Fraud in Connection With American Home Mortgage : Judge Sentences Rinaldo to 3-Year Prison Term

Declaring that the business dealings of Orange County financier John G. Rinaldo were a “clear fraud,” U.S. District Judge Terry Hatter Jr. sentenced him Thursday to serve three years in federal prison.

“A message must go out to the business community not to make reckless errors with other people’s money,” Hatter said. He ordered Rinaldo to surrender July 22.

Rinaldo, who pleaded guilty in March to one count of mail fraud in connection with the operation of his Costa Mesa-based American Home Mortgage and Western States Pension, had faced a maximum sentence of five years in prison.

American Home Mortgage’s court-appointed trustee has estimated that investors lost about $11 million when Rinaldo’s financial empire collapsed in 1982. About 7,100 investors had invested about $56 million in Rinaldo’s companies. Most of the money was invested in second-trust deeds.

“I didn’t steal anyone’s money. I lost everything I had,” Rinaldo told Hatter before the sentence was imposed. “I was wrong. I caused a great deal of injury to a great many people.”

Richard Kirschner, Rinaldo’s attorney, described his client as “a beaten and broken man.” He said Rinaldo would not appeal the sentence.

Rinaldo’s wife, Robyn, who accompanied him in court dressed in black, burst into tears on hearing the sentence. As of May 1, about $25.9 million, including interest, has been recovered through the sale of Rinaldo’s assets, including a Newport Beach luxury home, according to a report issued by trustee Dennis Schmucker of San Diego. To date, the trustee has recorded $9.2 million in actual losses and $4.1 million in anticipated losses.

The report said that out of 7,161 investors, “at least 4,306 have suffered, or are expected to suffer, a principal loss.”

In November, 1982, Rinaldo filed the first of several petitions seeking protection from creditors under the U.S. Bankruptcy Code.

A federal indictment issued last July charged that American Home Mortgage solicited investments and pumped the money into a second company, Western States Pension. Western States was legally owned by Rinaldo’s teen-age stepdaughter but was actually financed and controlled by Rinaldo.

Attorney Kirschner maintained that Rinaldo’s business dealings did not begin as a fraud. He said Rinaldo “sunk every penny he earned” into his companies in an attempt to save them from bankruptcy.

In pleading for leniency, Kirschner said that Rinaldo has been the target of death threats and that his “children have been beaten up in school. He’s been vilified, sued, bankrupt, ridiculed, shunned and lost every penny he’s earned.”

Hatter rejected an impassioned plea by Kirschner to allow Rinaldo to participate in a South Central Los Angeles anti-crime program rather than go to prison. He disagreed with Kirschner’s portrayal of Rinaldo as “nonviolent.”

“I think violence has been done here to the psyches of so many of the investors,” he said.

Harry McGugin of Pacific Palisades said he and his wife, Irene, were among Rinaldo’s victims. He said they had lost about $3,700 by investing with Rinaldo and expect to lose about $3,700 more.

“I feel the sentence was inadequate, but it certainly is a step forward,” he said.