Broker Must Pay $1.3M for Selling Scam Stock

     FORT MYERS, Fla. (CN) - A broker must pay $1.3 million in disgorgement to the Securities and Exchange Commission for selling unregistered penny stock, a federal judge ruled.
     Wayne Burmaster and his partner Edward Hayter sold unregistered shares to investors, misrepresenting them as stock in a hospitality holding company, according to a federal complaint the Securities and Exchange Commission filed in 2010.
     Burmaster and Hayter used a fictitious name, touted as an "accomplished entrepreneur," and made misrepresentations in press releases to induce the public to invest in their penny stock, according to the complaint.
     By selling tens of millions of unregistered shares to various companies, one of which was controlled by Burmaster, for little or no consideration, the brokers managed to increase the price and trading volume of the shares, making money at investors' expense, the Commission claimed. The companies that received the shares from Burmaster and Hayter retained a portion of proceeds from selling shares to investors, and sent the remaining funds to entities controlled by the defendants, according to the complaint.
     The SEC sought disgorgement and civil penalties for securities violations. It also asked the court to enjoin Burmaster from further violations and from participating in any penny stock offerings.
     The court granted default judgment on all counts against Burmaster in April after he failed to show up for a court-ordered pretrial conference.
     Addressing Burmaster's objections last week, U.S. District Judge John Steele gave the SEC 60 days to determine a specific penalty amount for the alleged violations.
     He also disagreed that including other individuals than Burmaster in the requested injunction made it impermissibly vague.
     The Commission's request for disgorgement in the amount of $1.1 million plus interest is a reasonable approximation of the ill-gotten gains Burmaster had acknowledged, according to the July 14 order. The figure, which an accountant determined based on brokerage account records, wire transfers and bank account statements, is not new, nor surprising, Steele ruled. The Commission first provided the estimate in an affidavit more than two years ago, based on allegations in the complaint, the ruling states.
     Burmaster's argument that he did not personally receive the estimated gains does not preclude the SEC's right to seek full disgorgement from him via joint liability, Steele found.
     The Commission is also entitled to disgorgement of all ill-gotten gains regardless of Burmaster's ability to pay, the judge concluded.
     The complaint establishes that Burmaster committed Exchange Act violations involving a penny stock, warranting a penny stock bar.
     Burmaster must pay the $1,349,158, including interest, within 14 days, according to the order.
     Attorneys for the SEC did not respond to a request for comment. Burmaster, who reportedly lives in Staten Island, N.Y., could not be reached to comment on the decision.