UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Release No. 46799 / November 8, 2002
Investment Advisers Act of 1940
Release No. 2080 / November 8, 2002
File No. 3-10931
SEC Institutes Administrative Proceeding
Against Dennis S. Herula
Based on Entry of Injunction
The Securities and Exchange Commission today instituted an administrative proceeding against Dennis S. Herula, ("Herula") principal of an investment adviser and a former registered representative of a broker-dealer, based on the entry of an injunction against him in Securities and Exchange Commission v. Dennis S. Herula, et al. (Civil Action Number 02-154-ML) (D. RI.). In the Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940 ("Order"), the Division of Enforcement alleges that on October 10, 2002, the United States District Court for the District of Rhode Island orally granted the Commission's motion for entry of final judgment by default against Herula. On October 17, 2002, the court issued a memorandum and order against Herula, permanently enjoining him from future violations of the antifraud provisions of the federal securities laws [Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder]. Herula was ordered to pay disgorgement, along with prejudgment interest, in the total amount of $18,941,665.63, and was assessed a civil monetary penalty in the amount of $250,000.
According to the allegations in the Order, the Commission filed a civil injunctive action against Herula and others on April 1, 2002, alleging that Herula participated in a fraudulent scheme that raised approximately $52 million from investors by falsely promising investors exorbitant returns and misappropriating investor funds. The Division of Enforcement alleges that, during the period of his fraudulent activity, Herula was a registered representative of Raymond James Financial Services, Inc., a broker-dealer registered with the Commission, and he was also president of Legacy 2000 Associates, Inc., an investment adviser registered with the State of California. According to the allegations in the Order, the court's October 17, 2002 memorandum and order found that Herula made intentional misrepresentations to investors, including misrepresenting the nature of an investment program, its overall risk and the status of funds. Herula was also found to have sent forged brokerage account statements to an investor's representative and created false documents on stationery of a brokerage firm indicating that an account was frozen when in fact it was never frozen. In addition, the court found that approximately $6 million of investor funds that were transferred to accounts controlled by Herula and his wife were used by them to purchase personal items such as jewelry, art, antiques and real estate.
A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Herula an opportunity to dispute these allegations, and to determine what sanctions, if any, are in the public interest.
For further information, see Litigation Release No. 17800 (October 23, 2002).