U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 16992 / May 8, 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, RELIANCE HOLDINGS, LLC, and KELLY COOK A/K/A KELLY JAYE A/K/A KELLY SPAGNOLA, Civil Action No. 01-CV-0496 H (LAB) (S.D. Cal.)

The Securities and Exchange Commission ("Commission") today announced that on May 4, 2001, U.S. District Judge Marilyn L. Huff issued a Preliminary Injunction and Order Freezing Assets, for an Accounting, and Prohibiting Destruction of Documents as to relief defendants Kelly Cook ("Cook") and Reliance Holdings, LLC ("Reliance Holdings"). The Court has now preliminarily enjoined all of the defendants to this matter, which concerns the fraudulent misuse of more than $300 million in investor proceeds. The Commission's Complaint alleges that Defendant James Hillman ("Hillman") raised investor proceeds through his control of Peregrine Funding and the sale of unregistered securities in Allied Capital Partners, Grafton Partners and Six Sigma, LLC (collectively with Peregrine Funding, Inc., the "Funding Entities"), and the defendants misused the proceeds to fund defendant Michael Fanghella's ("Fanghella") lavish lifestyle, to pay for PinnFund USA, Inc.'s ("PinnFund") operational losses, and to make payments back to investors as part of a Ponzi scheme. The Court previously issued a Preliminary Injunction and Order Freezing Assets, for Repatriation, and Prohibiting Destruction of Documents as to Hillman and the Funding Entities on April 25, 2001 and as to Fanghella and PinnFund on April 2, 2001.

The Commission alleges that since 1993, Fanghella, Hillman, PinnFund, and the Funding Entities raised at least $330 million from at least 166 investors, purportedly for the purpose of funding PinnFund's business of writing residential home mortgages. However, the Commission alleged in its Complaint and in its Motion for Preliminary Injunction that Fanghella and Hillman misappropriated the funds raised by the Funding Entities and used those funds to pay for Fanghella's extravagant personal living expenses (including the use of at least $10 million in investor funds to buy a $5 million home, furnishings and other accessories for Cook), to pay undisclosed monthly commissions of up to $1 million per month to Hillman, to pay a 17% annual rate of return to investors, and to conceal the more than $95 million in losses incurred by PinnFund since 1997. It is also alleged that Hillman, PinnFund and the Funding Entities circulated altered financial statements of PinnFund and forged auditors' reports, containing numerous fraudulent misrepresentations and omissions, in order to conceal PinnFund's operational losses and the transfer of more than $107 million to Fanghella for his personal use.

The Commission's Complaint does not allege that Cook and Reliance Holdings violated the securities laws but names them as relief defendants for the purpose of obtaining disgorgement of assets that they allegedly received as the result of the fraud perpetrated by Fanghella.

On April 2, the Court appointed Charles LaBella as permanent receiver over PinnFund. Also on April 2, the Funding Entities, as creditors of PinnFund, initiated an involuntary bankruptcy proceeding for PinnFund. Later that same day, the Funding Entities filed a voluntary petition for bankruptcy in the United States District Court for the Northern District of California.

The Court's Orders as to Fanghella, Hillman, PinnFund and the Funding Entities preliminarily enjoin them from violating the antifraud provisions, Section 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Orders further preliminarily enjoin Hillman and the Funding Entities from violating the registration provisions, Sections 5(a) and 5(c) of the Securities Act. The Commission seeks a judgment of permanent injunction, disgorgement and civil penalties against Fanghella, Hillman, PinnFund and the Funding Entities, and disgorgement against Cook and Reliance Holdings.