Posting for

Monday, March 26, 2001

by: Bert Rush

brush@firstam.com

ALERT/PINNFUND USA/GOOD FUNDS

Late Friday, a federal judge in San Diego, California, issued an order freezing the assets of mortgage banker PinnFund USA and of its CEO, Michael J. Fanghella, and appointing a receiver for the firm.

This order came in an action filed by the Securities and Exchange Commission on Wednesday, alleging that PinnFund engaged in sales of unregistered securities and altered financial reports to conceal losses of $95 million and transfers to Fanghella of $107 million. It's also alleged that Fanghella, 49, gave $10 million to his girlfriend, Kelley Cook, 35, who has appeared in several adult movies as "Kelley Jaye." While the SEC does not accuse Ms. Cook of wrongdoing, they want the gifts returned.

The SEC claims that Fanghella and attorney James L. Hillman (of Oakland, California) have operated PinnFund as a fraudulent scheme for several years, raising about $276 million from at least 166 investors with the aid of false profit and financial reports.

PinnFund USA touted itself as a nationwide originator, purchaser and seller of subprime mortgage loans, with its corporate office at 2051 Palomar Airport Road, #100, Carlsbad, California, and branch offices throughout the country. It has a website (www.pinfund.com), that mainly invites business from brokers and correspondent lenders.

According to an article in the San Diego Union-Tribune, the Court Friday also ordered the following firms to "cease fraudulent activities": Peregrine Funding (controlled by Mr. Hillman), Allied Capital Partners, Grafton Partners and Six Sigma LLC.

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   Following up on our posting for 3/26/01, recent reports in the San Diego Union-Tribune say that PinnFund founder, Michael J. Fanghella, 49, is now a fugitive with a warrant issued for his arrest by the federal court in San Diego.  His credit card was last used outside the United States.

 

     Fanghella's disappearance follows a sweeping lawsuit filed last month by the Securities and Exchange Commission, charging him and others with multiple counts of securities laws violations--i.e., numerous frauds against PinnFund investors.

 

     Now that court-appointed receiver Charles LaBella has had a chance to survey things, the allegations are that principals of PinnFund (mainly Fanghella) induced investors to invest more than $330 million with PinnFund, for the ostensible purpose of making mortgage loans that would be bundled and resold to outside investors.  Instead, it's alleged that loans originated by the firm were funded using warehouse lines of credit--so the investors' money (all but $1.5 million that remains in PinnFund accounts) could be misappropriated (mainly by Fanghella) to cover up PinnFund's operating losses and finance Fanghella's obscenely lavish lifestyle.

 

     It's especially frightening to read that almost all of this wrongdoing--said to be one of the biggest frauds of its kind ever seen--appears to have been engineered solely by Fanghella, acting virtually unchecked for several years.

 

     Fanghella's co-defendant in the SEC action, Oakland attorney James L. Hillman, 62, is now being characterized as just another victim.  It's said that Hillman and his family members (including a 30 year old daughter and his 89 year old mother) are out $2.65 million.

 

     The lesson, again, is that in today's mortgage lending environment one single bad actor can steal millions--leaving investors, warehouse lenders, escrow/closing companies and/or title companies 'on the hook.'  It's his call--and your loss.

 

     All of our past admonitions about not letting promoters of investment programs use our good name to lend credibility to their offerings continue to apply--with the same urgency as our frequent (nagging?) reminders about the importance of observing "good funds" rules and requirements.