Litigation Release No. 19484 / December 5, 2005

Securities And Exchange Commission V. Claude Lefebvre et al. (United States District Court for the Northern District of California, C.A. No. C-02-3704-JSW)

Court Enters Final Judgment by Consent Against Defendants Dennis S. Herula and Watch Hill Capital Management LLC

Commission Dismisses Its Action as to Relief Defendant Mary Lee Capalbo

The Commission announced that on November 30, 2005, a San Francisco federal court entered final judgments by consent against Dennis S. Herula and Watch Hill Capital Management LLC, both defendants in a fraud action filed by the Commission on July 31, 2002. The Commission alleged in its complaint that Herula, Watch Hill and others participated in a fraudulent offering of securities that raised at least $40 million from investors in July 2002. In the consent judgments, the Honorable Jeffrey S. White permanently enjoined Herula and Watch Hill from future violations of certain antifraud provisions of the federal securities laws. In addition, on November 30, 2005, the Commission dismissed its action as to Relief Defendant Mary Lee Capalbo.

The Commission alleged in its complaint that Herula is the registered agent and manager of Watch Hill. According to the Commission's complaint, Watch Hill and others, aided and abetted by Herula, falsely promised investors exorbitant returns, such as a 100% return per week, through a fraudulent prime bank trading program. The complaint further alleged that, in the span of several weeks in July 2002, Herula and others spent at least $4 million in investor funds on personal and luxury items such as cars, jewelry, and large hotel bills.

Without admitting or denying the allegations in the Commission's complaint, Herula and Watch Hill consented to the final judgments entered by the Court. The judgment as to Herula permanently enjoined him from future violations of Section 10(b) of the Securities Exchange Act of 1940 ("Exchange Act") and Rule 10b-5 thereunder. The judgment as to Watch Hill permanently enjoined it from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. According to the final judgment as to Herula, in a related criminal action arising from the conduct in this matter (United States v. Dennis S. Herula, Case Number 02-CR-485-02-RB (D. Colo.)), he was ordered on February 11, 2005 to pay full restitution in the amount of $3,945,189.07 to the victims of his fraud and to be incarcerated for 188 months. In addition, the Court in the Commission's action had previously entered judgments by default against two other defendants, Claude Lefebvre and RMO Assets Management SA, in which they were ordered to pay a total of almost $6 million in disgorgement, prejudgment interest, and civil penalties. The Court also returned directly to investors over $13 million that was frozen by the Court when the Commission first filed its action. Lefebvre is now in prison serving a 20 year sentence after being convicted of related criminal charges in December 2004.

In addition, on November 30, 2005, the Commission entered into a stipulation of dismissal with Relief Defendant Capalbo, thereby dismissing the Commission's claim as to her.

For further information, please see Litigation Rel. No. 19011 (December 22, 2004) [Herula pleads guilty and Lefebvre found guilty in parallel criminal action]; Litigation Rel. No. 18676 (April 23, 2004) [judgments by default against Lefebvre and RMO Assets Management]; Litigation Rel. No. 17793 (October 18, 2002) [Court issues preliminary injunctions and asset freezes as to Herula, Watch Hill and Capalbo]; and Litigation Release No. 17652 (August 2, 2002) [temporary restraining order and asset freeze against Herula, Watch Hill and others].