SEC Prevails in Pump and Dump Trial

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Following a four day jury trial the SEC prevailed, securing a favorable verdict on its claims against defendant Edward Hayter. See SEC Press Release (Aug. 8, 2014). The action centered on a microcap fraud, a key enforcement priority of the agency. SEC v. BIH Corporation, Civil Action No. 2:10-cv-577 (M.D. Fla.).

In addition to Mr. Hayter, the complaint names as defendants: BIH, a penny stock company which claimed to be a holding company specializing in the restaurant and hospitality industry; Wayne Burmaster, Jr., who controlled BIH along with defendant Hayter; NorthBay South Corporation, supposedly an investment bank which acted as statutory underwriter by selling unregistered shares of BIH; Bimini Reef Real Estate, Inc., a firm which supposedly is in the real estate business and also acted as a statutory underwriter regarding BIH; Riverview Capital, Inc., also a statutory underwriter for BIH; Christopher Alstrom, the president of Bimini Reef; and Damian Guthrie, also involved in the distribution of BIH shares.

The complaint alleges a typical pump and dump manipulation scheme:

  • BIH presented a fictitious president and CEO on its website who was represented to be an accomplished entrepreneur;

  • A series of false press releases issued such as one claiming that the firm had received an unsolicited offer to pay up to 20 cents a share for its stock and an another with quotes from the fictitious president stating that shares were materially undervalued;

  • BIH shares were illegally distributed to North Bay South Corporation and Bimini Reef, Riverview Capital, all controlled by members of the scheme;

  • Millions of shares were then dumped on the public by, for example, Riverview which sold over 46 million shares, Bimini Reef which sold over 26 million shares and North Bay which sold about 21 million shares;

  • Sales by the three companies yielded over $1.1 million.

The complaint, filed in 2010, alleged violations of Securities Act Sections 5(a) and 5(c), each subsection of Section 17(a) and Exchange Act Section 10(b). The jury found against Mr. Hayter and in favor of the Commission on each count. Mr. Hayter was pro se.

 


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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