Full Story on Four indicted on charges of fraud in the PinnFund case
By Mike Freeman
SAN DIEGO UNION-TRIBUNE STAFF WRITER
Federal prosecutors indicted four people on fraud and other charges in connection with PinnFund USA, a mortgage lender that was at the center of one of the largest financial scams ever in San Diego County.
PinnFund, which on the surface looked like a legitimate mortgage business employing 200 workers in Carlsbad, was in fact a sophisticated pyramid scheme, say federal regulators. In the end, unsuspecting investors were bilked out of $330 million.
Already, the company's chief executive and chief financial officer have pleaded guilty to various fraud charges in the case and are awaiting sentencing.
Named in the latest indictments are James Hillman, an Oakland lawyer and key money raiser for PinnFund; Piotr Kodzis, Hillman's business associate; Tommy Larsen, president of a PinnFund subsidiary called PinnLease; and Larsen's son Kim Larsen, who also was involved in PinnLease.
"We are holding accountable those who committed one of the largest frauds to have occurred in San Diego history," U.S. Attorney Carol Lam wrote in a statement.
Meanwhile, two others linked to PinnFund pleaded guilty to federal charges yesterday before the indictments were announced. Former company president and co-owner Keith Grubba admitted to fraud and tax evasion charges and agreed to cooperate with investigators. Also, Michael Trap, a former PinnLease employee, admitted he lied to a federal grand jury.
Both men are free pending sentencing, which is scheduled April 21.
PinnFund abruptly shut down and went bankrupt in March 2001 after the Securities and Exchange Commission raided the company and filed a securities fraud civil lawsuit.
Since then, the U.S. Attorney's Office, the FBI and the Internal Revenue Service have been pursuing a criminal probe that paralleled the SEC action. Prosecutors have had the help of former chief executive Michael Fanghella, who pleaded guilty in March 2002 to several federal charges. Fanghella agreed to help investigators in hopes of reducing his possible 14-year prison sentence. Chief financial officer John Garitta also pleaded guilty to conspiracy charges. He is scheduled to be sentenced April 14.
PinnFund was a classic pyramid scheme, prosecutors allege. Investors were told that their money was being used to finance mortgage loans. But instead, it was being used to cover PinnFund's massive losses, pay for Fanghella's lavish lifestyle and to give investors a promised 17 percent monthly return.
Fanghella's lifestyle grabbed most of the headlines. Using investor money, he purchased homes in Rancho Santa Fe, bought a yacht and paid $100,000 for dinners and wine at 5-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 disappeared after the SEC filed its lawsuit. He turned himself over to authorities in August 2001 and has been behind bars since. He is scheduled to be sentenced Monday.
Tommy Larsen was arrested yesterday by the FBI and Escondido police. He is expected to be arraigned today. His attorney, Douglas Brown, said Larsen will plead not guilty and fight the charges.
Kim Larsen, Hillman and Kodzis are expected to be arraigned Feb. 4.
Tom Brown, a Los Angeles lawyer representing Hillman, declined to comment until he had read the indictment. The Union-Tribune was unable to contact the lawyers for Kodzis and Kim Larsen.
The SEC settled its civil case in 2002. As part of the settlement, Hillman agreed to turn over $47 million in personal assets to investors. Hillman maintained throughout the civil case that he was duped by Fanghella, who Hillman claimed was the ringleader of the scam.
Meanwhile, the roughly 160 investors who lost millions in the scam have filed lawsuits against PriceWaterhouseCoopers and other accounting agencies that audited the books of PinnFund and Hillman-run entities. The lawsuits are ongoing.
Tom Frame, an investor, lost $8 million in the scam and was forced to sell a house at a $1 million loss because his finances were in a shambles. At one time, he had mixed feeling about criminal charges being brought against Hillman. But now he has changed his mind.
"Even if he did not know exactly what Mike had done, he told us several things that were absolutely not correct," said Frame. "If he's found guilty by a jury of his peers, I don't have any problems with it."
Hillman, 63 and Kodzis, 43, were charged with one count of conspiracy to commit mail and wire fraud, 18 counts of mail fraud and 10 counts of wire fraud. Each count has a maximum penalty of five years in prison and a $250,000 fine.
Tommy Larsen, 53, faces a 23-count indictment that includes charges of conspiracy to commit mail and wire fraud, conspiracy to commit money laundering, perjury, subornation of perjury, obstruction of justice and tax evasion.
Kim Larsen, 32, faces charges of mail fraud, wire fraud and conspiracy to commit money laundering.