UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Rel. No. 17737 / September 19, 2002
Federal Judge Orders Defendant in Commission Action to Provide Information to Commission and Appear in Court or Face Being Held in Contempt
SEC v. Dennis Herula et al. (United States District Court for the District of Rhode Island, C.A. No. 02 154 ML)
The Commission announced that, during a hearing on September 16, 2002, a Rhode Island federal judge announced that Dennis Herula would face being held in contempt of court unless he provides the Commission with certain financial information by September 23 and appears in court at a hearing on October 10. Herula is a defendant in a civil fraud action brought by the Commission in April 2002. In that case, the Commission alleged that Herula and others defrauded investors of over $50 million in a "prime bank" scheme that promised returns as high as 300% in twelve business days. On May 8, the court issued a written order imposing preliminary injunctions and asset freezes against Herula, his wife - Mary Lee Capalbo - and others, and also ordered them to provide the Commission with information concerning, among other things, their bank accounts and money they raised from investors.
The Commission filed a motion on July 23 seeking a final judgment against Herula and Capalbo based on their failures to respond to the Commission's complaint. On August 8, the Commission also filed a contempt motion against Herula and Capalbo based on their failures to provide the information required by the court's order, and their acceptance and dissipation of additional investor funds in direct violation of the preliminary injunction order. The court issued an order on September 9 requiring both Herula and Capalbo to appear on September 16 for a hearing on these issues.
Capalbo did not appear in court for the September 16 hearing; however, Capalbo's attorney submitted an affidavit from her doctor stating Capalbo was under his care and was unable to travel or appear in court. The judge subsequently ordered the Commission to retain an independent doctor to examine Capalbo and provide the court with a diagnosis of Capalbo's condition. The court also rescheduled the hearing as to Capalbo for October 10, 2002, and ordered Capalbo to appear at that time unless the independent doctor determines that she is unable to appear for medical reasons.
The court took the motion for a final judgment against Herula under advisement and, with regard to the contempt motion, ordered Herula to provide certain information to the Commission staff by 4:00 p.m. on September 23, and to appear on October 10. Herula is also a defendant and Capalbo is a relief defendant in a separate action filed by the Commission on July 31, 2002. In that action, the Commission alleges that investors were defrauded $40 million in another "prime bank" scheme in which investors were promised exorbitant returns.