Litigation Release No. 19789A / August 2, 2006

SEC v. Dennis S. Herula et al., (United States District Court for the District of Rhode Island, C.A. No. 02-154-ML)

Court Enters Final Judgment by Consent Against Defendant Farouk A. Khan

The Commission announced that on July 28, 2006, a Rhode Island federal court entered a final judgment by consent against Farouk A. Khan, a defendant in a fraud action filed by the Commission in April 2002. The Commission alleged in its complaint that Khan and others participated in a fraudulent offering scheme that raised at least $52 million from investors.

The Commission filed its action against Khan and eight other defendants and a relief defendant on April 1, 2002, alleging that Khan and others participated in a scheme that made fraudulent representations to investors about a purported high yield trading program operated through entities formerly known as Brite Business Corporation and Seaview Development & Holdings Ltd. Among other things, the Commission alleged in its complaint that in an attempt to convince an investor to invest additional funds, Khan made fraudulent misrepresentations to the investor by promising him a 107% annual return on investment.

Without admitting or denying the allegations in the Commission's complaint, Khan consented to a final judgment entered by the Court. The final judgment enjoins Khan 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. The court's final judgment also orders that Khan be liable for disgorgement in the amount of $225,000 (representing profits gained as a result of conduct alleged in the complaint), plus prejudgment interest in the amount of $59,385.82, for a total amount of $284,385.82. Based on Khan's sworn representations and other documents and information submitted to the Commission, however, the Court did not order Khan to pay a civil monetary penalty and waived payment of the disgorgement and prejudgment interest. According to the final judgment, the Court's determination not to impose a civil penalty and to waive payment of the disgorgement and prejudgment interest is contingent upon the accuracy and completeness of Khan's financial statements.

For further information, please see Litigation Release Numbers 17514 (May 13, 2002) [preliminary injunction and asset freeze against Khan and others]; and 17461 (April 5, 2002) [temporary restraining order and asset freeze against Khan and others].