Move over Kayden Kross. You’re not even close when it comes to alleged get rich Ponzi schemes. The following story involving a former Vivid contract girl named Kelly Jaye probably tops the list for outrageous flaunting of ill-gotten gains.
The LA Times called it one of the biggest mortgage fraud cases in years, when federal officials charged that a California man for a number of years systematically bilked investors of more than $100 million with some of the funds being spent lavishly to woo porn actress Jaye.
Michael Fanghella, the former CEO of PinnFund USA, at the time a Carlsbad California-based mortgage brokerage operated what became one of the largest Ponzi schemes in San Diego history.
Fanghella was eventually sentenced to 10 years in prison in 2003 by federal Judge Marilyn Huff. Fanghella, 51 at the time, pleaded guilty to six felonies including money laundering, wire fraud, and tax evasion. He was facing a maximum sentence of 30 years.
PinnFund USA, through various funding entities, raised $276 million from at least 166 investors in California, Chicago and other parts of the country since the mid-’90s. Some of the money was used legitimately to write mortgages at higher-than-market interest rates for individuals with bad credit ratings.
But at least $107 million was transferred to Fanghella, who used it to underwrite a lavish lifestyle that included trips to Switzerland, Hawaii, New York and at least one meal that cost $36,000. Lisa Gok, assistant regional director for the SEC’s Los Angeles office called it one of the biggest securities frauds she’d ever seem.
All told, Fanghella spent about $10 million of the investor funds on Jaye who had appeared in at least six movies, such as “Sexual Healing” and “Blonde Angel.”
They met in December 1999 while both were finalizing divorces. Believing the two would marry, Fanghella bought Cook a $5-million house in Laguna Niguel, gave her $2 million in cash, a $75,000 piano, New York shopping trips and sumptuous meals.
In addition, he transferred at least $3.7 million of other investor funds to an offshore account at Barclay’s Bank in Barbados. Cook was never accused of wrongdoing, but the SEC wenr to recover investor funds allegedly given to her as gifts.
Fanghella raised money by offering bogus partnerships through funding companies controlled by his business partner including Peregrine Funding Inc. Peregrine then turned the money over to PinnFund USA. To trick investors, Peregrine circulated fraudulent PinnFund financial reports, along with forged documents from an independent auditor, to falsely present PinnFund as a profitable firm. But the company lost more than $95 million.
Fanghella and his partner also gave phony audit reports to Department of Housing and Urban Development officials for approval to sell mortgages in 46 states. But when the auditor, the Arias accounting firm, learned of falsified 1999 financial statements, the company resigned, informed HUD and asked PinnFund to inform future prospective investors that it hadn’t audited the books.
Instead, PinnFund sent letters signed by Fanghella to third parties, assuring them of the financial statements’ accuracy.
Fanghella later filed suit against Jaye for $9 million in damages and return of his gifts. He alleged that months before Jaye had secretly altered the escrow instructions tied to the home purchase so ownership would be transferred to Reliance Holdings, a company she controlled. She then broke off the relationship and barred Fanghella from the house.
The prevailing suspicion was that her ass was stone cold, and Jaye’s assets were subsequently frozen by the Securities Exchange Commission.