UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Rel. No. 17793 / October 18, 2002
Court Issues Preliminary Injunctions and Asset Freezes Against
SEC v. Claude Lefebvre et al. (United States District Court for the Northern District of California, No. C 02-3704 SBA, filed July 31, 2002)
The Commission announced today that it has obtained preliminary injunctions and asset freezes in a civil fraud action filed against Claude Lefebvre, a purported bond trader, Dennis Herula, a former Rhode Island broker, Mary Lee Capalbo, Herula's wife, and others in connection with a fraudulent scheme that raised $40 million from investors during July 2002. The Commission filed its action on July 31, 2002, and a California federal court entered temporary restraining orders and asset freezes against the defendants on August 1. The court orally entered preliminary injunctions and asset freezes against Lefebvre and RMO Assets Management during an October 1 hearing, and issued a written preliminary injunction and asset freeze order against Herula, Capalbo and Watch Hill Capital Management on October 15.
The Commission alleged in its complaint that Lefebvre, acting through RMO Assets Management and Watch Hill Capital Management, falsely promised investors exorbitant returns, such as a 100% return per week, through a fraudulent prime bank trading program. The Commission's complaint alleged that Herula aided and abetted Lefebvre's violations of the federal securities laws, and named Capalbo as a relief defendant on the grounds that she received at least $3 million of investor funds to which she had no legitimate claim. The complaint further alleged that, in the span of several weeks in July 2002, Lefebvre, Herula, and Capalbo spent at least $4 million in investor funds on personal and luxury items such as cars, jewelry, and large hotel bills.
The court entered preliminary injunctions against Lefebvre, RMO Assets Management, Herula, Capalbo and Watch Hill Capital Management, prohibiting them from committing further violations of the antifraud provisions of the federal securities laws [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]. Although the Commission charged Capalbo as a relief defendant, the court nonetheless found that the Commission made a substantial showing that Capalbo aided and abetted the securities laws violations alleged in the case, and applied the preliminary injunction to Capalbo as well. The court also imposed asset freezes against all of the same defendants.
For further information, please see, Litigation Release No. 17759 (October 1, 2002) [civil contempt charges against Lefebvre and RMO Assets Management for violating the court's August 1, 2002 temporary restraining order]; Litigation Release No. 17729 (September 17, 2002) [Lefebvre arrested and charged in parallel criminal action]; Litigation Release No. 17652 (August2, 2002) [temporary restraining order and asset freeze against Lefebvre, Herula, and others]; Litigation Release Nos. 17737 (September 19, 2002), 17514 (May 13, 2002), and 17461 (April 5, 2002) [separate action filed in federal district court in Rhode Island alleging similar fraudulent scheme by Herula, Capalbo, and others].