Novato real estate lender under investigation
More than 100 investors in Pacific Private Money, a Novato-based real estate lending company, are wondering if they will ever see their money again.
“There are so many questions that nobody has a clear answer to,” said Dennis Xifaras of Burlingame, who invested $450,000 with the company after hearing one of its radio advertisements several years ago.
PPM operates a group of investment funds, and Xifaras deposited money in several of them. The company represented that it had tens of millions of dollars of assets under management. Its chief executive officer, Mark Hanf, lives in Tiburon.
In a Dec. 4 email, Nam Phan, the company’s chief operating officer, notified Xifaras that, “At this time, the company has made the difficult decision to pause all redemptions until further notice. We are actively managing through a liquidity constraint.”
Phan resigned on Jan. 22. The next day Xifaras received an email from Bill Brinkman, a restructuring and turnaround specialist, who wrote that he had been hired by PPM “in connection with financial challenges it was experiencing.”
Brinkman stated that the company was operating with “critically minimal cash balances” and that its ability to continue operations was at risk.
“Perhaps most important to many investors,” Brinkman wrote, “I do not have an estimate that I have confidence in of the expected range of recoveries for the investors in the various funds.”
He added that his “rough estimate” was that net recoveries would amount to “a fraction of the total capital provided by investors.”
Xifaras said 130 to 140 investors have been communicating with each other about the situation and filing complaints with authorities and regulators.
“The Marin County District Attorney’s Office has received consumer complaints regarding PPM,” Deputy District Attorney Sean Kensinger said. “Our office is currently investigating these complaints and is not at liberty to share the nature of the complaints at this time.”
Hanf did not respond to a request for comment made through his attorney.
PPM’s investment funds include the North Star Capital Fund, the Pacific Southwest Note Fund, the Arrival Fund and the Pacific Freedom Fund. Both the Pacific Freedom Fund and the Arrival Fund provide consumer bridge loans.
“That is really our flagship product,” Phan said in a webinar posted on the company’s website.
Demand for private bridge loans surged after Dodd-Frank regulations imposed following the Great Recession tightened the credit guidelines of banks. Home buyers frequently obtain bridge loans when they want to purchase a new house before they’ve sold their current home.
In the webinar, Phan said the Freedom Fund had paid more than $4 million in interest to investors over the years and had more than $60 million in assets under management. Phan said the fund offered 7% returns on investment. He also boasted that since its inception, PPM had originated $2 billion in private notes on more than 3,000 loans.
Xifaras said PPM’s representatives told him that the fund had a 60% loan-to-value ratio, which meant that the property securing the loans was judged to be worth 40% more than the loans.
“They were quoting returns of 7% to 8% guaranteed,” he said. “It sounded pretty good.”
But while Xifaras was able to get $200,000 of his initial investment returned to him from the other funds, he is still waiting for the $250,000 he invested in the Pacific Freedom Fund.
Last February, Mark Brown, who co-managed the Pacific Southwest Note Fund, sued Hanf and Edward Brown, another PPM employee, alleging “severe financial misconduct.”
The suit accused the men of “misappropriating investor and company funds, breaching fiduciary duties and conducting unauthorized financial transactions.”
“The defendants improperly allocated or used funds belonging to the PSNF investors and the company,” the suit states, “for purposes outside the scope of their authority, diverting assets for their own personal gain.”
According to the suit, Mark Brown invested $445,000 of his own money into the fund, which has been “rendered worthless” because of the misconduct. He didn’t respond to a request for comment.
Brown asked the court to appoint a neutral third-party receiver to manage the remaining assets of PSNF and for damages “to protect our ‘little old ladies,’ investors that make up our investor class.”
In a story published in the San Francisco Chronicle on Thursday, Edward Brown denied the allegations in the lawsuit and said he had no role in managing PSNF.
Xifaras said about 70 investors participated in a conference call with Brinkman on Feb. 20. Xifaras said Brinkman gave investors no estimate of the amount of money remaining, what the company’s real estate assets consist of or whether the company plans to declare bankruptcy.