When the property at 70 Moon Mountain Road in Sonoma Valley was sold by one obscure business entity to another in August 2015, the move was applauded by the few local residents who noticed it. The site had been a half-built eyesore for several years under previous ownership.
In retrospect, it was a portentous transaction.
The buyer was KS Mattson Partners, which was making its first real estate acquisition in the Sonoma area. The company would go on to acquire at least 88 properties in and around the city by 2023. Federal prosecutors now assert many of those purchases were fraudulently financed. KS Mattson Partners’ manager and co-founder, Ken Mattson, was indicted in May on a total of nine counts of wire fraud, money laundering and obstruction of justice, with prosecutors accusing him of orchestrating a “classic Ponzi scheme” that bilked potentially hundreds of investor clients out of tens of millions of dollars over a period of at least 15 years.
The other obscure entity in that 2015 deal, meanwhile, was Tony’s Salami & Cheese Fund I, an investment company managed by Peter Ingoglia. It uses the same Sacramento address as Socotra Capital, a hard-money lender — co-founded by John Ingoglia, Peter’s brother — that is inextricably connected with Ken Mattson’s real estate empire in Sonoma, including purchases that now form a central element of the U.S. Department of Justice’s criminal case against Mattson.
Hard-money loans, Socotra’s specialty, involve fast-tracked approvals secured most often by real estate, with shorter payoff timelines and higher interest rates.
The two parties climbed together, with Socotra floating at least 92 loans to KS Mattson Partners starting in 2017, according to a court declaration by Kristin D. Rivera, a partner in PricewaterhouseCoopers’ investigations and forensics practice who analyzed lending documents.
Socotra now holds deeds of trust on 75 properties held by either KS Mattson Partners or entities belonging to LeFever Mattson Inc., the company Ken Mattson founded along with childhood friend Tim LeFever in 1989. The loans on those properties total $102.3 million, according to a statement jointly filed Sept. 17 by the law firms representing various sides in Mattson-related bankruptcy proceedings.
“From Socotra’s website, they proclaim, ‘We’re not like your conventional lenders with strict parameters, slow turnarounds, and unnecessary hoops to jump through,’” noted Matt Treger, who invested with Ken Mattson over a period of more than 15 years and now lives in San Diego. “As someone whose life savings has been swallowed up, their business model seems clear evidence that parameters and hoops are an essential part of a just system.”
The company hasn’t been charged with any wrongdoing in Mattson’s criminal case, and – unlike Mattson and Tim LeFever – it has not been sued by outraged investors.
Still, Socotra Capital is coming under heavy scrutiny by a bankruptcy-court creditors committee made up of LeFever Mattson investors and their relatives. Federal prosecutors also made clear reference to the company as LENDING ENTITY 1 in their May 13 criminal indictment of Mattson, noting that it loaned more than $180 million to KS Mattson Partners between 2011 and 2024.
“With regards to KS Mattson, we had no knowledge or involvement in Mattson’s alleged wrongdoing. Socotra acted appropriately and in accordance with the law at all times,” a company spokesperson told The Press Democrat in an email. “As a secured, first-position lender, all our loans are secured by high-quality real estate, including those related to KS Mattson loans.”
Socotra loans fueled buying spree
A large majority of Mattson’s Socotra-financed properties are in Sonoma. They include well-known locations such as Ravenswood Winery, Cottage Inn & Span, An Inn to Remember, Cocoa Planet and Fruit Basket. Many of those properties are now being listed and sold as part of the bankruptcies for KS Mattson Partners, LeFever Mattson and, as of early September, Mattson as an individual.
Mattson purchased virtually all of the Socotra-financed properties through KS Mattson Partners. He eventually transferred most to LeFever Mattson as that company’s CEO – “subject to Socotra’s liens without Socotra’s knowledge or consent,” according to a legal objection filed by the lender in September 2024.
The transactions represent a huge cash outlay for Socotra, a relatively small player in the lending industry. In an April 2024 newsletter, the company told its investors that at the time, “one borrower and its affiliates” held about $40 million in loans in a single investment pool, the Socotra Opportunity Fund – more than half of the fund’s entire portfolio. And around half of that borrower’s loan value was delinquent.
“Several investors have contacted us regarding loans with repeat borrowers who are in default, with several of these defaults being covered in local news,” Socotra wrote.
The name of the highly leveraged borrower was not mentioned. But that was right around the time the Sonoma Index-Tribune reported on Socotra having filed 10 notices of default on 19 KS Mattson Partners properties in Sonoma Valley, for more than $1 million in outstanding payments.
“In light of increase in nonperforming loans,” Socotra told investors, it was planning to close the Opportunity Fund to new capital on June 30, 2024. That fund is now closed, the company spokesperson confirmed.
Attorneys for San Francisco-based Pachulski Stang, representing the bankruptcy-court creditors committee, received authorization last December to subpoena a wide range of Socotra internal documents, as well as oral examination from Socotra CEO Adham Sbeih and other directors, executives and agents working for the company.
The lender declined interview requests through a company spokesperson.
“Socotra is a private money lending business, providing a critical alternative to conventional loans offered by banks,” the spokesperson said in the email. “We help thousands of real estate professionals around the country fund their projects, totaling over $2 billion worth of loans in almost 20 years. Socotra complies with all applicable laws and regulations for private money lending, and in many cases, goes above and beyond them.”
The company defended its role in a July statement of opposition to a bid by the creditors committee, which was seeking to consolidate the bankruptcy cases of LeFever Mattson and KS Mattson Partners.
“To the extent there was a Ponzi or Ponzi-like scheme, as alleged in the Mattson Indictment, it was limited to a relatively small number of investors in a very small portion of KSMP’s and LFM’s operations and Socotra certainly had nothing to do with and never invested in any potential Ponzi scheme,” the statement read.
New player in hard-money lending
Adham Sbeih founded his lending company in 2007, and was joined in 2008 by John Ingoglia, who was credited with coming up with the name Socotra Capital. Socotra is an island in the Arabian Sea, known as a refuge from war on Yemen’s mainland. The name is meant to imply the firm’s place as “an island of refuge for borrowers,” Sbeih said in a 2023 interview published on the River City Bank website.
Ingoglia died in 2020, two weeks shy of his 44th birthday. He liked to call himself “Hard Money John,” according to his obituary.
Sbeih, still the CEO, has a background in banking and lending. He grew up in Roseville, the son of an engineer and a nurse. He was a four-time national cycling champion, and a winner of the 40-kilometer time trial at the 2000 U.S. Olympic trials; he was an alternate on that year’s Olympic team. In 2004, Sbeih became the first American athlete suspended from competition for testing positive for a synthetic form of the hormone EPO, which boosts red blood cell production. The cyclist asserted his innocence and appealed his case to the North American Court for the Arbitration of Sport, but lost.
The hard-money lending industry gets its name from the “hard” assets, primarily real estate, that back the loans. For the borrower, they have a huge advantage over conventional bank loans – they can be written quickly. Often in a week upon completion of paperwork.
“Lending options from financial institutions often have complicated approval processes and weigh heavily on the borrower for approval,” Sbeih told River City Bank. “Hard money loans are asset-based and typically secured by a mortgage, so their approval process is much faster.”
Speed may have been part of the attraction for Ken Mattson, who had a habit of identifying and buying properties in Sonoma before they hit the market.
The downside to hard-money loans includes dramatically shorter payoff timelines and hefty interest rates.
A July bankruptcy court document laid out every mortgage loan extended to KS Mattson Partners. Those written by Socotra ranged from 9.35% to 13.75%. Rates for traditional bank mortgages typically run between 5% and 6.5%.
Private lender, small investors
On both ends of Socotra’s hard-money loans to Mattson were small investors. On the back end, most of Mattson’s investors were household or family clients who entrusted their retirement nest eggs to the financial adviser. The $400 million real estate portfolio owned by KS Mattson Partners and LeFever Mattson was financed by 434 “investor families,” according to bankruptcy documents.
Small investors also would have played a key role on the front end, providing Socotra with the capital it needed to function. In 2023, Socotra posted a guide to investing with private lenders on its website. It highlighted several advantages, including a reliable stream of passive income, relatively low risk (because the collateral is real estate) and more flexible access to your money.
And this: “Although they are subject to some regulation – which is a good thing for both borrowers and investors – they have much more freedom than conventional banks,” Socotra wrote of private lenders. “This means they can lend to real estate investors, business owners, and other individuals and companies that might not be able to secure a bank loan.”
It’s unclear whether Mattson, a prominent investment adviser, had difficulty getting conventional loans. But he repeatedly opted to work with Socotra – on at least 114 loans, according to an exhibit filed by Rivera, the PricewaterhouseCoopers’ investigator. Some of those transactions now show up in the U.S. Department of Justice’s criminal case against Mattson.
For example, the feds claim that on numerous occasions he transferred a property from a LeFever Mattson entity to KS Mattson Partners, then quickly transferred it back to the larger company, now encumbered with a big Socotra loan. Mattson did this type of rebound transaction on at least 19 properties, lawyers for the creditors committee alleged in a July 7 court document.
One of them was 10334 Badger Lane in Truckee, part of an in-progress development that Mattson tapped for about 40 purchases.
LeFever Mattson transferred its interests in the property to KS Mattson Partners on March 1, 2022, and the two companies flipped it back in the other direction the same day, as described by Rivera. In the space of a few hours, Mattson had taken out a $990,000 loan through Socotra.
LeFever Mattson got the grant deed for 10334 Badger Lane. Mattson’s company pocketed $950,000, after transaction fees, Rivera alleged.
The seller of the Truckee lots was Pinyon Partners LLC, as noted in a class-action lawsuit filed in July 2024 against Tim LeFever, Ken Mattson and several of their companies, by an initial set of seven investors. The manager of Pinyon Partners, according to the California Secretary of State’s database, is Socotra Capital; the registered agent is Adham Sbeih.
The class-action suit describes a similar mechanism to the one Rivera laid out, except in this case the alleged victims were individual investors rather than LeFever Mattson Inc.
“Mattson would inform investors that an investment property needed to be ‘refinanced,’” the complaint alleges. “As a result, Defendant Mattson would request that investors deed their portion of the property over to KS Mattson Partners while committing to place the investor back on the deed once Defendant Mattson had completed the refinancing.”
But instead of a traditional refi, Mattson would take out a big loan through a hard money lender, usually Socotra. “Often, the investor would not be placed back on the deed,” the complaint says.
In another mechanism now alleged by prosecutors, Mattson would perform “cash-out” real estate purchases, taking on Socotra loans in excess of property value.
Rivera used a Sonoma acquisition to illustrate that type of transaction. KS Mattson Partners bought contiguous residential parcels, 786 and 790 Broadway, with a Socotra loan in April 2022. The property cost $3 million. The loan, collateralized by two additional Sonoma properties, was for $3.56 million. Mattson’s company took home $495,000.
Ties to ‘1059 account’
Socotra’s name also pops up in court documents mentioning the notorious “1059 account” – a fund Ken Mattson established at Bank of the West, since acquired by BMO, in the name of LeFever Mattson. Federal prosecutors say Mattson moved more than $250 million through this shadow account over a seven-year period, without the knowledge of other LeFever Mattson executives.
Bradley Sharp, the forensic accountant who now runs LeFever Mattson under court oversight, told investors during an April 3 townhall meeting that Socotra was paid more than $20 million from the 1059 account; all other lenders combined received $12 million.
Socotra, rejecting any claims it is complicit, has emphasized in bankruptcy proceedings what it is owed as a creditor. When bankruptcy attorneys opened a claims process earlier this year for LeFever Mattson’s investors and creditors, Socotra Capital’s claims totaled $106.5 million.
Socotra’s position as a secured creditor could place it ahead of smaller individual investors for any repayment, much to the dismay of the latter group.
Socotra’s favored position was evident in August, when a Sonoma buyer reached an agreement to purchase 1161-1167 Broadway out of bankruptcy from two LeFever Mattson entities, for $1.46 million. The Sonoma properties had been cross-collateralized with three others — a complicated structure typical of Mattson deals — leaving Socotra with a lien of $5.7 million.
Under procedures established in a court order, Socotra stood to recoup “100% of the remaining proceeds” after any other debt or fees were paid off, according to the sale notice.
‘Ponzi presumption’ hangs over bankruptcy cases
The lender’s position could become more tenuous if the bankruptcy judge applies the “Ponzi scheme presumption” to Mattson’s case, determining he used new investments to pay dividends to previous investors rather than basing payment on actual earnings.
“Such a presumption has never been applied to a secured real estate lender such as Socotra,” the company’s spokesperson wrote in an email.
But San Francisco-based attorney Jonathan Doolittle, writing in October 2024 for the website of his firm, Pillsbury Law, said a ruling in a case referred to as EPB Investment could result in lenders having money they made on sales clawed back by the government — even when the lender presumably acted in good faith and without knowledge of the Ponzi scheme, and applied “traditional secured lending fundamentals.”
Novack recently signaled that it might be months before he decides whether to apply the Ponzi presumption to Mattson’s bankruptcy cases.
Socotra also faces the specter of additional litigation.
The creditors committee, in a July 7 court document, asked the court for standing “to pursue estate causes of action against Socotra Capital, Inc. and its affiliates” – a precursor to any lawsuit. Novack granted that right three days later.
The two parties had mediation meetings scheduled in Los Angeles on Thursday and Friday, as noted in a joint status conference statement, “in an effort to avoid expensive and protracted litigation” over who should come first in the line for compensation – Ken Mattson’s favored lender, or his investors.
Matt Treger, the LeFever Mattson investor in San Diego, supports that pursuit.
“In the aftermath of their lending spree, to continue putting profits over the victims in a scheme they enabled and benefitted from would feel morally reprehensible. My hope is that, as an investor group, we pursue every avenue to determine accountability and recompense. … They may be trying to protect their profits, while we as victims are fighting for our lives and what was taken from us.”
As of this week, the committee had not filed a lawsuit against Socotra.
You can reach Phil Barber at 707-521-5263 or phil.barber@pressdemocrat.com. On X (Twitter) @Skinny_Post.