An order by the California Department of Financial Protection and Innovation issued Monday accuses the company — which was once a fixture in the Marin County private lending market — of experiencing a “severe liquidity crunch” in December that led it to suspend all investor withdrawals and monthly distributions. The order imposes a 30-day suspension on Pacific Private Money’s lending activities while regulators scrutinize its financial condition and compliance with state law, though it will not impact existing contracts between the lender and its borrowers.
The suspension follows reporting by the Chronicle that the embattled firm had stopped all payments late last year, alarming its 100-plus investors — many of whom now believe their money may have disappeared under CEO Mark Hanf’s leadership. The Marin County District Attorney’s Office has also opened up an investigation into the lender, the Chronicle found.
The company had three days prior to the suspension to request a hearing with the agency, but failed to do so, according to the order, which states that Pacific Private Money confirmed on March 9 that it experienced a “severe liquidity crunch in December.”
The Chronicle reported previously that Pacific Private Money appointed a chief restructuring officer that month, and is facing mounting legal pressure, including at least one lawsuit filed in Alameda County Superior Court of violating state lending and real estate laws designed to protect borrowers and homeowners from misleading, unfair or abusive practices.
The Marin County Journal first reported on the company’s suspended license Friday.
Pacific Private Money’s business is centered on “hard-money” loans, a form of short-term, higher cost financing that’s secured by property rather than traditional borrower credit-worthiness. The firm pooled money from individual investors and used that capital to make bridge and hard money loans — typically one-to-two-year loans doled out to buyers or developers needing quick funds for purchases, renovations or for refinancing, often at interest rates far above conventional bank mortgages.
Investors in Pacific Private Money’s funds were promised fixed returns, in some cases advertised as high as 9%. The Chronicle reviewed property records showing that the company and its affiliates financed hundreds of loans throughout California over the last decade, and the firm — which is licensed to operate in seven other states — has stated publicly that it has funded over 3,000 loans totaling more than $2 billion since it was founded in 2008.
The business’s sudden unravelling has raised questions about its founder’s financial history, which includes a 2007 Chapter 7 Bankruptcy filing and a 2014 fine of more than $18,000 by the California Department of Real Estate, which at the time revoked Hanf’s real estate broker license for 45 days after an audit found that he had illegally commingled funds, placing some investors’ money into bank accounts under his control instead of the trust accounts for which they were intended.
Hanf did not respond to the Chronicle’s emailed requests for comment, both for their previous story and for this one.
In emails reviewed by the Chronicle, investors have speculated that Hanf may have fled the country after becoming difficult to reach — the company’s former Novato offices now sit closed and stripped of signage — though there’s been no confirmation that he is no longer in the area.