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Juan Marcel Marcelino, District Administrator
UNITED STATES DISTRICT COURT
COMPLAINT Plaintiff Securities and Exchange Commission ("Commission"), for its Complaint, alleges the following against defendants Claude Lefebvre, ("Lefebvre"), Dennis S. Herula ("Herula), RMO Assets Management SA ("RMO") and Watch Hill Capital Management LLC ("Watch Hill") and against relief defendant Mary Lee Capalbo (a/k/a Mary Lee Herula) ("Capalbo"), named solely for purposes of equity relief. SUMMARY 1. This matter involves a fraudulent investment scheme in which Lefebvre, RMO and Watch Hill, aided and abetted by Herula, solicited investors by making false prime bank-type representations. Among other things, Lefebvre falsely claimed that investors' money would beinvested in a trading program that involved financial institution instruments rated AA or better, that Lefebvre was federally licensed to trade such instruments, and that the investment would generate returns of as much as 100% per week. Those claims were false. The defendants, rather than conducting a legitimate investment program, have been using the funds obtained from investors for personal expenditures totaling millions of dollars. Certain of the defendants continue operating this scheme and defrauding investors. 2. There was a wholly fictitious aspect to the scheme, which was described to investors by Lefebvre as a "leveraged" trading program with features typical of prime bank-type investment frauds. "Prime bank" schemes seek to mislead investors by falsely suggesting that well regarded and financially sound institutions participate in what are bogus programs that falsely promise exorbitant investment returns. Lefebvre's representations were false because the program described by Lefebvre did not exist. Also, instead of carrying out the investment program described to investors Lefebvre, aided and abetted by Herula, and using RMO and Watch Hill as conduits for the misappropriation and unauthorized transfers of millions of dollars in investor funds. The process of misappropriating investor assets, and thereby dissipating them, is ongoing. 3. Relief defendant Capalbo received at least $3 million in investor funds that were acquired through the scheme alleged in this Complaint, to which she has no legitimate claim. 4. Accordingly, the Commission seeks: (i) entry of a permanent injunction prohibiting the defendants from further violations of the relevant provisions of the federal securities laws; (ii) disgorgement of defendants' and the relief defendant's ill-gotten gains and unjust enrichment, plus prejudgment interest; and (iii) the imposition of a civil monetary penalty against each defendant due to the egregious nature of their violations. In addition, because of the ongoing nature of the fraud and the danger that investor funds will be further dissipated, the Commission seeks: (a) a temporary restraining order against defendants Lefebvre, Herula, RMO and Watch Hill to prohibit them from continuing to violate the relevant provisions of the federal securities laws; (b) an order requiring all defendants and the relief defendant to submit an accounting of investor funds and other assets in their possession; (c) a freeze of defendants' and the relief defendant's assets, to wit: (i) all assets held for the direct or indirect benefit, or subject to the direct or indirect control, of the defendants; and (ii) funds and assets equal tothe amount of investor funds received by the defendants and the relief defendant; (d) a schedule for expedited discovery; (e) an order requiring the repatriation of all assets abroad which were obtained or derived from the illegal securities transactions, and an order prohibiting the defendants from continuing to accept or deposit additional investor funds; and (f) an order prohibiting the alteration or destruction of relevant documents. JURISDICTION AND VENUE 5. The Commission seeks a permanent injunction and disgorgement pursuant to Section 20(b) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. §77t(b)] and Section 21(d)(1) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §78u(d)(1)]. The Commission seeks the imposition of a civil monetary penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C.§77t(d)], and Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)]. 6. This Court has jurisdiction over this action pursuant to Sections 20(d) and 22(a) of the Securities Act [15 U.S.C. §§77t(d), 77v(a)], and Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. §§78u(d), 78u(e), 78aa]. Venue is proper in this District because a significant amount of the defendants' wrongful conduct occurred or was centered here. 7. In connection with the conduct described in this Complaint, Lefebvre, Herula, RMO and Watch Hill directly or indirectly made use of the mails or the means or instruments of transportation or communication in interstate commerce. DEFENDANTS 8. Lefebvre is believed to be a Canadian citizen. Until recently, he resided with Herula and Capalbo at their residence in Tiburon, California., which he also used as a business address in some of his dealings with investors. He may currently be residing in Florida. His age and background are presently unknown. 9. Herula is 54 years of age and maintains residences in Warwick and Westerly, Rhode Island, and Tiburon, California. He was a registered representative at Raymond James from August 1999 until his termination in January 2001. Herula is the sole officer of Legacy 2000 Associates, Inc., a California corporation which is registered with the state of California as an investment advisor, but is not registered with the Commission in any capacity. Herula incorporated an entity with a similar namein Rhode Island, but it is not registered as an investment adviser with either the State of Rhode Island or the Commission. 10. RMO is purportedly a Swiss company based in Geneva, Switzerland, and owned or operated by Lefebvre. 11. Watch Hill is a limited liability company incorporated in Delaware on June 4, 2002 by Herula. Herula is the registered agent and manager of Watch Hill, and it purportedly has offices at Herula's residence in California and at an unknown address in Rhode Island. RELIEF DEFENDANT 12. Capalbo is 50 years of age. She is the spouse of Herula and also maintains residences in Warwick and Westerly, Rhode Island, and Tiburon, California. Capalbo is an attorney who is currently a member in good standing of the Rhode Island Bar. STATEMENT OF FACTS Misrepresentations to Comet Enterprises LLC 13. K. Mack Robinson ("Robinson") is a member of an entity that owns 50% of Comet Enterprises, LLC ("Comet"), which is a Limited Liability Corporation in the State of Mississippi. The other 50% of Comet is owned by Golden Heritage LLC, which is controlled by Joseph Coors, Jr. ("Coors"). During the past several months, Coors and Robinson were referred by a law firm and other individuals to an individual named Claude Lefebvre. Lefebvre met with Coors and Robinson and described to them an investment opportunity that involved buying and selling AA rated or better bank instruments. On several occasions, Lefebvre represented to Robinson that he is a federally licensed trader of such instruments. 14. Robinson conducted due diligence on Lefebvre, in part by asking a representative of Merrill Lynch, Pierce, Fenner & Smith ("Merrill Lynch"), Jim Pell ("Pell"), what he knew about Lefebvre. Pell represented to Robinson that while Pell only knew of Lefebvre for a short time, Pell had a 22-year relationship with one of Lefebvre's associates, Dennis S. Herula. Pell also represented to Robinson that he had a longstanding relationship with the entity that Herula and Lefebvre are partners in, Watch Hill. 15. In response to Lefebvre's suggestion, Coors opened an account in Comet's name atMerrill Lynch in late June of 2002. In July, 2002, Pell told Robinson that if Comet transferred funds into its account at Merrill Lynch, Merrill Lynch's primary purpose would be to protect the funds, as its primary responsibility lay with Comet. In a letter to Merrill Lynch dated July 3, 2002 on behalf of Comet, Coors stated that it (Comet) authorized Merrill Lynch to allow Lefebvre and Watch Hill to utilize $20 million of Comet's funds for the purpose of trading AA rated or better bonds. Neither Coors nor Robinson ever authorized Lefebvre or anyone else to utilize those funds in a manner contrary to the terms set forth in the July 3 letter. 16. On or about June 26, 2002, Coors executed a Corporate Offer Agreement ("Agreement") with Lefebvre. Coors signed it with Robinson's consent on behalf of Comet, and it appears that Lefebvre signed on behalf of RMO. By the terms of the Agreement, in exchange for its deposit of USD $40 million, Lefebvre and RMO promised Comet, among other things, that:
17. In accordance with the Agreement, Coors told Robinson that he wire transferred approximately USD $40 million (on behalf of Comet and with Robinson's consent) to Merrill Lynch in July, for the purpose of having Lefebvre and RMO utilize approximately $20 million of the funds by trading AA or better bank instruments. [Robinson Decl. ¶11] After Comet entered into the Agreement with RMO and Lefebvre, Lefebvre made oral representations to Robinson that the profits would be a minimum of 100% of the $40 million per week, instead of the 75% that was set out in the Agreement. 18. Over the course of the past few days, covering approximately the last week of July,2002, Robinson has been in contact by telephone with Lefebvre regarding the status of the disbursement of profit that Comet was supposed to receive on Friday, July 26, 2002 (but has not received to date). Lefebvre represented to Robinson that Comet's funds at Merrill Lynch were frozen by the Federal Reserve Board, but that it was just a misunderstanding and that everything would be sorted out and taken care of in a day or two. As of the date of the filing of this Complaint, Comet has not received back the principal or any amount of return on investment that Comet was promised on its USD $40 million investment. The Movement of Comet's Funds to Merrill Lynch Accounts Controlled by Lefebvre, Herula and Capalbo 19. On July 3, 2002, $40 million was received by wire transfer into a Merrill Lynch account in Comet's name. On or about the July 3, 2002 the $40 million was utilized to purchase T-Bills in the Comet account. The $40 million in T-Bills was leveraged and approximately $20 million borrowed against it was transferred in cash on or about July 8 from the Comet account at Merrill Lynch to a Merrill Lynch account in the name of Watch Hill. Herula and Lefebvre have control over that account. Another approximately $20 million in equity remains in the Comet account. 20. From the Watch Hill account at Merrill Lynch, $2 million was transferred on or about July 9, 2002 to an account at Merrill Lynch in the name of "CML Associates." The CML Associates account at Merrill Lynch is controlled by Lefebvre. An additional $3 million was transferred on or about July 9, 2002 from the Watch Hill account to a Merrill Lynch account named "CML Associates Special Account." The CML Associates Special Account at Merrill Lynch is controlled by Lefebvre and Capalbo. The Movement of Comet's Funds from Merrill Lynch Accounts Controlled by Lefebvre, Herula and Capalbo to Various Individuals and Entities 21. An additional $1 million was transferred on or about July 11 from the Watch Hill account at Merrill Lynch to a CML Associates Special account outside of Merrill Lynch. Additionally, there were various other additional disbursements out of the Watch Hill account, totaling approximately $ 200,000, apparently for personal expenditures. These disbursements include, but are not limited to, disbursements on the following dates, to the following names of persons and entities, for the followingamounts of money:
The balance in this account as of the date of the filing of this Complaint is $13.8 million. 22. After the transfer of monies into the CML Associates account, various additional disbursements were made out of this account, totaling approximately $1.5 million. Most, if not all, of the disbursements were for personal expenditures and have nothing to do with investments. These disbursements include, but are not limited to, disbursements on the following dates, to the following names of persons and entities, for the following amounts of money:
The balance in this account as of the date of the filing of this Complaint is $ 683,000. 23. The CML Associates Special Account at Merrill Lynch also had additional disbursements out of this account in July 2002 totaling approximately $2.8 million. Most of these expenditures were for personal reasons and do not appear to have anything to do with investing in securities. These disbursements include, but are not limited to, disbursements on the following dates, to the following names of persons and entities, for the following amounts of money:
The balance in this account as of the date of the filing of this Complaint is approximately $1.2 million. FIRST CLAIM FOR RELIEF (Violations of Section 10(b) of the Exchange Act and Rule 10b-5
24. The Commission repeats and incorporates by reference the allegations in paragraphs 1-23 of the Complaint as if set forth fully herein. 25. Defendants Lefebvre, RMO and Watch Hill by reason of the foregoing, directly or indirectly, acting intentionally, knowingly or recklessly, by use of the means or instrumentalities of interstate commerce or of the mails, in connection with the purchase or sale of securities: (a) employed devices, schemes or artifices to defraud; (b) made untrue statements of material fact or omitted to state a material fact necessary to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) engaged in acts, practices or courses of business which operated as a fraud or deceit upon certain persons. 26. As a result, Lefebvre, RMO and Watch Hill have violated and, unless enjoined, will continue to violate the provisions of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5], and their violations involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements and resulted in substantial losses or significant risk of substantial losses to other persons, within the meaning of Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)]. SECOND CLAIM FOR RELIEF (Aiding and Abetting Lefebvre, RMO and Watch Hill's Violations of
27. The Commission repeats and incorporates by reference the allegations in paragraphs 1-26 of the Complaint as if set forth fully herein. 28. By reason of the foregoing, defendant Herula substantially participated, and provided knowing and substantial assistance, to one or more of the materially misleading representations made to investors by Lefebvre, RMO and Watch Hill in connection with the purchase or sale of securities, and he knew or was reckless in not knowing that the representations made by Lefebvre, RMO and Watch Hill to investors were materially misleading. 29. As a result, Herula has aided and abetted Lefebvre, RMO and Watch Hill's violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and, unless enjoined, will continue to violate said provisions. THIRD CLAIM FOR RELIEF (Violations of Section17(a) of the Securities Act
30. The Commission repeats and incorporates by reference the allegations in paragraphs 1-29 of the Complaint as if set forth fully herein. 31. Defendants Lefebvre, RMO and Watch Hill directly and indirectly, acting intentionally, knowingly or recklessly, in the offer or sale of securities by the use of the means or instruments of transportation or communication in interstate commerce or by the use of the mails: (a) have employed or are employing devices, schemes or artifices to defraud; (b) have obtained or are obtaining money or property by means of untrue statements of material fact or omissions to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) have engaged or are engaging in transactions, practices or courses of business which operate as a fraud or deceit upon purchasers of the securities. 32. As a result, Lefebvre, RMO and Watch Hill have violated and, unless enjoined, will continue to violate the provisions of Section 17(a) of the Securities Act [15 U.S.C. §77q(a)] and their violations have involved fraud, deceit or deliberate or reckless disregard of regulatory requirements and have resulted in substantial losses or significant risk of substantial losses to other persons, within the meaning of Section 20(d) of the Securities Act [15 U.S.C. §77t(d)]. FOURTH CLAIM FOR RELIEF (Claim Against the Relief Defendant As Custodian of Investor Funds) 33. The Commission repeats and incorporates by reference the allegations in paragraphs 1-32 of the Complaint as if set forth fully herein. 34. As set forth in paragraph 30 of this Complaint, relief defendant Capalbo has received funds and property from one or more of the defendants, which are the proceeds, or are traceable to the proceeds, of the unlawful activities of defendants, as alleged in paragraphs 1 through 32, above. 35. Relief defendant Capalbo has obtained the funds and property alleged above as part of and in furtherance of the securities violations alleged in paragraphs 1 through 32, above, and under the circumstances in which it is not just, equitable or conscionable for her to retain the funds and property. As a consequence, relief defendant Capalbo has been unjustly enriched. PRAYER FOR RELIEF WHEREFORE, the Commission requests that this Court: A. Enter a temporary restraining order, order freezing assets and order for other equitable relief in the form submitted with the Commission's motion for such relief and, upon further motion, enter a comparable preliminary injunction, order freezing assets and order for other equitable relief; B. Enter a permanent injunction restraining Lefebvre, Herula, RMO and Watch Hill, and each of their agents, servants, employees and attorneys and those persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, including facsimile transmission or overnight delivery service, from directly or indirectly engaging in the conduct described above, or in conduct of similar purport and effect, in violation of Section 10(b) of the Exchange Act [15 U.S.C. §78j(b)] and Rule 10b-5 thereunder [17 C.F.R. §240.10b-5]; C. Enter a permanent injunction restraining Lefebvre, RMO and Watch Hill, and each of their agents, servants, employees and attorneys and those persons in active concert or participation with them who receive actual notice of the injunction by personal service or otherwise, including facsimile transmission or overnight delivery service, from directly or indirectly engaging in the conduct described above, or in conduct of similar purport and effect, in violation of Section 17(a) of the Securities Act [15 U.S.C. §77q(a)]; D. Require Lefebvre, Herula, RMO and Watch Hill, to disgorge ill-gotten gains, plus pre-judgment interest, with said monies to be distributed in accordance with a plan of distribution to be ordered by the Court, and require relief defendant Capalbo to disgorge an amount equal to the illegally obtained investors funds he received from the Defendants, plus prejudgment interest on that amount; E. Order Lefebvre, Herula, RMO and Watch Hill, to pay an appropriate civil monetary penalty pursuant to Section 20(d) of the Securities Act [15 U.S.C. §77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. §78u(d)(3)]; F. Retain jurisdiction over this action to implement and carry out the terms of all orders and decrees that may be entered; and G. Award such other and further relief as the Court deems just and proper. Dated: July 31, 2002 Respectfully submitted, http://www.sec.gov/litigation/complaints/comp17652.htm
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