

Aleksey, No. 07-CV-159, 2007 WL 1789113, at *2 (M.D. Fla. June 19,
2007) ($82,960.18 was a substantial loss); Aerokinetic, 2010 WL
5174514, at *7 ($500,000 was a substantial loss); SEC v. Simmons,
No. 04-CV-2477, 2008 WL 7935266, at *20 (M.D. Fla. Apr. 25, 2008)
($1,144,583.95

was

a

substantial

loss).

Accordingly,

the

imposition of a third-tier civil penalty against North Bay is
appropriate.
Following its default, the Court entered a judgment finding
North Bay liable for one count of selling unregistered securities
in violation of Sections 5(a) and 5(c) of the Securities Act.
(Doc. #121.)

Accordingly, the maximum civil penalty the Court may

impose is the greater of $130,000 or North Bay’s pecuniary gain.
In is motion, the Commission relies upon the declaration of Timothy
Galdencio (Galdencio), a Commission accountant who examined the
records of BIH, North Bay, and other entities involved in the pump
and dump scheme.

(Doc. #149-1.)

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The declaration states that

North Bay received $115,612 from its sale of BIH shares.

(Id.)

At the evidentiary hearing held on January 27, 2015, Galdencio
testified that North Bay transferred a portion of those sales
proceeds to other entities involved in the pump and dump scheme,
and retained $86,557.

Based upon Galdencio’s calculations, the

Commission requests that the Court impose a civil penalty equal to
North Bay’s $86,557 pecuniary gain.3

Taking into account the facts

and circumstances of this case as set forth above, the Court agrees
with the Commission that a civil penalty in the amount of North
Bay’s $86,557 pecuniary gain is appropriate.
Accordingly, it is hereby
ORDERED:
Plaintiff Securities and Exchange Commission’s Motion for
Final Judgment Against North Bay South Corporation (Doc. #149) is
GRANTED.

Judgment is entered in favor of Plaintiff and against

Defendant North Bay South Corporation as set forth in the Court’s
September 26, 2012 Opinion and Order (Doc. #121) and as follows:
1.

North Bay South Corporation (North Bay) shall pay a civil
penalty in the amount of $86,557, pursuant to Section 20(d)
of the Securities Act, 15 U.S.C. § 77t(d). North Bay shall
make this payment within 30 days after entry of this Judgment.
Postjudgment interest shall accrue pursuant to 28 U.S.C. §
1961.

3

Galdencio initially calculated North Bay’s pecuniary gain as
$102,612. (Doc. #149-1.) He subsequently discovered that North
Bay made additional transfers which reduced its pecuniary gain to
$86,557.

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a)

All payments shall be made by sending a United States
postal money order, certified check, bank cashier’s
check or bank money order payable to the Registry of
the Court of the United States District Court for the
Middle District of Florida under cover letter that
identifies the name and number of this action, with a
copy of said cover letter and money order or check to
Christopher E. Martin, Esq., Securities and Exchange
Commission, Senior Trial Counsel, 801 Brickell
Avenue, Suite 1800, Miami, Florida, 33131.

b)

For any payments made, North Bay shall relinquish all
legal and equitable right, title, and interest in such
funds, and no part of the funds shall be returned to
North Bay. The Clerk shall deposit the funds into an
interest bearing account with the Court Registry
Investment System (CRIS) or any other type of interest
bearing account that is utilized by the Court. These
funds, together with any interest and income earned
thereon (collectively, the Fund), shall be held in
the interest bearing account until further order of
the Court. In accordance with 28 U.S.C. § 1914 and
the
guidelines
set
by
the
Director
of
the
Administrative Office of the United States Courts,
the Clerk is directed, without further order of this
Court, to deduct from the income earned on the money
in the Fund a fee equal to ten percent of the income
earned on the Fund. Such fee shall not exceed that
authorized by the Judicial Conference of the United
States. The Commission may by motion propose a plan
to distribute the Fund subject to the Court’s
approval. Such a plan may provide that the Fund shall
be distributed pursuant to the Fair Fund provisions
of Section 308(a) of the Sarbanes-Oxley Act of 2002.

c)

Additionally, North Bay shall not seek or accept,
directly
or
indirectly,
reimbursement
or
indemnification from any source, including but not
limited to payment made pursuant to any insurance
policy, with regard to any civil penalty amount paid
pursuant to this Final Judgment, regardless of whether
such penalty amount or any part thereof are added to
a distribution fund or otherwise used for the benefit
of investors.
North Bay further shall not claim,
assert, or apply for tax deduction or tax credit with
regard to any federal, state, or local tax for any
penalty amount he pays pursuant to this Final

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Judgment, regardless of whether such penalty amount
or any part thereof are added to a distribution fund
or otherwise used for the benefit of investors.
2.

The Court will retain jurisdiction over the enforcement of
the judgment upon entry.
The Clerk shall enter judgment in favor of the Commission and

against Defendant North Bay South Corporation as set forth herein
and in the Court’s September 26, 2012 Opinion and Order (Doc.
#121), terminate all pending motions and deadlines as moot, and
close the file.
DONE and ORDERED at Fort Myers, Florida, this
of January, 2015.

Copies:
Counsel of Record

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28th

day