The charges against Mark D. Hanf and Hoai-Nam Chu Phan at the California-based Pacific Private Money Group LLC looked liked a fairly regular investment scheme gone bad, turned into a Ponzi-scheme. They raised capital with the intent of making real estate loans.
They got hit by the rise in interest rates in 2022 and became unprofitable. Rather than settle up with investor, they took the Ponzi approach and funded investor distributions with new capital raises. Classic fall from grace. They could never catch up and eventually declared bankruptcy. Maybe that’s being too favorable to them. It looks like they may have also siphoned off money for personal use according to the SEC complaint.
It all looked like a fairly ordinary failed investment scheme until I got halfway through the SEC complaint.
Maybe I’m reading this wrong:
“46. Hanf’s failures to disclose his intention to misappropriate investment funds and his past practice of doing so were material to a reasonable investor as well as the actual defrauded investors of the Pacific Fund and the Freedom Fund. It would have been important for investors to know that Hanf had a practice of misappropriating money invested in the Pacific Fund and/or the Freedom Fund for his personal benefit—including to buy and maintain properties and to pay various other personal expenses—rather than using investor money solely for the funds’ purported real estate-backed loan businesses.”
Is the SEC really saying that they should have disclosed the they were going to misappropriate funds as part of the offering? Would a disclosure have made the whole thing not an actionable fraud?
That seems like a crazy claim to have been put in the complaint.
Sources:
- Founder And CEO Of Bay Area Real Estate Investment Fund Charged In Multi-Year Fraud Scheme
- SEC Charges San Francisco Bay Area Private Fund Executives with Multimillion Dollar Ponzi-Like Scheme
- SEC Complaint
- Executives of failed Marin lender charged with money laundering in alleged $103 million fraud scheme by Laura Waxman
- Embattled firm Pacific Private Money files for bankruptcy as investigations continue