Editor’s note — The California Department of Business Oversight (DBO) supervises, licenses and regulates a variety of financial institutions, including some real estate mortgage loan originators (MLOs) holding a Nationwide Multistate (or Mortgage) Licensing System & Registry (NMLS) license. Alongside the California Department of Real Estate (DRE), the DBO shares the responsibility for overseeing MLOs depending on their license use.
This month’s DBO Bulletin Digest features an investment fraud case, public bank law and a cannabis banking guidance.
Investment fraud
A California court granted the DBO’s request to shut down an alleged investment fraud that collected over $30 million from unlawful land sales associated with Silver Saddle Ranch & Club in California City.
The DBO claimed in a civil complaint that the syndicator violated state securities laws and targeted ethnic minorities using high-pressure sales tactics and flat out misrepresentations. The complaint alleges that over 2,000 investors agreed to pay up to $30,000 each for a part of an undeveloped 1,000-acre plot of land in rural Kern County.
Read more about this case in the DBO’s civil complaint here.
The complaint sought an injunction to freeze assets and prohibit solicitation of more investments, spending any more investor money and destroying records. The complaint also sought penalties for the syndicator and restitution for the investors.
Editor’s note — These aggressive and unethical tactics are textbook signs of investor fraud. Learn how to spot these red flags and more with first tuesday’s Forming Real Estate Syndicates eBook.
New public banking law
Governor Gavin Newsom signed Assembly Bill 857 (AB 857) this month, allowing California cities and counties to establish public banks through the DBO. Banks organized under AB 857 would be regulated by the DBO and FDIC just as privately owned banks are now.
These banks will not be allowed to compete with commercial banks except in local agency banking, infrastructure lending, wholesale lending and participation lending. In addition, public banks will need to partner with other local financial institutions for retail activities. Read the full bill text here.
This bill makes California the only other state with public banking aside from North Dakota, currently home to the only state-owned bank in the United States. Critics point out that there’s only one public bank left for a reason; not only are they are vulnerable to political influence, these banks are inherently risky and expensive.
On the other hand, co-author Assemblyman David Chiu of San Francisco claims public banks will encourage reinvestment in local communities rather than lining Wall Street coffers.
Solar industry fraud
The Solar Consumer Protection Government Taskforce issued a bulletin to Fresno County electric utility customers in September 2019 regarding solar panel suitability. The Taskforce, which consists of the DBO, California Public Utilities Commission (CPUC), Contractors State License Board (CSLB) and Fresno County District Attorney’s Office, aims to curb solar industry fraud by providing customers information on acceptable alternatives before resorting to costly solar panel installations.
The September bulletin came on the heels of increased fraudulent activity in Fresno County targeting small Spanish-speaking communities like Parlier and Huron.
Solar panels can become a headache for real estate professionals because of the first-lien status of popular financing program loans like PACE. Learning more about alternatives can save clients thousands, especially if their home isn’t quite suited to collect solar power.
Read the Taskforce’s solar bulletin here.
Cannabis banking guide
This month, the DBO released guidance for state-chartered financial institutions regarding cannabis businesses. The guidance comes in the form of a six-page questionnaire and is meant for banks organized under state laws and regulated by the DBO.
It poses questions that will help banks evaluate their risk assessment policies, calling special attention to customer due diligence, monitoring and filing requirements and red flags as identified by the U.S. Financial Crimes Enforcement Network (FinCEN). Download the DBO’s Cannabis Banking Guidance here.
Related article:
//journal.firsttuesday.us/identity-theft-prevention-for-mlos-and-mlbs/46372/
California real estate licensees will see the DBO’s efforts to clarify a complex and budding industry as a positive sign. There’s a lot at stake for California MLOs and commercial real estate investors; the legal cannabis industry is expected to generate a $40 billion economic impact by 2021, according to Arcview Market Research.
Despite an optimistic outlook, cannabis businesses and their investors face a gamut of hurdles ahead, the highest of which include financing and regulation. Real estate professionals eyeing the cannabis industry for a potential opening will want to watch just how closely legitimate cannabis businesses adhere to the sound consumer protection practices in this banking guide.
Reminders
Lastly, the DBO issues a couple of friendly reminders about upcoming deadlines. The 2019-20 California Financing Law Assessment was sent out to licensees on September 30 and becomes delinquent if not paid by October 31, 2019. Inquiries may be sent to CFL.Inquiries@dbo.ca.gov.
Banks and credit unions that hold local agency deposits need to complete the 2019-20 Local Agency Security Program Assessment. This assessment was also sent out September 30 and becomes delinquent if not paid by October 31, 2019. Inquiries may be sent to Lisa.Huang@dbo.ca.gov. Both assessments may be paid electronically.
Check back next month for November’s DBO bulletin digest. As always, you can read the full DBO bulletin on their website.
