PinnFund money raiser pleads guilty to wire fraud

(parent of PinnLeasing)

28 other counts dismissed as part of plea agreement

By Mike Freeman

UNION-TRIBUNE STAFF WRITER

SignonSanDiego.com

August 10, 2005

The final executive facing criminal charges in the notorious PinnFund USA financial scam has pleaded guilty to wire fraud.

James Hillman, 65, a lawyer now living in Nevada, was the chief money raiser for Carlsbad-based PinnFund, a defunct sub-prime mortgage lender that bilked investors out of millions of dollars.

He entered the guilty plea Monday on one count of the 29-count indictment handed up two years ago. He is scheduled to be sentenced Dec. 2.

Hillman faces a maximum of five years in prison, although under federal sentencing guidelines he could serve less time.

The remaining counts of the indictment were dismissed as part of the plea deal.

Founded in 1993, PinnFund had all the trappings of a successful mortgage lender, including 200 employees making loans from an office complex that included a wine cellar and gourmet cafeteria.

But in fact PinnFund was a Ponzi scheme. It lured about 160 high-net-worth investors to put $330 million into the company on promises of 17 percent annual returns.

As in all Ponzi schemes, however, the investors' principal was being used to pay the promised sky-high returns. In the end, only about $106 million was paid back to investors. The rest of the money covered losses at PinnFund and paid for the expensive lifestyles of the company's executives.

The scheme unraveled in 2001. Tipped off by suspicious investors, the Securities and Exchange Commission raided PinnFund's offices that spring, forcing the company to shut down.

In the aftermath of PinnFund's collapse, Chief Executive Michael Fanghella's lifestyle grabbed most of the headlines. Using investor money, he purchased a home in Rancho Santa Fe, bought a yacht and paid $50,000 for dinners and wine at five-star restaurants. He also gave more than $10 million in gifts to an ex-girlfriend, who at one time had been a porn star.

Fanghella was sentenced to 10 years in prison in 2003.

Hillman, who was based in Oakland, attracted investors to PinnFund. Throughout the lengthy civil and criminal investigations related to the scam, Hillman maintained that he was duped by Fanghella and others about what was really going on at the company.

He pleaded guilty to one count of wire fraud that covered a specific period of time in fall 2000 – when PinnFund began to miss monthly interest payments to investors.

Hillman admitted that he didn't inform investors of the missed payments and used his own funds to cover the shortfall. In addition, he continued to raise at least $20 million in investor money, despite the missed payments.

Tom Brown, Hillman's Los Angeles lawyer, said Hillman was told by PinnFund executives that the company was late paying interest because of delays in payments from companies that purchased its mortgages. Hillman used his own funds as a "bridge loan" until PinnFund made the scheduled interest payments three or four weeks later, Brown said.

But according to court documents, Hillman also received more than $20 million in commissions that were not disclosed to investors, and he pulled some of his own money out of PinnFund when payments were late.

"Mr. Hillman pocketed millions from this fraud, and today is a day of justice for PinnFund investors," U.S. Attorney Carol Lam said.

As part of a settlement with the SEC in 2002, Hillman turned over personal assets of $21 million to investors, Brown said.

Hillman's plea brings to nine the number of executives convicted in the PinnFund case, including President Keith Grubba and Chief Financial Officer John Garitta, who are serving sentences of 63 months and 48 months respectively.

PinnLeasing president Tommy Larsen was convicted, but shortly after being incarcerated, died of cancer.

(the full story of PinnFund, reads like a racy novelette:)

http://www.leasingnews.org/docs/Pinn_1.htm