United States Securities and Exchange Commission
Litigation Rel. No. 17514 / May 13, 2002
Court Issues Preliminary Injunction and Asset Freeze Against New York Businessman Martin Fife, Former Broker Dennis Herula, Rhode Island Attorney Mary Lee Capalbo and Others in Connection with Fraudulent Offering Scheme
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 May 8, 2002, the U.S. District Court for the District of Rhode Island issued a written order imposing preliminary injunctions and asset freezes against Martin D. Fife, a former Dreyfus fund independent director, Dennis Herula, a former Raymond James broker, Mary Lee Capalbo, a Rhode Island attorney, and others in connection with a fraudulent scheme that raised at least $52 million from investors between 1999 and 2001. The court had previously entered ex parte temporary restraining orders and asset freezes on April 3, 2002 against the same defendants in connection with this conduct.
The Commission alleged in its complaint, filed April 1, 2002, that British citizen Michael Clarke and others promised investors exorbitant returns (such as a nearly 300% return in twelve banking days) through a high yield trading program purportedly operated by Fife under various names, including Brite Business and Seaview Development and Holdings, Ltd. According to the Commission's complaint, these representations were false because such high yield trading programs do not exist. The complaint alleges that Fife, who until recently served as an independent director of several Dreyfus mutual funds, purportedly ran the Brite Business trading program, which he described as a "credit enhancement" or "balance sheet enhancement" program. The complaint further alleges that, between 1999 and 2001, Clarke and Fife misappropriated, transferred or lost approximately $13 million in investor funds. The Commission does not allege that anyone at Dreyfus knew of or participated in the fraudulent scheme. According to the Commission's complaint, most of the Brite Business investor funds were maintained in a brokerage account in Rhode Island at Raymond James Financial Services, Inc. The complaint alleges that Dennis Herula, the registered representative for the Brite Business account, and his wife, Rhode Island attorney Mary Lee Capalbo, played integral roles in the fraudulent scheme and also misappropriated approximately $8 million in investor funds. According to the complaint, Herula and Capalbo have both made false statements or provided forged account statements to investors within the past several months.
The complaint alleges that several other individuals participated in the fraudulent scheme. The complaint further alleges that Charles Sullivan, a non-practicing New York lawyer whose family formerly owned the New England Patriots NFL franchise, incorporated Brite Business in the U.S. and made false statements to investors concerning their investments. The complaint also alleges that Robert Wachtel, of California, and Johan Hertzog, of Florida, collectively helpedClarke solicit $20 million in investor funds, and that, in December 2001, Fife's associate, Farouk Khan, of New Jersey, attempted to solicit an additional investment in the trading program from a Brite Business investor.
The Commission alleged in its complaint that (i) defendants Herula, Capalbo, Fife, Khan, Seaview, Clarke, Wachtel and Hertzog 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; (ii) Sullivan and Capalbo aided and abetted violations of the above provisions of the securities laws; and (iii) Fife violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission also named as a relief defendant David L. Ullom of Rhode Island, who served as Herula's supervisor at Raymond James and received approximately $190,000 in Brite Business investor funds.
After a two-day preliminary injunction hearing concerning defendants Herula, Capalbo, Fife, Khan and Seaview that concluded on April 24, 2002, the court entered a Memorandum and Order on May 1, 2002, finding that the Commission is likely to succeed in proving that these defendants violated the securities laws, and there is a strong likelihood that violations may occur in the future if these defendants are not enjoined. The court further found that there is a high risk that any remaining investor funds may be further depleted. On May 8, 2002, the court issued a written order imposing preliminary injunctions against Herula, Capalbo, Fife, Khan and Seaview, and imposing asset freezes against all defendants except for Sullivan.
For further information, please see, Litigation Release No. 17461 (April 5, 2002); Litigation Release No. 17334 (January 24, 2002) [subpoena enforcement action against Defendant Capalbo]; and Litigation Release No. 17325 (January 16, 2002) [subpoena enforcement action against Defendant Herula].