Tom Cruise and Katie Holmes are caught up in a financial charity scandal brought about by their desire to help a Marine sergeant severely wounded in Iraq.

The tragic case of Staff Sgt. Jose Pequeno was brought to the attention of the world with a dramatic presentation during the PBS National Memorial Day Concert in Washington, D.C.

Cruise was shown on TV sitting alongside Gen. Colin Powell as he watched his wife Katie portray Pequeno’s sister Elizabeth Bagley. Dianne Wiest played the wounded soldier’s mother Nellie Bagley.

But none of the celebrities knew that Pequeno’s mother and caretaker is an ex-con – who served time in prison for running a charity scam.

Nellie Bagley has been convicted TWICE in New Hampshire for fraud. She had falsely claimed her daughter had cancer and received thousands of dollars in donations from co-workers – and served nearly two years in prison.

Donations – which poured in after the PBS appeal was aired – are supposed to be funneled through the New Hampshire Office of Public Guardian or a private foundation – but there’s nothing to stop people from sending money directly to the sergeant’s mother.

Paul Chudzicki of the Public Guardian Office told The ENQUIRER: "To date, she has not forwarded any private donations to this office. I intend to talk with Nellie…formally requesting that any and all donations be forwarded to our office.
An angry Nellie told The ENQUIRER: "I take care of my family and I take care of my children. What happened in the past doesn’t matter"  and refused to discuss donations she might have received directly.

Sadly, Sgt. Pequeno has had to endure 19 surgeries since he was injured by a grenade in Iraq in 2006, revealed his sister Elizabeth.

PBS complaint investigator Michael Getler told The ENQUIRER: "I’m told that Tom Cruise and Katie Holmes knew nothing about Nellie’s background."

And exec producer Jerry Colbert, the show’s executive producer, assured The ENQUIRER: "We knew nothing about it. I thought I was sitting with a little old lady who was a heroine,who had gone without money, living on noodles for months. They had to beg, and a lot of their income was coming from charity.

"I have since learned she was convicted of fraud."