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January 30, 2003

OFFICE OF THE UNITED STATES ATTORNEY
SOUTHERN DISTRICT OF CALIFORNIA
San Diego, California


United States Attorney
Carol C. Lam

For Further Information, Contact: Assistant U. S. Attorney Sanjay Bhandari, 619-557-6197 or Assistant U.S. Attorney Kevin J. Kelly, 619-557-6216

For Immediate Release

NEWS RELEASE SUMMARY

United States Attorney Carol C. Lam today announced the entry of two guilty pleas and the indictments of four individuals in the investigation of PinnFund, U.S.A., Inc. ("PinnFund").

PinnFund was a Carlsbad-based mortgage lender closed down by court order on March 23, 2001, upon application of the U.S. Securities and Exchange Commission ("SEC"). Investigation by the Federal Bureau of Investigation, Internal Revenue Service - Criminal Investigation, and the Department of Housing and Urban Development - Office of the Inspector General, in conjunction with the SEC, revealed that PinnFund had operated as a massive Ponzi scheme, resulting in losses of over $200 million by hundreds of investors.

KEITH G. GRUBBA, the former President and 40% owner of PinnFund from July 1996 to February 2001, and MICHAEL A. TRAP, the former Syndication Manager of a related company, PinnLease USA, entered guilty pleas in federal court before the Honorable Marilyn L. Huff to PinnFund-related criminal charges.

During his guilty plea, GRUBBA admitted that he conspired with Michael Fanghella and John Garitta to deceive investors and thereby perpetuate the Ponzi scheme by various means, including the preparation and dissemination of false financial statements. GRUBBA admitted in court that he filed federal income tax returns for the tax years 1997 through 2000, in which he failed to declare his full income, including illegal income derived from his Ponzi scheme activity. Grubba evaded reporting over $6.7 million in gross income for the tax years 1997 through 2000, with a tax due and owing of approximately $2.5 million. Grubba is scheduled to be sentenced on Monday, April 21, 2003, at 9:00 a.m., and faces up to thirty years' imprisonment.

TRAP pled guilty to charges that he lied to a federal grand jury investigating PinnFund and its subsidiary, PinnLease USA, Inc. TRAP is scheduled to be sentenced on April 21, 2003, at 9:00 a.m., and faces up to five years' imprisonment.

In a related development, a federal grand jury today returned a 29-count indictment against JAMES L. HILLMAN and PIOTR KODZIS, charging them with intentionally having defrauded investors out of hundreds of millions of dollars by misrepresenting PinnFund's operations and compliance with investor agreements. The indictment also charges that HILLMAN and KODZIS misrepresented the extent of their oversight and review of PinnFund's operations, and concealed various material facts, including their knowledge of multiple sets of contradictory PinnFund financial statements. HILLMAN and KODZIS are charged with conspiracy, mail fraud, and wire fraud.

A second 23-count indictment was also returned alleging that TOMMY A. LARSEN and his son, KIM A. LARSEN, schemed to obtain funds for PinnFund through fraudulent equipment leases and laundering their kickbacks of those funds to PinnFund through sham transactions and false invoices. TOMMY A. LARSEN is further charged with (a) knowingly conspiring to provide funds to PinnFund through fraudulent equipment leases; (b) conspiring to skim and conceal a portion of the fraudulent lease proceeds by various means, including transportation of those proceeds to a bank in Gibraltar; (c) committing perjury before the United States District Court of the Southern District of California, suborning the perjury of a witness before a federal grand jury, and conspiring to obstruct justice by presenting false testimony from yet another witness before the District Court; and (d) evading his 1999 and 2000 federal income taxes by charging personal expenditures to PinnFund, structuring his compensation to avoid payroll taxes, and hiding the proceeds of illicit activity overseas.

Following his indictment, TOMMY A. LARSEN was arrested by the FBI with the assistance of the Escondido Police Department and is scheduled to be arraigned before a federal magistrate judge on Friday, January 31, 2003, at 1:30 p.m. KIM A. LARSEN, JAMES L. HILLMAN, and PIOTR KODZIS will be arraigned before a federal magistrate judge on Tuesday, February 4, 2003, at 10:30 a.m.

United States Attorney Carol C. Lam said, "We are holding accountable those who committed one of the largest frauds to have occurred in San Diego history. The United States Attorney's Office is committed to pursuing these complex cases and ensuring that those who commit financial crimes are brought to justice."

The criminal investigation into PinnFund has previously yielded four other criminal convictions:

1. On March 22, 2002, Michael J. Fanghella, former Chief Executive Officer of PinnFund, pled guilty to criminal charges that he operated PinnFund as a $300+ million Ponzi scheme that consistently lost money but was able to continue operations by attracting new investment capital and credit through, among other means, the creation of false financial statements and loan volume reports. Fanghella is scheduled to be sentenced on February 3, 2003, and faces up to thirty years' imprisonment.

2. On August 23, 2002, John D. Garitta, former Chief Financial Officer of PinnFund, pled guilty to criminal charges that he conspired with Fanghella to perpetuate the fraud by deceiving investors through the preparation and dissemination of false company financial statements. Garitta is scheduled to be sentenced on April 14, 2003, and faces up to thirty years' imprisonment.

3. On August 23, 2002, John C. Bykowski, a former administrative assistant at PinnFund, pled guilty to charges that he conspired with Fanghella, Garitta, and others to make cash withdrawals from PinnFund for the personal benefit of PinnFund executives, with the intent to conceal that cash income from the Internal Revenue Service. Bykowski is also scheduled to be sentenced on April 14, 2003, and faces up to five years' imprisonment.

4. On December 3, 2002, Kimberly A. Hulihee pled guilty to charges that she lied to a federal grand jury investigating PinnFund and its subsidiary, PinnLease USA, Inc. Hulihee is scheduled to be sentenced on March 3, 2003, and faces up to five years' imprisonment.

Assistant U.S. Attorneys Kevin J. Kelly and Sanjay Bhandari and Special Assistant U.S. Attorney Nick Morgan are assigned to the prosecution. The cases are the result of a joint investigation by the Federal Bureau of Investigation, the Internal Revenue Service - Criminal Investigation, and the Department of Housing and Urban Development, Office of Inspector General.

Federal Bureau of Investigation Special Agent in Charge William Gore stated, "Today's developments in the PinnFund Investigation are the result of an extensive and intensive multi-agency investigation that should send a message to all those who would engage in such complex and fraudulent schemes. Do not expect to go undetected or unpunished. The renewed focus of the FBI and other agencies on such crime throughout the nation, especially at the corporate level, will continue to receive the same priority attention given this successful, yet continuing, investigation." Denise L. Rubin, IRS Criminal Investigation Special Agent in Charge for San Diego, stated, "The personal greed of those responsible for the massive PinnFund fraud is directly linked to the collapse of the corporation, the evasion of taxes, and investors losses of millions of dollars. The financial ruin caused by these types of crimes is devastating, and IRS Criminal Investigation will continue to aggressively investigate corporate officers who are involved in financial crimes."

Kenneth M. Donohue, Inspector General, U.S. Department of Housing and Urban Development (HUD) in Washington, D.C. stated that "The Ponzi scheme that was discovered at PinnFund represented one of the largest investment fraud cases in Southern California. The Office of Inspector General for HUD is committed to investigating fraudulent activities and will aggressively pursue any person or entity responsible for the use of false financial statements to perpetrate fraud involving HUD programs."


DEFENDANTS

JAMES L. HILLMAN

PIOTR ("PETER") KODZIS

TOMMY ALLEN LARSEN

KIM ALLEN LARSEN


SUMMARY OF CHARGES AND MAXIMUM PENALTIES

CHARGES AGAINST JAMES L. HILLMAN

Count 1:

Conspiracy to Commit Mail and Wire Fraud - Title 18, United States Code, Section 371
5 years' imprisonment; $250,000 fine

Counts 2-19:

Mail Fraud - Title 18, United States Code, Section 1341
5 years' imprisonment; fine of $250,000

Counts 20-29:

Wire Fraud - Title 18, United States Code, Section 1343
5 years' imprisonment; fine of $250,000


CHARGES AGAINST PIOTR KODZIS

Count 1:

Conspiracy to Commit Mail and Wire Fraud - Title 18, United States Code, Section 371
5 years' imprisonment; $250,000 fine

Counts 2-19:

Mail Fraud - Title 18, United States Code, Section 1341
5 years' imprisonment; fine of $250,000

Counts 20-29:

Wire Fraud - Title 18, United States Code, Section 1343
5 years' imprisonment; fine of $250,000


CHARGES AGAINST TOMMY A. LARSEN

Count 1:

Conspiracy to Commit Mail and Wire Fraud - Title 18, United States Code, Section 371
5 years' imprisonment; $250,000 fine

Counts 2-8:

Mail Fraud Affecting a Financial Institution - Title 18, United States Code, Section 1341
30 years' imprisonment; fine of $1,000,000

Counts 9-13:

Wire Fraud Affecting a Financial Institution - Title 18, United States Code, Section 1343
30 years' imprisonment; fine of $1,000,000

Counts 14-15:

Conspiracy to Commit Money Laundering - Title 18, United States Code, Section 1956(h)
20 years' imprisonment; fine of twice the value of funds involved; criminal forfeiture

Counts 16-19:

Perjury - Title 18, United States Code, Section 1623
5 years' imprisonment; $250,000 fine

Count 20:

Subornation of Perjury - Title 18, United States Code, Section 1622
5 years' imprisonment; $250,000 fine

Count 21:

Conspiracy to Obstruct the Due Administration of Justice - Title 18, United States Code, Section 371
5 years' imprisonment; $250,000 fine

Counts 22-23:

Tax Evasion - Title 26, United States Code, Section 7201
5 years' imprisonment; $250,000 fine


CHARGES AGAINST KIM A. LARSEN

Counts 2-8:

Mail Fraud Affecting a Financial Institution - Title 18, United States Code, Section 1341
30 years' imprisonment; fine of $1,000,000

Counts 9-13:

Wire Fraud Affecting a Financial Institution - Title 18, United States Code, Section 1343
30 years' imprisonment; fine of $1,000,000

Count 14:

Conspiracy to Commit Money Laundering - Title 18, United States Code, Section 1956(h)
20 years' imprisonment; fine of twice the value of funds involved; criminal forfeiture


INVESTIGATING AGENCIES

Federal Bureau of Investigation
Internal Revenue Service - Criminal Investigation
Department of Housing and Urban Development, Office of the Inspector General


An indictment itself is not evidence that the defendants committed the crimes charged. The defendant are presumed innocent until the Government meets its burden in court of proving guilt beyond a reasonable doubt.