Pinnfund USA, Inc., Peregrine Funding, Inc., Allied Capital Partners, Grafton Partners, Six Sigma, LLC a/k/a 6 Sigma, LLC, Michael J. Fanghella, James L. Hillman, Reliance Holdings, LLC, and Kelly Cook a/k/a Kelly Jaye a/k/a Kelly Spagnola

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16945 / March 23, 2001

SECURITIES AND EXCHANGE COMMISSION v. PINNFUND USA, INC., PEREGRINE FUNDING, INC., ALLIED CAPITAL PARTNERS, GRAFTON PARTNERS, SIX SIGMA, LLC A/K/A 6 SIGMA, LLC, MICHAEL J. FANGHELLA, JAMES L. HILLMAN, RELIANCE HOLDINGS, LLC, AND KELLY COOK A/K/A KELLY JAYE A/K/A KELLY SPAGNOLA (01-CV-0496-H (LAB) S.D.Cal.)

The United States Securities and Exchange Commission ("Commission") announced that on March 23, 2001, the Honorable Marilyn L. Huff, United States District Judge for the Southern District of California, issued a temporary restraining order halting an ongoing $276 million securities fraud by Michael J. Fanghella ("Fanghella") and James L. Hillman ("Hillman") and entities controlled by them. The Court: (1) ordered the defendants to cease immediately their fraudulent activities; (2) placed a freeze on Fanghella's and PinnFund USA, Inc.'s assets; (3) appointed Charles G. La Bella as temporary receiver over PinnFund pending a hearing to determine the full extent of the fraudulent conduct and (4) granted other relief. The March 23, 2001 order follows the issuance of an order by the Court on March 21, 2001, which prohibited the transfer of assets or property by the defendants to a foreign location, prohibited the destruction of documents by the defendants and granted other relief pending a hearing that was held on March 22 and 23. A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for April 2, 2001.

The Commission's complaint, filed on March 21, 2001, alleges that since 1993, Fanghella, Hillman, PinnFund USA, Inc. ("PinnFund") and entities controlled by Fanghella and Hillman (Peregrine Funding, Inc., Allied Capital Partners, Grafton Partners and Six Sigma, LLC aka 6 Sigma, LLC) (collectively, the "Funding Entities") have raised at least $276 million from at least 166 investors, purportedly for the purpose of funding PinnFund's business of writing residential home mortgages. In fact, Fanghella, Hillman, PinnFund and the Funding Entities are misappropriating the funds raised by the Funding Entities and are using the funds to finance Fanghella's lavish lifestyle, including the use of at least $10 million in investor funds to buy a $5 million home, furnishings and other accessories for his girlfriend. In addition, the complaint alleges that Fanghella, Hillman, PinnFund and the Funding Entities have circulated altered financial statements of PinnFund and forged auditors' reports, which contain numerous fraudulent misrepresentations and omissions, conceal more than $95 million in losses incurred by PinnFund since 1997 and conceal the transfer of more than $107 million to Fanghella since 1997.

The Commission obtained an order temporarily restraining Fanghella, Hillman, PinnFund and the Funding Entities from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Court's order also temporarily restrains Hillman and the Funding Entities from committing violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. In addition to the interim relief granted today, the Commission seeks a final judgment against Fanghella, Hillman, PinnFund and the Funding Entities enjoining them from future violations of the foregoing registration and antifraud provisions, ordering them to disgorge all ill-gotten gains, and assessing civil penalties against them.

The order obtained by the Commission also forbids relief defendants Reliance Holdings, LLC ("Reliance") and Kelly Cook aka Kelly Jaye aka Kelly Spagnola ("Cook"), who together received more than $10 million from Fanghella during the period in which he was misappropriating funds from the Funding Entities' investors, from placing any encumbrances on the $5.2 million house in Laguna Nigel and from using the monies obtained from Fanghella for other than reasonable living expenses. The Commission also seeks a final judgment against Reliance and Cook, ordering them to disgorge all ill-gotten gains.