UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Rel. No. 17957 / January 29, 2003
Court Issues Permanent Injunction Against Attorney Mary Lee Capalbo 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 January 27, 2003, a Rhode Island federal court entered a default judgment imposing a permanent injunction against Mary Lee Capalbo, a Rhode Island attorney 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, Capalbo was ordered to pay over $19 million in disgorgement, prejudgment interest, and penalties.
The Commission filed its action against Capalbo and eight other defendants and a relief defendant on April 1, 2002, alleging that individuals associated with an entity 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 Capalbo's husband, Dennis Herula, worked as a broker. The complaint alleges that, between 1999 and 2001, Capalbo, 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 Capalbo, and on May 8, 2002, the court entered a written preliminary injunction against her. The court entered the final judgment by default against Capalbo on January 27, 2003, permanently enjoining her 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]. Capalbo was also ordered to pay disgorgement of $16,708,520.83, plus prejudgment interest of $2,583,581.31, for total disgorgement liability of $19,292,102.14. She was also assessed a $250,000 civil monetary penalty.
In its memorandum and order, the court found that Capalbo used her status as an attorney to perpetrate fraud against investors. According to the court, Capalbo allowed her status as an attorney to be used to attract investor funds, lied to investors about the status of their funds, and then spent investor money on luxury items for herself, such as jewelry, art, cars, and trips. The court found a permanent injunction against Capalbo necessary, stating that, based on her conduct in this matter, future violations by her are all but certain.
For further information, please see Litigation Release Numbers 17800 (October 23, 2002) [final judgment against Dennis Herula]; 17514 (May 13, 2002) [preliminary injunction and asset freeze against Capalbo, Herula and others]; 17461 (April 5, 2002) [temporary restraining order and asset freeze against Capalbo, Herula and others].