U.S. Securities and Exchange Commission
Litigation Rel. No. 18212 / July 3, 2003
Court Enters Default Judgment Against SEC Defendant Johan Hertzog and Orders Him to Pay over $24 Million
SEC v. Dennis Herula et al. (United States District Court for the District of Rhode Island, C.A. No. 02 154 ML, filed April 1, 2002)
The Commission announced that, on June 20, 2003, a Rhode Island federal court entered a default judgment against Johan Hertzog, a defendant in an action filed by the Commission in April 2002. The Commission alleged in its complaint that Hertzog and others participated in a fraudulent offering scheme that raised at least $52 million from investors. In the default judgment, the Honorable Mary M. Lisi permanently enjoined Hertzog from future violations of the antifraud provisions of the federal securities laws and ordered him to pay approximately $25 million in disgorgement, interest and a penalty.
The Commission filed its action against Hertzog and eight other defendants and a relief defendant on April 1, 2002, alleging that Hertzog played a key role in a scheme that made fraudulent representations to investors through a high yield trading program. According to the Commission's complaint, the scheme, which raised approximately $52.75 million from six investors, was perpetrated by Hertzog and others through entities formerly known as Brite Business S.A. and Brite Business Corporation. The Commission's complaint alleges that agreements Brite Business entered into with investors promised astronomical returns (such as a nearly 300% return in twelve banking days) and possessed characterizations of investment programs typical of "prime bank" investment schemes to defraud. According to the Commission's complaint, during his contacts and correspondence with investors, Hertzog held himself out to be director, chairman and CEO of Brite Business. The complaint further alleges that, between 1999 and 2001, Hertzog and others associated with Brite Business misappropriated, transferred or lost approximately $20 million in investor funds.
On April 3, 2002, the court issued a temporary restraining order freezing the assets of Hertzog and others. The June 20, 2003 final judgment enjoins Hertzog from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, orders him to pay disgorgement in the amount of $19,800,000, plus prejudgment interest in the amount of $4,863,372.72, for a total amount of $24,663,372.72, and assesses a $100,000 civil monetary penalty against him.
For further information, please see Litigation Release Numbers 18196 (June 20, 2003) [permanent injunction entered against Defendant Michael Clarke]; 17800 (October 23, 2002) [permanent injunction entered against Defendant Dennis Herula]; 17957 (January 29, 3003) [permanent injunction entered against Defendant Mary Lee Capalbo]; 17461 (April 5, 2002) [asset freeze against Hertzog and others].