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U.S. Securities and Exchange Commission

United States Securities and Exchange Commission
Boston, Massachusetts

Litigation Rel. No. 17800 / October 23, 2002

Court Issues Permanent Injunction Against Former Broker Dennis Herula 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 it has obtained a permanent injunction in a civil fraud action against Dennis Herula, who participated in a fraudulent offering scheme that raised at least $52 million from investors. In addition to being permanently enjoined from future violations of the federal securities laws, Herula was ordered to pay disgorgement, plus prejudgment interest, in the total amount of $18,941,665.63, and was assessed a $250,000 civil monetary penalty.

The Commission filed its action against Herula and eight other defendants and a relief defendant on April 1, 2002, alleging that individuals associated with an entity formerly known as Brite Business Corporation made fraudulent representations to investors, promising exorbitant returns through a high yield trading program. According to the Commission's complaint, most of the Brite Business investor funds were maintained in a brokerage account at the Cranston, Rhode Island office of Raymond James Financial Services, where Herula worked as a broker. The complaint alleges that Herula was the designated representative for the Brite Business account. The complaint further alleges that, between 1999 and 2001, Herula and others associated with Brite Business misappropriated, transferred or lost approximately $20 million in investor funds.

On April 3, 2002, the federal court in Rhode Island entered a temporary restraining order and asset freeze against Herula, and on May 8, 2002, the court entered a written preliminary injunction against him. The court orally granted the Commission's motion for the entry of final judgment by default against Herula on October 10, 2002, and issued a written memorandum and order against him on October 17, 2002, permanently enjoining Herula from future 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].

In its memorandum and order, the court found that Herula made intentional misrepresentations to investors, including misrepresenting the nature of an investment program, its overall risk and the status of funds. Herula was also found to have sent forged brokerage account statements to an investor's representative and created false documents on stationery of a brokerage firm indicating that an account was frozen when in fact it was never frozen. In addition, the court found that approximately $6 million of investor funds that were transferred to accounts controlled by Herula and his wife were used by them to purchase personal items such as jewelry, art, antiques and real estate.

For further information, please see Litigation Release Numbers 17793 (October 18, 2002) [preliminary injunction and asset freeze against Herula and others in a separate action filed in federal district court in the Northern District of California alleging similar fraudulent scheme]; 17737 (September 19, 2002) [civil contempt hearing against Herula in Rhode Island action]; 17514 (May 13, 2002) [preliminary injunction and asset freeze against Herula and others in Rhode Island action]; 17461 (April 5, 2002) [temporary restraining order and asset freeze against Herula and others in Rhode Island action].



Modified: 10/23/2002