UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Rel. No. 17652 / August 2, 2002
Commission Obtains Temporary Restraining Order and Asset
Freeze Against Purported Bond Trader Claude Lefebvre, Former Broker Dennis Herula, and Others in Connection with Fraudulent Offering Scheme
Court Order Freezes At Least $36 Million SEC v. Claude Lefebvre et al. (United States District Court for the Northern District of California, C.A. No. C-02-3704-MEJ, filed July 31, 2002)
The Commission announced today that it has obtained temporary restraining orders and asset freezes in a civil fraud action filed against Claude Lefebvre, a purported bond trader, Dennis Herula, a former Rhode Island broker, and others. The Commission's complaint, filed July 31 in San Francisco federal district court, alleges that Lefebvre, Herula and others participated in a fraudulent scheme that raised at least $40 million from investors within the past month. One of the investors is an entity owned or controlled by members of the Coors family, founders of the Adolph Coors Company. The court's order, issued August 1, froze at least $36 million held in various brokerage accounts controlled by the defendants.
The Commission alleges in its complaint that Lefebvre falsely promised investors exorbitant returns, such as a 100% return per week, through a fraudulent prime bank trading program that purportedly invested in bank or other financial institution instruments rated AA or better. Lefebvre also falsely claimed that he was federally licensed to trade such instruments. According to the Commission's complaint, these representations were false because prime bank trading programs are wholly fictitious. The Commission's complaint alleges that Lefebvre acted through two entities owned or controlled by him and/or Herula – RMO Assets Management and Watch Hill Capital Management -- and that Herula aided and abetted Lefebvre's violations of the federal securities laws. The complaint further alleges that, within the past several weeks, Lefebvre, Herula, and Herula's wife, Rhode Island attorney Mary Lee Capalbo, spent at least $4 million in investor funds on luxury items such as cars, jewelry, and large hotel bills. They also used the money to pay personal expenses, such as doctor's bills and Capalbo's Rhode Island bar association fees.
Herula and Capalbo are defendants in a prior action filed by the Commission in Rhode Island federal district court on April 1, 2002. In that case, which involved a separate prime bank investment scheme, the court entered preliminary injunctions against Herula, Capalbo and others, restraining them from violating the antifraud provisions of the securities laws or accepting investor funds. The Commission alleges that Herula and Capalbo engaged in the activity involving the new fraudulent scheme at a time when they were already subject to the prior orders.
The Commission alleged in its complaint that (i) defendants Lefebvre, RMO Assets Management, and Watch Hill Capital Management violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder; and (ii) Herula aided and abetted the above violations of the Exchange Act. The Commission also named as a relief defendant Capalbo, who received at least $3 million of the above investor funds to which she has no legitimate claim. The Commission obtained entry of an order temporarily restraining Lefebvre, RMO Assets Management, Watch Hill Capital Management, and Herula from directly or indirectly continuing to violate the federal securities laws, an asset freeze against all the defendants and the relief defendant, and other emergency relief. The court's order freezes at least $36 million in funds held in various brokerage accounts controlled by the defendants. The hearing on the Commission's motion for a preliminary injunction is scheduled for August 16 at 10:00 a.m.
Unscrupulous promoters continue to victimize the public with Prime Bank schemes. Accordingly, investors are advised to access the Commission's "Prime Bank" Investor Alert that provides tips on how to avoid being a victim of these scams. The investor alert can be found on the Commission's web site, at www.sec.gov/divisions/enforce/primebank.shtml.
For further information, please see, Litigation Release No. 17633 (July 26, 2002) [asset freeze against relief defendant in prior action involving Herula and Capalbo]; Litigation Release No. 17514 (May 13, 2002) [preliminary injunction and asset freeze against Herula, Capalbo, and others in prior action]; Litigation Release No. 17461 (April 5, 2002) [temporary restraining order and asset freeze against Herula, Capalbo, and others in prior action]; Litigation Release No. 17334 (January 24, 2002) [subpoena enforcement action against Capalbo]; and Litigation Release No. 17325 (January 16, 2002) [subpoena enforcement action against Herula].