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 was scheduled for trial in May.
The Justice Department said that Fanghella, 50, pled guilty to a six-count Superseding Information — filed after the original indictment was filed. The Superseding Information included one count of conspiracy to commit wire fraud, one count of conspiracy to commit money laundering, three counts of tax evasion, and once count of filing a false entry with HUD.
PinnFund, a privately held subprime mortgage lender, closed its doors on March 22, 2001, according to the Justice Department. Extravagant personal living expenses and operating losses were hidden by altered financial statements and forged auditors’ reports — enabling $330 million in investor money to be brought in since 1993 — according to a previous announcement from the Securities and Exchange Commission (SEC). In May 2001, the SEC obtained a default judgment in a civil case against Fanghella and PinnFund.
The Justice Department said that in a recent proceeding, Fanghella admitted PinnFund started losing money in 1996, and that he used new investor capital contributions of $200 million to pay existing investors falsely reported earnings and capital repayments. The plea agreement says “Fanghella accepts responsibility to pay restitution to the investors in the entire amount of their losses, currently estimated at approximately $159 million.”
“This is a significant $300-million-dollar fraud perpetuated over a five-year period,” said FBI special agent William D. Gore. “Today’s plea marks a substantial step in the overall investigative phase.”
In September 1999, PinnFund President Keith Grubba and Patrice Fanghella — who married Fanghella in 1983 (and more recently filed for divorce) — attempted an intervention for drug, alcohol and sexual addiction, according to The San Diego Union-Tribune. “Up until the time I found out he was drinking, I trusted that he was working for his family,” Patrice Fanghella was quoted as saying. “And we were proud of what he had done.”
That story went on to say that investigative work by Patrice Fanghella and her attorneys yielded an inventory list that enabled the SEC to determine that Michael Fanghella’s former adult film actress girlfriend, Kelly Cook, had violated her settlement with the SEC by attempting to keep $323,000 in jewelry and household art that she had pledged to hand over. Cook allegedly received more than $10 million from the misappropriated investment capital.
Fanghella faces up to 14 years in prison, according to the Union-Tribune. He is scheduled to be sentenced in San Diego on August 19, 2002.
