PinnFund founder admits guilt
( He has covered this story from the very beginning. Editor)
In a plea bargain with prosecutors, Fanghella agreed to help authorities pin down "every person" involved in the $330 million Ponzi scheme one of the
PinnFund founder admits guilt, agrees to aid probe largest of its kind in Southern California.
"We're not stopping here," said Patrick O'Toole, U.S. attorney for San Diego. "The investigation is ongoing."
Under the agreement, Fanghella faces 11 to 14 years in prison, said Assistant U.S. Attorney Kevin Kelly. But his sentence may be reduced, based on how much information he provides to investigators.
Fanghella also was ordered to pay $159 million in restitution to investors, the amount prosecutors believe was stolen out of the $330 million that flowed into PinnFund. The rest was returned to investors in the form of monthly interest payments, prosecutors say.
But the 160 investors who put money into the scheme say they lost much more. Many are retired lawyers, accountants and real-estate developers. They worked closely with the SEC, doing financial legwork to uncover where the money went. Consequently, they think their losses are closer to $250 million.
Fanghella's plea comes one year and one day after the U.S. Securities and Exchange Commission unmasked the fraud in a sweeping civil lawsuit that shut down PinnFund, a Carlsbad company that specialized in mortgages for borrowers with poor credit ( and had equipment leasing offices throughout the United States ).
Authorities said millions in investor money, which was supposed to fund mortgages, went to fund Fanghella's lifestyle. Among the bills: A $120,000 New Year's party for about 15 people at a New York restaurant, and gifts to his one-time girlfriend, former porn star Kelly Cook. The gifts included a $350,000 promise ring, a Jaguar and BMW, and a $5 million house in Laguna Niguel.
The SEC won a $109 million judgment against Fanghella last year. It also forced Cook to return the bulk of her gifts, and settled with PinnFund's key money raiser, Oakland lawyer James Hillman.
Fanghella disappeared after the SEC action. On Aug. 1, after the SEC froze his bank accounts, Fanghella turned himself in. He was indicted on 20 criminal charges and has been behind bars since.
Dressed in a beige prison jumpsuit, Fanghella, 50, entered guilty pleas to conspiracy to commit wire fraud, conspiracy to commit money laundering, three counts of tax evasion and one count of filing a false report with a department of the United States.
As U.S. District Judge Marilyn Huff asked him questions about the plea agreement, Fanghella stood with his hands behind his back and answered in a strong, raspy voice.
Few things in this scam are small. On the tax-evasion charges, for example, Fanghella took $14 million in income from 1996-98 years in which he failed to file income tax returns. So his back taxes for those years totals $5.56 million.
"It is an incredibly large income tax-evasion case," said Denise Rubin, criminal investigation special agent in charge with the Internal Revenue Service in San Diego. "Not that many people earn the kind of money that he's admitted not paying taxes on."
Fanghella's lawyer, Ezekiel Cortez, declined to comment after the sentencing and didn't return phone calls. Fanghella remains behind bars.
Kelly, the assistant U.S. attorney, said prosecutors and Cortez had been working on the deal for months.
"I think it's fair to say from Mr. Fanghella's demeanor in court that he wanted to accept responsibility for his conduct," Kelly said.
Sentencing is scheduled for mid-August. Until then, Fanghella is expected to help prosecutors.
"As everyone knows, you don't operate a Ponzi scheme by yourself," said Charles La Bella, a former U.S. attorney who has been appointed to unearth PinnFund assets. "You need other people involved. There were a lot of moving parts in this one, and Michael may be able to share an insider's view of how it worked."
Bilked investors welcomed news of the plea bargain. Along with La Bella, they're working up lawsuits against auditors, banks and others for failure to detect the scam.
"The theory has been as soon as he cut a deal, he would provide information that would bolster our civil claims," said a Bay Area investor, who wished to remain unnamed to protect his business reputation. He lost $2 million personally and persuaded friends to invest $25 million, which also was lost.
PinnFund is bankrupt. La Bella has recovered about $9 million, including a $1 million yacht, the $5 million Kelly Cook house and other assets.
La Bella also has filed other lawsuits, which include seeking $5 million from former PinnFund President Keith Grubba and $6.7 million from Tommy Larsen, former president of PinnFund's office equipment leasing subsidiary, PinnLease.
To this point, only Fanghella has faced criminal charges. But sources familiar with the case say Hillman, the money raiser, could be a target.
Hillman cut a deal with the SEC in which he turned over $17 million in cash. He also is selling assets and seeking tax refunds that could bring in $30 million. But his deal with the SEC doesn't shield him from criminal prosecution.
Authorities won't name other possible targets. "We're involved in the investigation, which involves potential tax charges on other subjects," said Rubin, the IRS special agent.