LeFever Mattson and its affiliated debtors are requesting court approval to establish special procedures for selling 60 properties that secure approximately $75 million in loans from their largest secured creditor, Socotra Capital, Inc. ("Socotra"). The motion, filed March 26 in the Northern District of California Bankruptcy Court, seeks to withhold sale proceeds from Socotra while creditors investigate potentially improper transfers orchestrated by the debtors' former CEO.
Unlike standard sale procedures previously approved by the court, the proposed "Socotra Sale Procedures" would require proceeds to be held in a segregated, interest-bearing account rather than being paid to the lender at closing. This unusual arrangement stems from an ongoing investigation into approximately $20 million that former CEO Kenneth W. Mattson allegedly transferred from a LeFever Mattson bank account to Socotra over a seven-year period.
"The Debtors and the Official Committee of Unsecured Creditors are in the process of investigating Socotra and do not believe it prudent to release sale proceeds to Socotra until the investigation is complete," the motion states. "Because Socotra was the counterparty to so many apparently self-interested transactions by Mr. Mattson, the Committee has spearheaded an investigation to determine whether the Debtors' estates hold any claims against Socotra."
The bankruptcy cases involve a diversified real estate portfolio of approximately 176 properties throughout California, primarily in Sonoma, Sacramento, and Solano Counties. The properties include commercial, residential, office, and mixed-use real estate, as well as vacant land.
The motion reveals troubling allegations about the relationship between Mr. Mattson, his entity KS Mattson Partners, LP ("KSMP"), and Socotra. According to the filing, substantially all Socotra Properties were originally purchased by KSMP, then encumbered with high-interest loans and transferred to various debtor entities. In at least two instances, Mr. Mattson allegedly used debtors' property to cross-collateralize KSMP properties.
Socotra is characterized as a "hard money lender" that makes short-term, high-interest loans where traditional lenders would not. The motion notes that Socotra comprises affiliated loan funds that would typically distribute sale proceeds to investors promptly after receiving them, potentially complicating recovery of funds if claims against Socotra are established.
The proposed procedures distinguish between properties with a sale price less than $5 million ("Small Asset Sales") and those equal to or greater than $5 million ("Large Asset Sales"). The debtors estimate that approximately 54 properties would qualify for Small Asset Sale Procedures and 5 would qualify for Large Asset Sale Procedures.
To protect Socotra's interests during the investigation, the debtors propose maintaining "sufficient sale proceeds to satisfy the outstanding amount of Socotra's loans, plus six (6) months of interest and fees, in a segregated, interest-bearing account until the Debtors and Committee have concluded their Socotra investigations."
The bankruptcy cases were filed in stages, with Windscape Apartments, LLC filing on August 6, 2024, followed by LeFever Mattson and 57 other debtors on September 12, 2024, and two additional entities on October 2, 2024. According to the motion, the bankruptcies "were necessitated by, among other things, Mr. Mattson's purported sales of equity interests in numerous Debtors to hundreds of investors through transactions that were not recorded in the books and records of LeFever Mattson or the appropriate Debtor."
The court will hear the motion on April 16, 2025, at 11:00 a.m. in Oakland, California.
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Link to full document: Motion of Debtors to Establish Procedures for Real Property Sales (Socotra Collateral)