April 16, 2001
United Parcel Post to Buy First International Bank
Fraud's Remembered Part II
Ethics and Standards
Latest Listserve News
Leasing News List---up-dated tomorrow
United Parcel Service to Buy First International Bank
I have just come across an article regarding the pending acquisition of
First International Bank by United Parcel Service. I don't recall seeing
this reported anywhere and anything UPS does is definitely on my radar
screen. I consider the entry of UPS into the financial services market the
biggest competitive threat I've ever seen. They are also acquiring Mail
Just think about that. MBE will give them 4200 "retail" outlets throughout
the US and Canada. First International Bank will extend their reach in the
global market. Don't forget that UPS already knows how to deal with Customs
issues as they ship to virtually every country in the world. In my opinion
they will be in a position to offer many value added services that others
will not be in a position to provide.
What if they start leveraging their brown trucks and delivery network to get
documents signed. They probably deliver half the equipment that we lease
already. How hard would it be for them to offer partnerships to those
vendors for "free" shipping and other perks that conventional finance
companies couldn't compete with.
I think this is going to get really interesting. This could be the first
real challenger to GE Capital that we've seen.
Interesting indeed, but reaction has been very negative. I confess that much
of the problem is lawyers wanting to earn fees from documenting deals and
creating forms for their clients.
We tried to do some good things at NAELB: We have a FREE standard documents
package - it could probably use a bit of work - which several funders
reviewed and OK'd for discounted leases.
we are considering some form of recommended broker-funder language, although
not anything funders would be obligated to accept.
Still, with cooperation from other associations, much more is possible. The
atmosphere may be warming to inter-association cooperation - I certainly hope
Barry S. Marks
email@example.com* * *
Founder of Carlsbad's PinnFund missing, along with investors' millions
By Mike Freeman
SAN DIEGO UNION-TRIBUNE STAFF WRITER
A week or so before federal regulators swooped in last month, Michael Fanghella escorted a couple of potential investors through his Carlsbad company, PinnFund USA.
Fanghella gave these tours often, showing off what appeared to be a thriving mortgage business. Visitors saw bustling workers, photos of executives at charity events, plush executive offices with a private dining room, fresh flowers and an on-site chef.
Sometimes, Fanghella would steer them toward one office in particular, employees said, the one with a sign that declared: "Quality Control."
The message was almost subliminal, underscoring the story of quality and success that was at the heart of his tours.
And it worked. During the past eight years, investors put more than $330 million into a PinnFund Trust Account. They believed the money would be used to fund mortgage loans.
But today there is a different story to tell, and Fanghella isn't around to tell it.
All of that investor money is missing. Fanghella is a fugitive. He, James L. Hillman of Oakland and the companies they controlled have been accused by the federal Securities and Exchange Commission of bilking investors out of millions. The civil litigation is believed to be among the largest securities-fraud cases ever in Southern California.
Through investigative records and interviews with former employees and investors, details of what went on in Carlsbad are emerging. Most of the investors are sophisticated, wealthy professionals who were stunned by PinnFund's collapse. Several lost the bulk of their retirement savings.
Fanghella remains an enigma: capable of writing a four-figure check to help an HIV-infected stranger pay for health care but also prone to filing lawsuits against enemies, including his ex-girlfriend.
Hillman, a University of Michigan graduate who received his law degree from Northwestern University, maintains his innocence. He gave depositions to the SEC. Within a few days of the government's action, he rushed back from an overseas vacation to meet with investors face-to-face at a San Francisco law office. According to those who attended, he sometimes cried.
But Hillman also disobeyed U.S. District Judge Marilyn Huff's March 23 order freezing his assets. On March 26, he wired $6 million to his law firm in Los Angeles, SEC lawyers said.
Last week, Huff ordered all but $250,000 returned to Hillman's frozen bank account in Oakland. And the SEC contends that Hillman, even if he wasn't aware initially, received plenty of warning signs through the years about fraud at PinnFund but disregarded them.
Fanghella has not been seen in the area since March 21, the day the SEC filed its litigation. A warrant has been issued for his arrest.
His credit card was last used outside the United States, said Nicolas Morgan, an SEC lawyer. Fanghella owns a home in Barbados and has bank accounts there. Morgan declined to disclose the country from which the credit-card purchase originated.
According to the SEC, Fanghella spent at least $107 million of investor funds on his extravagant lifestyle, which included homes in Rancho Santa Fe, a yacht, a $31,000 dinner for nine people and a $5,000 tip at Laurel restaurant in San Diego, and a $5 million home in Laguna Niguel for his then-girlfriend, a one-time porn star named Kelly Cook.
He also invested $2.9 million in Moomba, a chic restaurant with outlets in New York City and Los Angeles, according to court documents.
Cook, 35, whose adult-movie credits include "Blonde Angel," went on a spending spree of her own last summer using a PinnFund credit card. From June through July, Cook charged $1.1 million on the American Express card, investigators said. Purchases included $65,000 at a carpet store, $34,000 at an audio-visual shop and $99,000 at an art gallery.
Cook's lawyers did not return telephone calls for comment, and the SEC is seeking the return of the $10 million in gifts that she allegedly received from Fanghella.
As for the rest of the $330 million, the SEC alleges that $95 million went to cover operating losses at PinnFund. At least $18 million flowed to Hillman in 1999 and 2000 alone for fund-raising commissions, the SEC contends. The rest, authorities said, was used to make interest payments to investors; that is typical of Ponzi schemes, which rely on new investor money to cover interest owed.
The aftershock of the SEC litigation has been felt from San Diego to San Francisco to New York.
In sheer number, the investor group is small. "It's in the hundreds rather than the thousands," said Charles La Bella, a former U.S. attorney named by the court to hunt down assets. Now in private practice, La Bella previously led the investigation into the 1996 Clinton-Gore fund-raising practices.
Most investors are professionals -- lawyers, doctors and accountants. Many are at least 50 years old. Promised 17 percent returns at virtually no risk, investors jumped in, spreading the word to friends and relatives.
For some, the amount lost is staggering.
"We were Mike's personal piggy bank," said one Bay Area investor who wished to remain anonymous. "I'm resigned to having lost my $7 million."
Thomas Frame, a retired real estate executive from the Bay Area and a former business partner of Hillman, said last week that he invested $8 million.
A San Francisco lawyer representing several investors said, "There are half a dozen individuals whom I am personally familiar with who invested most, if not all, of their retirement plans."
"A number of investors had leveraged their money by borrowing," he said. "Those funds will have to be repaid, and that will require an enormous re-adjustment in the lives of those investors and their families." The San Francisco lawyer asked to remain anonymous because his name is strongly linked to his clients and could reveal their identities.
In San Diego County, PinnFund employees also are feeling the sting.
About 200 people lost their jobs with PinnFund and its subsidiaries, PinnLease and Executive Catering. As with the investors, most had no idea what was happening until news reports about the SEC litigation. They are owed back pay and vacation. Most have no idea when they'll be paid.
Fanghella's estranged wife, Patrice, who filed for divorce in January 2000 to end their 18-year marriage, said, "Our family is fairly well destroyed over this. I knew nothing of what he was doing, and I hope he turns himself in." She declined further comment on the advice of her lawyers.
A paper trail
Ironically, Fanghella helped the SEC develop its case through two key public documents: his declaration in his ongoing divorce and a lawsuit he filed against Cook.
The divorce declaration last August claimed Fanghella made only $36,000 a year, that PinnFund had never made a profit, that his income was based on "borrowed" funds, and that he and his wife's inflated lifestyle was "smoke and mirrors," according to a copy of the declaration obtained by The San Diego Union-Tribune.
"Since at least 1996, my wife and I have been living entirely off these borrowed funds," Fanghella said in his filing. " . . . I would need to sell PinnFund for $270 million to get out from under the Hillman loan. Meanwhile, if he senses a problem, Hillman can call the loan, leaving PinnFund unable to function."
Investors were told that their money was dedicated to funding mortgage loans. In addition, some investors saw audited financial statements that claimed PinnFund was profitable -- statements that turned out to be false, the SEC contends.
Also last summer, Fanghella sued Cook in Orange County. He claimed the two met in December 1999 while both were going through divorces and, thinking the two would marry, he gave her $10 million in gifts, including a $5 million house. She broke off the relationship in June.
Fanghella and Cook tried to settle their lawsuit. But by that time, Patrice Fanghella's lawyers uncovered it and protested to an Orange County Superior Court judge, saying Fanghella had given Cook community assets. The judge froze Cook's assets, and the case is pending.
Working in PinnFund's offices following the SEC action, La Bella found a bill for a $50,000 BMW that Fanghella purchased for a woman about 10 days prior to PinnFund's collapse.
The luxury car turned out to be one of 11 Mercedes, Jaguars and other luxury cars purchased by Fanghella with investor money, said La Bella's investigators. Most of these vehicles were bought in 2000.
'Something is wrong'
Raised in the New York City borough of Queens, Fanghella appears younger than his 49 years. He attended prep school at Admiral Farragut Academy in Pine Beach, N.J., and remained close with his high school football coach, Stan Slaby.
Slaby said he is like a second father to Fanghella and to many other Farragut alumni. According to the SEC, Fanghella bought Slaby a 2000 Cadillac Deville.
"I haven't heard from him since Christmas," said Slaby, who lives in Pine Beach. "Given the fact that I haven't heard from him, I know something is wrong. Knowing how he is, he would be ashamed to face me. He would say he let me down."
Fanghella apparently moved to California in the mid-1980s following a divorce from his first wife in Texas. He met James L. Hillman, now 62, at TransGroup, a real estate syndicate based in Oakland.
In many ways, Hillman and Fanghella are opposites, according to friends and investors. Fanghella enjoyed the appearance of wealth, sources said. Hillman reportedly put in long hours at a plain office in Oakland, investors said. Stocky with thick, gray hair, Hillman lives in a relatively modest house and gave generously to charities, investors said. His main extravagances are boats. He owns at least one yacht.
After working together in the mid-1980s, Hillman and Fanghella started a relationship again in 1993 when Fanghella founded PinnFund. The company specialized in mortgage loans to borrowers with poor credit histories. Hillman agreed to raise money to underwrite the loans. He created Peregrine Funding and three investor partnerships, Six Sigma, Grafton Partners and Allied Capital.
In June 1999, Hillman hired PricewaterhouseCoopers to audit his partnerships. The auditors suspected fraud at PinnFund and warned Hillman, the SEC said. Hillman fired the company that same day. He now says he fired the auditors because they were taking too long to complete their work.
Thomas Brown, Hillman's lawyer, contends the SEC is exaggerating what PricewaterhouseCoopers told Hillman. "I feel comfortable that when I get the chance to cross-examine (PricewaterhouseCoopers), as well as when the records we have are laid out, it will show a little different story," he said.
Two San Diego accounting firms hired by PinnFund, Levitz Zacks & Ciceric in 1999 and A.V. Arias & Co. in 2000, also discovered that bogus audits were circulating among investors and some of PinnFund's outside lenders, according to court documents. The statements showed the company was profitable, but in fact PinnFund lost $32 million in 1999 and $36 million last year.
Both of the San Diego firms quit and took other steps, including notifying the U.S. Department of Housing and Urban Development about the existence of two sets of financial statements, court documents show.
Based on an investor tip, the SEC began investigating Fanghella and Hillman in November.
In court documents, Hillman said his family members, including his wife, mother, and daughter and brother-in-law, were investors. In all, Hillman and his family members have about $2.65 million invested, Brown said.
"He is devastated," Brown said of his client. "The man cries daily. Truly weeps. Many of these people are very close to him and he is very close to them. His life has been turned upside down."
Chief Operating Officer and shareholder Keith Grubba quit PinnFund about a month before the SEC swooped in. The day of the action, Chief Financial Officer John Garitta quit. Asked to make statements to the SEC, Grubba, PinnFund lawyer Sam Kelsall V and Cook have exercised their Fifth Amendment rights against self-incrimination, SEC officials said.
Kevin Kelly of the U.S. Attorney's Office in San Diego would not confirm or deny whether a criminal investigation is under way, but many court filings mention the possibility of criminal prosecution.
Fraud's Remembered Part II
Unfortunately I worked closely on the Lila/Rhino Copy deal about 12 years
ago when I was with Sanwa Leasing. I remember it well. I even spent an
entire day with someone that I believed was named John Edwards. He seemed
to have his quirks (like having those electric eyes installed on the water
faucets in his office bathroom which in retrospect looks like he didn't want
to leave finger prints) the carrot juice, etc but he was very bright. He
also went and hired a whole bunch of people off the streets and presumably
paid them to appear as if they were working. The sole requirement of these
people was that they were to have no command of the English language. He
was operating out of an old converted chocolate factory in Bridgeport, PA as
well as a small office in King of Prussia. We had some concerns about the
request but couldn't really put our finger on anything. And of course those
were the days of volume-volume-volume. If I remember correctly, the person
that I knew as John Edwards had done some time in prison for some type of
white collar crime in the past. I'll never understand why he didn't just
leave the country after he had amassed some money but I guess I don't
understand the criminal mind.
Rave Financial Services, Inc.
"Ethics and Standards---EXCITING"
I find this discussion about funding source ethics and standards stimulating - but more than
What is exciting is that we have the ability - through the magic of the internet and the
communication it affords to us through
listserves and newsletters like yours, to effect a groundswell movement and actually make
appropriate changes happen in our
By these tools, we have the ability - as mere serfs in the kingdom of the funding sources - to
communicate in open discussions
about our mutual interests. What we learn is that we are not alone in our frustrations with
those things that turn out to be our
common enemies, whether they be unethical funding sources or conniving competitors.
In our (mostly) unregulated industry, the balance of power is about to shift. Collectively we
are larger than any problem we may encounter. Collectively, we can do more than any single
association, funding source or government regulator ever could
to rout bad guys and promote the good guys.
Ethics. Of the people, by the people and for the people.
Keep up the good work.
Gary Greene, CLP
Lease $mart - Equipment Leasing & Financing for Business & Industry
Happiness is . . .
A Positive Cash Flow (TM)
+ + +
Rodi Likes Response
The responses to the questions I raised concerning "ethical" behavior in our
industry are exactly the type I had hoped to solicit. Hal Horowitz, an,
esteemed WAEL past president, suggested that those who behave ethically do
so because they wish to act in the right way. It would be a major coup for
those in our business if their actions in the marketplace were the "first"
criteria by which they were judged.
I also agree with Barry Marks on the point that those that "steal" from the
vendor or lessee will eventually steal from you. In fact, to amplify Barry's
point, the theft begins the first day that a transaction, obtained in some
unethical manner, is put on the books at one of the funding sources upon
which we mutually depend. While this is not "theft" of a direct nature, it is
theft nonetheless because of the eventual "cost" of cleaning up such a
portfolio;a portfolio which contains all of the business brought by ethical
members of our industry.
Now, if a funding source were able to separate its business and price each
broker or vendor according to the risk they represent, then the problems
with a particular portfolio would be more easily determined and therefore
much harder to "allocate" across an entire portfolio. Simply stated it
would be much easier to pinpoint the damage done by business that was booked
using less than acceptable standards. As long as he bad operators are in a
minority and the good ones are in the majority, then the good can subsidize
the bad and the "cost" is barely noticeable because it can be spread across
such a wide range of transactions.
Concerning the "post disclosure" issue, I personally considered this a part
of my responsibility even though it has not always been abundantly clear in
all of the master assignments agreements I have executed during my career.
I think this is because there are two ways to interpret an agrement. You can
interpret an agreement in the very literal sense, sort of like former
Presient Clinton trying to get to the exact definition of the word "is". Or
you can interpret the agreement in the "Spirit" in which it was written. If
you choose the "spirit" interpretation that will not necessarily protect
you, if the other party to the agreement, decides to be very literal.
I think that this may be the problem that we have with the various
"standards" that exist in our industry. They were constructed in a certain
"spirit", which assumes that everyone who accepts them will roughly
interpret them the same way. If this were the case they wouldn't need teeth.
When it comes time to use standards interpreted in this manner, to actually
conduct an investigative or enforcement proceeding, then the literal
interpretation becomes the fall back position and the spirit of the standards
The conclusion therefore is to construct a truly enforceable code of
standards and then be prepared to take "courageous" action against anyone
who violates those standards. This will take and effort by all associations
that are concerned about this issue and if we, as an industry can come
together on this, I would estimate that we could extricate the bad guys with
some modicum of precision.
I am looking forward to this discussion at the upcoming conference in
Scottsdale. I think that this will, at first, be elevated to the venerable
"chair throwing" (not a literal reference) debates that some of the old
WAEL/UAEL "general sessions" were noted for. The last time we had this hot
an issue was when I moderated "Who owns the Lessee" at the Palm Springs
conference, Spring of 1998. That issued settled down and both funders and
third parties began to make agreements with each other that worked to their
mutual benefit;the operative word being mutual.
We will eventually come together on Standards and everyone will participate.
With the kind of communicative tools we now have (this news letter,
broadcast e-mail, and the ability to put up a web site ala "Ninex sucks")I
believe that the conditions exist to put together a mutually beneficial set
of standards that does not limit tough competition, but that protects the
"customers" that we all depend on, and that will keep the regulators at the
threshold instead of sitting in our living rooms.
Happy Easter to all who celebrate this wonderful Holy Day. And even if you
don't celebrate Easter as a religious holiday, the message of the day is
Bob Rodi, CLP
1-800-321-LEAS (5327 X101
National Association of Equipment Lease Brokers Tightens Security on "Listserve"
( This program enables members to talk to each other, giving them the opportunity
to ask where to place a lease, who handles what equipment or credits, and the
experience with funders and other lease service providers. It also enables
responses to questions about legal or other business matters.editor )
* LIST SERVER ANNOUNCEMENT *
Due to the incredible response to, and use of this service by, NAELB members
and, (unfortunately), some non-members, automatic, instant subscriptions to
this list server has been disabled. All requests for new subscriptions are
now being manually checked regarding current NAELB membership status. This
may result in a day or so delay in gaining access to the service for new
subscribers, but should help us to keep this popular service as an NAELB
Over the next several weeks the entire subscription list will be checked and
confirmed and we expect to identify and drop any non-member users during
that period. If your subscriber e-mail address does not match the e-mail
address on file in the association office, or if you do not have an e-mail
address on file in the association office, you may receive an e-mail or
phone call to confirm your identity and membership status. Right now it's
not anticipated that there will be any disruptions in any member's use of
the service during this process.
We are also evaluating several other possible enhancements to the service.
We appreciate you using the service and your patience while we continue to
try to improve it.
5621 Departure Drive, Suite 113
Raleigh, NC 27616
Phone: (919) 790-1266
Fax: (919) 790-2262
Correction of a typo-The first franchised McDonald's was opened in Des
Plaines, IL. In fact, they have a vintage McDonald's decked out in the red
and white tiles on the outside of the building with the golden arches and
old chevy cars even sitting in the parking lot right across the street from
a working McDonald's.
+ + +
A minor correction. The first MacDonalds was opened in Des Plaines, IL.
Robert R Schreiber
Red Herring, one of the leading magazines on the internet, labeled their
Number of Internet companies acquired in Q1
Total amount spent on Net companies acquired in
that period: $13 billion
Number of those transactions that involved
infrastructure firms like e-business software and
Internet communications network companies: 132
Total amount spent on infrastructure companies in
Q1 2001: $9 billion
Number of Q1 2001 transactions that involved
Internet destinations: 184
Total amount spent on Internet destinations in Q1
2001: $2.2 billion
Total amount spent on Internet destination deals
in Q1 2000: $52 billion
Number of dot-coms that received formal funding
that have shut down since January 2000: 369
Number that shut down in Q1 2001: 147
Number that shut down in the same quarter of the
previous year: 5
Number that shut down in all of last year: 222
( Another factor for the business economy, the Dot.com companies needed new
computers, furniture, workstations, copiers, and services. Without their
spending,many companies will feel the lack of business, plus in equipment
not obsolete, the used equipment sales will also cut into the new equipment
sales. As a local indicator, the Salvation Army Thrift Shops in the last
two years have seen decline in sales, but the first quarter of this year
has almost made up for the entire thrift sales of used clothing, furniture,
and other items in our area. editor )
ulti-Billion Dollar Net Banking Fraud Uncovered
An Internet fraud scheme involving fake bank guarantees worth $3.9 billion
has been uncovered by the International Chamber of Commerce, the ICC
Some 29 Web sites used in the scam were shut down but the mastermind was
still at large, said Jon Merrett, assistant director of the ICC Commercial
Crime Bureau and Cybercrime Units which polices all financial and
intellectual property rights breaches on the Internet.
"We believe two people were arrested in Switzerland and two in San Francisco,
but we don't think anything came of that as they were not the masterminds,"
The person or persons behind the scam was still at large and could be running
other online fraud schemes, Merrett warned.
The British-based Commercial Crime Bureau was alerted to the false bank
guarantees six months ago but believe some victims were conned as early as
Since the scheme was unveiled more victims had come forward and the amount
involved could be higher than initially thought, Merrett told Reuters.
The victims had paid tens of thousands of dollars for the issue of fraudulent
bank guarantees which were validated on the scam Web sites, Merrett said.
To make them seem legitimate, the Web sites appeared as though they were run
by an international clearing house for financial securities and a financial
One U.S. businessman had lost $70,000 in the scam, but the Commercial Crime
Bureau said it was not clear how much had been stolen in total. At least 10
cases had been identified.
The scam operated in the United States and the Far East but false guarantees
had been presented to banks in several countries including the UK, Merrett
The sites were hosted by a Internet service provider in the United States.
"The problem with the Net is that it is not secure because Internet service
providers don't run identity checks on their clients," Merrett said.
"It is very easy to set up an email account and web page on an ISP offering
free web space and no checks are done on the people setting them up.
"We wouldn't like to guess how much money is lost through Internet fraud but
we are aware of people losing millions in these types of scams."
If in doubt about the authenticity of a Web site Merrett recommends doing a
'whois' search of the domain name on any of the large search engines. This
will reveal who the site is registered to.