SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16941 / March 22, 2001

SECURITIES AND EXCHANGE COMMISSION v. PINNFUND USA, INC., PEREGRINE FUNDING, INC., ALLIED CAPITAL PARTNERS, GRAFTON PARTNERS, SIX SIGMA, LLC A/K/A 6 SIGMA, LLC, MICHAEL J. FANGHELLA, JAMES L. HILLMAN, RELIANCE HOLDINGS, LLC, AND KELLY COOK A/K/A KELLY JAYE A/K/A KELLY SPAGNOLA (S.D.Cal.)
Civil Action No. 01 CV 0496 H (LAB)

The United States Securities and Exchange Commission ("Commission") announced that on March 21, 2001, the Honorable Marilyn L. Huff, United States District Judge for the Southern District of California, issued a temporary restraining order regarding an ongoing $276 million securities fraud by Michael J. Fanghella ("Fanghella") and James L. Hillman ("Hillman") and entities controlled by them. The Court: (1) scheduled a hearing on the Commission's application for a temporary restraining order and receiver for March 22, 2001, at 10:30 a.m.; (2) prohibited the destruction of documents by the defendants; (3) prohibited the transfer of assets or property by the defendants to a foreign location; and (4) granted expedited discovery.

The Commission's complaint, filed on March 21, 2001, alleges that since 1993, Fanghella, Hillman, PinnFund USA, Inc. ("PinnFund") and entities controlled by Fanghella and Hillman (Peregrine Funding, Inc., Allied Capital Partners, Grafton Partners and Six Sigma, LLC aka 6 Sigma, LLC) (collectively, the "Funding Entities") have raised at least $276 million from at least 166 investors, purportedly for the purpose of funding PinnFund's business of writing residential home mortgages. In fact, Fanghella, Hillman, PinnFund and the Funding Entities are misappropriating the funds raised by the Funding Entities and are using the funds to finance Fanghella's lavish lifestyle, including the use of at least $10 million in investor funds to buy a $5 million home, furnishings and other accessories for his girlfriend. In addition, the complaint alleges that Fanghella, Hillman, PinnFund and the Funding Entities have circulated altered financial statements of PinnFund and forged auditors' reports, which contain numerous fraudulent misrepresentations and omissions, conceal more than $95 million in losses incurred by PinnFund since 1997 and conceal the transfer of more than $107 million to Fanghella since 1997.

The Commission applied to the Court for an order temporarily restraining Fanghella, Hillman, PinnFund and the Funding Entities from committing securities fraud in violation of Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. The Commission also requested that Hillman and the Funding Entities be temporarily restrained from committing violations of the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act. In addition to the interim relief granted today and the relief sought through the Commission's application, the Commission seeks a final judgment against Fanghella, Hillman, PinnFund and the Funding Entities enjoining them from future violations of the foregoing registration and antifraud provisions, ordering them to disgorge all ill-gotten gains, and assessing civil penalties against them.

The Commission also seeks an order temporarily freezing the assets of relief defendants Reliance Holdings, LLC ("Reliance") and Kelly Cook aka Kelly Jaye aka Kelly Spagnola ("Cook") who together received more than $10 million from Fanghella during the period in which he was misappropriating funds from the Funding Entities' investors. The Commission also seeks a final judgment against Reliance and Cook, ordering them to disgorge all ill-gotten gains.