home subscribe advertise reprints e-mail help RSS about us LOG IN

Mortgage News

 

Mortgage News

HOT Topics

production

servicing

compliance

legal

fraud

secondary

jobs

appraisal

site map

www.loan-academy.com/
twitter linkedin
facebook google+
Search:

Mortgage News

News by Subject
Complete list of specialty news sections.

Purchase Subscription
Subscribe to MortgageDaily.com and get immediate access to all news, statistics and archives.

Mortgage Advertising
Reach mortgage executives, loan originators and other people tied to mortgage industry.

Consumer Mortgage News
Free mortgage news for prospective borrowers.

Mortgage Newsletter
Free e-mail newsletter with the latest headlines from MortgageDaily.com.

Mortgage News Reprints
Put entire MortgageDaily.com stories in your online or printed newsletter or publication.

Mortgage Feedget RSS code
Condensed MortgageDaily.com stories free on your Web site or for your RSS reader.

News Archives
Archive of MortgageDaily.com stories by month going back to 1999.

Press Releases
Reports and announcements from MortgageDaily.com.

Mortgage Statistics
Data and statistics for real estate finance.

Mortgage Directories
Directories of lenders, branch operators and mortgage service providers.

Mortgage Graphs
Directories of lenders, branch operators and mortgage service providers.

Mortgage Lawsuits News | Mortgage Litigation Index
Mortgage industry lawsuit news and mortgage litigation coverage. Stories about legal settlements, judgments and mortgage class actions.


Aborted Audit Excruciates Auditors

PwC settles with PinnFund investors for $39.5 million

October 18, 2006

By LISA D. BURDEN
WASHINGTON correspondent for MortgageDaily.com


Auditors have settled for nearly $40 million a lawsuit charging them with failing to notify investors of an audit that was aborted upon the discovery of financial fraud. The settlement caps the sensational history of a mortgage banker that used hundreds of millions of dollars intended to fund mortgage loans for his own lavish lifestyle -- buying himself a yacht, giving his adult-film actress girlfriend a mansion, and driving his company into a massive bankruptcy.

PricewaterhouseCoopers agreed to settle with investors of PinnFund USA for $39.5 million, according to court documents.

The accounting powerhouse was accused of not revealing irregularities it found during an aborted audit of two limited partnerships set up to invest in loans issued by PinnFund, which effectively aided the funds' general partner in defrauding them.

"PricewaterhouseCoopers LLP was between a rock and a not-quite-so-hard place, and unfortunately chose the rock," plaintiff's attorney J. Farley Neuman said in a statement posted on his law firm's Web site. "It discovered strong evidence of fraud and was faced with the dilemma of either disclosing that evidence to limited partners, thereby risking a lawsuit by the partnership and/or its general partners, or withdrawing from the audit and remaining quiet, thereby risking a lawsuit by the innocent limited partners. It chose the latter, which in my opinion was a mistake from both a legal and an ethical perspective."

The San Francisco, Calif.-based attorney added, "It did nothing to prevent a massive fraud from continuing and exposed itself to liability to the victims of that fraud."

The investors sued in 2002, accusing the auditing firm of abetting a fraudulent scheme carried out by James Hillman, at the time the general partner of two partnerships, Grafton Partners LP and Allied Capital Partners, in which they had invested as limited partners. Both partnerships invested in loans issued by PinnFund, USA, Inc.

PwC auditors reportedly noticed irregularities indicating possible fraud in 1999 and told Hillman that it could not issue audit reports on Grafton and Allied until the questions were resolved. Hillman then terminated the audit. PwC neither issued an audit report on Grafton and Allied nor reported its suspicion of fraud to anyone other than Hillman.

PinnFund's owner was later discovered misappropriating the money invested in the fund, and Hillman, who directed the limited partnerships' investments into PinnFund, was implicated in the scheme, court filings indicate. As a result, the Securities and Exchange Commission shut down PinnFund. Grafton's and Allied's limited partners then sued PwC, alleging aiding and abetting fraud and conspiracy to defraud, among other theories.

The investors claimed that PwC should have revealed what it knew.

The trial court granted PwC's motion for summary judgment, ruling that PwC had no duty to communicate with investors. But the appellate court reversed on the issue of aiding and abetting fraud.

"Because of ambiguities in the professional standards for accountants Generally Accepted Accounting Principles and Generally Accepted Auditing Standards, many accountants believe that they may withdraw from an audit on discovery of facts indicating fraud or other illegal acts. This case strongly suggests otherwise," Neuman said.

The settlement has been approved by a federal bankruptcy court and a California state court. The money will go into a fund established under a global settlement agreement reached in federal court in 2002 and be distributed to the plaintiffs, according to WebCPA.com.

PinnFund raised more than $330 million from at least 166 investors in a Ponzi scheme that funded the exotic lifestyle of its chief executive, Michael Fanghella, amid losses at the company. The financial scam was among the biggest ever in Southern California.

Fanghella, who allegedly spent more than $100 million on parties, call girls, alcohol, drugs, and gifts for adult-film actress girlfriend, Kelly Cook -- also known as "Kelly Jaye" and "Kelly Spagnola" -- for whom he bought a $5 million home, plead guilty in 2002. He was sentenced to 10 years in federal prison.

A PwC spokesman told MortgageDaily.com, "Having denied the original allegations, we are happy to have put this matter behind us."


Related:

Former PinnFund CEO Sobs at Sentencing
PinnFund U.S.A.'s former chief executive officer reportedly sobbed as he was sentenced for one of the biggest fraud cases in southern California history.

Two More Plead Guilty In PinnFund Scam
Two additional defendants have plead guilty in one of the largest fraud cases in Southern California history.

Guilty As Charged
Former PinnFund USA, Inc. CEO Michael Fanghella has pled guilty to Justice Department charges, according to a recent announcement from the U.S. Attorney in San Diego, California. Fanghella and others allegedly conspired to devise and perpetuate one of the largest fraud schemes in Southern California history.

Fanghella Faces Trial In May
Former PinnFund USA, Inc. chief Michael J. Fanghella is scheduled for criminal trial in May, according to U.S. Attorney spokeswoman Deborah Hartman. Fanghella is accused in a civil case by the Securities and Exchange Commission of misappropriating nearly $110 million -- which was raised for the purpose of funding subprime mortgages -- to pay for extravagant personal living expenses, including at least $10 million spent on his former adult film actress girlfriend.

PinnFund Fugitive Surrenders
Former PinnFund CEO Michael Fanghella surrendered to the U.S. Marshals Service in San Diego Wednesday morning, according to the San Diego Daily Transcript. Mr. Fanghella is accused by Securities and Exchange Commission (SEC) attorneys of the largest securities fraud in recent Southern California history.

Former PinnFund CEO Planned To Escape To Caribbean On $1 million Yacht
In what has recently become a tabloid-like mortgage industry story, the San Diego Daily Transcript (Transcript) reported that former PinnFund CEO Michael Fanghella purchased a $1 million, 75 foot yacht in September 2000 with the intention of making a one-way trip to the Caribbean. His estranged wife, Patrice Fanghella, hired a private investigator who discovered that the yacht was preparing for the trip.


Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]


Corporate Mortgage News
M e r g e r s, a c q u i s i t i o n s and private and public offerings. Other corporate activity including executive appointments, bankruptcies name changes.



SUBSCRIBERS: Edit Subscription | Subscription Help | or call 214.521.1300

Subscribe Contact Us Site Map

Copyright © 2017 Mortgage Daily, D a l l a s
Subsribers Only:

AMC directory

ARM indexes

mortgage company directory

mortgage regulations

net branch directory

p r i c i n g engine directory

wholesale lender directory

More Mortgage News Resources (full site map):

advertising news

appraisal news

bank news

biggest lenders

commercial mortgage news

corporate mortgage news

credit news

FHA news

financial regulation news

foreclosure news

GSE news

jumbo mortgage news

interest rates

loan modification news

loan originator survey

LOS Newsletter

MBS

mortgage associations

mortgage-backed securities

mortgage books

mortgage brokers

mortgage compliance

mortgage conferences

mortgage directories

mortgage education

mortgage employment

mortgage employment index

mortgage executives

mortgage fraud

mortgage fraud blog

mortgage fraud local news

Mortgage Fraud Index

Mortgage Graveyard

mortgage insurance news

mortgage lawsuits

mortgage leads

mortgage lender ranking

mortgage licenses

mortgage litigation

Mortgage Litigation Index

Mortgage Market Index

mortgage mergers

mortgage news

mortgage politics

mortgage press releases

mortgage production

mortgage public relations

mortgage rates

mortgage servicing

mortgage statistics

mortgage technology

mortgage video

mortgage Webinars

net branch

net branch directory

nonprime news

origination news

originator tools

real estate news

refinance news

reverse mortgage news

secondary marketing

social media

servicing news

subprime news

wholesale lenders