Financier Rinaldo Pleads Guilty : Accepts Single Felony Count of Mail Fraud in Plea Bargain

In a surprise move, Newport Beach financier John G. Rinaldo pleaded guilty in U.S. District Court in Los Angeles to a single felony count of mail fraud in connection with the 1982 collapse of his retirement fund investment business.

Rinaldo entered the guilty plea Wednesday as part of a plea-bargain agreement. In exchange for his plea, 14 additional counts of mail fraud will be dismissed when he appears in court March 13 for sentencing. He faces a maximum penalty of five years in prison and a $1,000 fine.

Rinaldo’s bankrupt pension-fund management and real estate investment program could cost 7,000 Southern California investors as much as $10 million out of total investments of more than $50 million, according to the bankruptcy trustee in the case.

New Indictment Issued

The 46-year-old founder of American Home Mortgage Corp. and Western States Pension Corp., both of Costa Mesa, originally had been scheduled to go to trial March 25 on all 15 felony mail-fraud counts.

In recent weeks, however, negotiations between his attorney and the U.S. attorney’s office in Los Angeles resulted in a new indictment being issued Wednesday. Within minutes, Rinaldo entered his plea before U.S. District Judge Terry Hatter.

Richard Kirschner, Rinaldo’s attorney, maintained Thursday that his client did not steal money. He said the $40 million collected through liquidation of the companies’ assets is enough to repay all investors.

But bankruptcy trustee Dennis Schmucker contends that investors actually pumped more than $50 million into Rinaldo’s companies and that actual losses already total $5.7 million and could climb to $10 million.

Because of the complexities involved in liquidating a portfolio of real estate loans, Schmucker has said, some investors will lose all of their money while others will get back not only their principal but sizable interest earnings as well.

‘Reckless Disregard for Truth’

Reading from a prepared statement in court, Rinaldo maintained that he had not intentionally defrauded investors. Instead, he said, he had “shown reckless disregard for the truth” by failing to disclose the ties between his two ostensibly separate companies.

Rinaldo admitted that he did not tell Western States’ pension management clients that he was investing, through American Home, their retirement funds in second-trust deed loans to borrowers, some of whom were already in default on previous loans.

And he admitted a conflict of interest. Rinaldo said he received a fee from American Home each time he approved such a loan.

The new indictment was modified to include the “reckless disregard” language, which Kirschner said means that Rinaldo’s conviction is not based on intentional criminal activity.

It was unclear, however, whether the change in the indictment would lead to a softer sentence for Rinaldo. Both Kirschner and Chief Assistant U.S. Atty. Richard Drooyan said the plea agreement does not bar the government from seeking a prison term for Rinaldo, but neither attorney would elaborate.