SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17040 / June 20, 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, RELIANCE HOLDINGS, LLC, and KELLY COOK A/K/A KELLY JAYE A/K/A KELLY SPAGNOLA, Civil Action No. 01-CV-0496 H (LAB) (S.D. Cal.)
The Securities and Exchange Commission ("Commission") today announced that Final Judgments have been entered against defendants Michael J. Fanghella ("Fanghella") and PinnFund USA, Inc. ("PinnFund"). On May 25, 2001, U.S. District Judge Marilyn L. Huff ordered that Final Judgment by Default be entered against Fanghella upon a showing that Fanghella had failed to respond to the Commission's complaint. Fanghella was ordered to disgorge $109,015,989 in ill-gotten gains, to pay prejudgment interest thereon in the amount of $791,366, and to pay a civil penalty of $110,000. On June 5, 2001, Judge Huff granted the Commission's motion to allow Court-appointed Receiver Charles LaBella to consent to judgment on behalf of PinnFund and ordered that Final Judgment by Default be entered against PinnFund upon a showing that it too had failed to respond to the Commission's complaint. In addition, Judge Huff ordered that all of PinnFund's assets be frozen, that PinnFund disgorge all of the assets and funds of the receivership estate, and that it produce all documents and disclose all information requested by the Commission. Both Fanghella and PinnFund were permanently enjoined from future violations of the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
The Commission's complaint alleges that Defendant James Hillman ("Hillman") raised investor proceeds through his control of Peregrine Funding, Inc. ("Peregrine") and the sale of unregistered securities in Allied Capital Partners, Grafton Partners and Six Sigma, LLC (collectively with Peregrine, the "Funding Entities"), and that the defendants misused the proceeds to fund Fanghella's lavish lifestyle, to pay for PinnFund's operational losses, and to make repayments to investors as part of a Ponzi scheme.
The Commission alleges that since 1993, Fanghella, Hillman, PinnFund, and the Funding Entities raised at least $330 million from at least 166 investors, purportedly for the purpose of funding PinnFund's business of writing residential home mortgages. However, the Commission alleges that Fanghella and Hillman misappropriated the funds raised by the Funding Entities and used those funds to pay for Fanghella's extravagant personal living expenses (including the use of at least $10 million in investor funds to buy a $5 million home, furnishings and other accessories for relief defendant Kelly Cook), to pay undisclosed monthly commissions of up to $1 million per month to Hillman, to pay a 17% annual rate of return to investors, and to conceal the more than $95 million in losses incurred by PinnFund since 1997. It also alleges that Hillman, PinnFund and the Funding Entities circulated altered financial statements of PinnFund and forged auditors' reports, containing numerous fraudulent misrepresentations and omissions, in order to conceal PinnFund's operational losses and the transfer of more than $107 million to Fanghella for his personal use. The Commission named Cook and Reliance Holdings, LLC, as relief defendants for the purpose of obtaining disgorgement of assets that they allegedly received as the result of the fraud perpetrated by Fanghella and PinnFund.http://www.sec.gov/litigation/litreleases/lr17040.htm