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 (SEC) 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.
Among the defendants in the SEC civil case were Fanghella, James L. Hillman and former girlfriend Kelly Cook. Some of the companies named in the complaint, collectively referred to as the “funding companies,” were controlled by Fanghella and Hillman.
The PinnFund investigation was conducted by agents of the Federal Bureau of Investigation and the Office of Inspector General at the Department of Housing and Urban Development (HUD).
The SEC alleges that since 1993, Fanghella and Hillman raised at least $330 million from at least 166 investors through the funding companies purportedly for funding subprime residential home mortgages. However, instead of using those funds as intended, the defendants allegedly used the proceeds to pay for Fanghella’s lavish lifestyle, to fund PinnFund’s operational losses, and to make repayments to investors as part of a Ponzi scheme.
According to the SEC, some of the defendants circulated fraudulent PinnFund financial statements and forged auditors’ reports to conceal more than $95 million in losses incurred by PinnFund and to transfer more than $107 million to Fanghella personally since 1997.
Hillman, Fanghella’s alleged partner who obtained an overwhelming majority of the investor funds, contends he knew nothing of the alleged scheme, according to an article in the San Diego Daily Transcript (Transcript). However, the SEC reportedly contends that he came across enough warning signs over the years that he should have known what was going on.
It was reported in San Diego’s North County Times (Times) that divorce court records indicate that Fanghella, 52, developed drug and alcohol problems and began spending hundreds of thousands of dollars on call girls.
The SEC said at least $10 million in investor funds was used to buy a $5 million home, furnishings and other accessories for Fanghella’s former girlfriend, adult film actress Kelly Cook. According to the website KlubKelli.com, Cook — who the SEC says is also known as Kelly Jaye and Kelly Spagnola — was a former cheerleader for the Atlanta Hawks and was part of a “Girls of the NBA” pictorial in Playboy. Cook was reported in the Times to have prevented Fanghella access to the $5 million property by changing the locks and transferring the title to a dummy corporation immediately after he bought her the Laguna Niguel, California home.
The SEC named Cook and Reliance Holdings, LLC, as relief defendants for the purpose of obtaining disgorgement of the assets that they allegedly received as a result of the scheme. The SEC Complaint did not allege that Cook violated securities laws.
In September 2000, Fanghella purchased a $1 million yacht named “Maverick” with the intention of making a one-way trip to the Caribbean, according to the Transcript. However, that plan fell apart in November when a private investigator hired by Fanghella’s estranged wife reportedly found out about his plans.
The SEC filed its complaint on March 21, 2001, and subsequently obtained a temporary restraining orders and asset freezes against the defendants.
The Transcript reported that Fanghella disappeared shortly after one of his first court appearances, and was suspected of fleeing to Port St. Charles, Barbados, where his credit card was last used.
Because both Fanghella and PinnFund failed to respond to the SEC complaint, last May a Final Default Judgment was entered by U.S. District Judge Marilyn L. Huff.
In July, at the request of U.S. authorities, a Barbadian court issued an order to freeze Fanghella’s assets in that country, the Transcript reported. On August 1, 2001 at 9:45 a.m., Fanghella reportedly surrendered to the U.S. Marshals Service in San Diego, California.
Fanghella appeared before Judge Huff on August 2nd, 2001, and pleaded not guilty, according to court records.
The Times reported in November that Cook tentatively agreed to return about $9 million of the cash and gifts she received from her former PinnFund boyfriend.
Recent visitors to PinnFund’s website could find contact information for former employees, bankruptcy inquiries and legal inquiries.
Fanghella, who is still in federal custody, is set to go to jury trial on May 7, 2002. He faces up to 10 years imprisonment for each of nineteen counts of transportation of stolen property and 30 years for one count of making a false entry with the intent to deceive HUD .
