Pacific Capital Funding Group - Chapter 11 Case Summary

Business Description

Pacific Private Money Group LLC ("PPMG") is a California limited liability company that owns and operates a series of subsidiaries which, in turn, manage a group of investment funds (the "Funds"). PPMG, together with its affiliated debtors and debtors-in-possession (collectively, the "Debtors"), was engaged in the business of originating and servicing "hard money" mortgage loans.

• The Debtors raised capital from private investors and lent those funds to developers and other parties, with the resulting loans secured by liens against real estate.
• The Debtors comprise 13 entities, including the parent holding company, a licensed broker and primary operating company, several fund-manager entities, and multiple investment funds.

The Debtors commenced these cases on June 16, 2026 (the "Petition Date") under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of California.

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Corporate History

Pacific Private Money, Inc. ("PPMI") was founded in 2010 by Mark Hanf and is the original operating entity of the Pacific Private Money group of entities. The Debtors' organizational structure consists of the following principal entities:

• Pacific Capital Funding Group, Inc. ("PCFG"), the parent holding company, formed in 2020.
• Pacific Private Money Group LLC ("PPMG"), a subsidiary of the parent holding company and the direct or indirect parent of all entities described below.
• Pacific Private Money, Inc. ("PPMI"), the licensed broker-entity and primary operating company, which serves as the entity for payroll and loan origination, formed in approximately 2010.
• Private Money Management Group LLC ("PMMG"), an entity formed in approximately 2013 to manage investment funds.
• Pacific Private Money Partners LLC ("PPMP"), an entity formed in approximately 2022 to manage PPMF.
• Pacific Note Fund Management Group LLC ("PNFMG"), formed in approximately 2024.
• Arrival Home Loans LLC ("Arrival" or "AHL"), a consumer bridge loan subsidiary formed in approximately 2022.
• Pacific Mortgage Capital LLC. The Declaration does not describe its role or formation date.

The Debtors' investment funds were formed at various points over the past decade and include:

• Pacific Private Money Fund I LLC ("PPMF"), the first investment fund, formed in approximately 2013.
• Pacific Freedom Fund LLC ("PFF" or the "Freedom Fund"), formed in approximately 2020.
• Pacific Southwest Note Fund LLC ("PSWNF" or "PSWF"), formed in approximately 2020.
• Pacific Opportunity Fund LLC ("POF"), formed in approximately 2022.
• Arrival Fund I LLC ("AFI"), formed in approximately 2024.

Prior Management

• Prior to the management changes described below, the Debtors' key principals were Mark Hanf, Chief Executive Officer of PPMI and PPMG, and Nam Phan, Chief Operating Officer of PPMI.
• Mr. Hanf also owns several non-Debtor entities, including Hanf Capital LLC ("Hanf Capital") and Pacific Realty Development LLC ("PRD"), which engaged in transactions with the Debtors.

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Operations Overview

The Debtors operated through an "opco/fundco" structure. PPMI served as the main operating company, holding the real estate and lending licenses and employing the personnel who originate and service loans; AHL also employed a small number of employees. In addition to PPMI, several limited liability companies served as managers of the investment funds.

• PPMI held California Department of Real Estate ("DRE") and California Department of Financial Protection and Innovation ("DFPI") lending licenses and was the licensed originator of substantially all of the mortgage loans held or funded by the Debtors.
• PPMI originated mortgage loans using capital from several sources, including: (a) the Funds; (b) private individual investors ("Trustee Investors"); and (c) debt facilities.

Capital Raising and Fund Structure

The Debtors raised capital through a series of open-ended investment funds, each organized as a limited liability company, into which investors contributed capital on an ongoing basis.

• Upon initial investment, investors received a Private Placement Memorandum and executed an Operating Agreement and Subscription Agreement. All investors attested to be accredited investors, and the Funds filed Regulation D exemption notices.
• The operating companies ("OpCos") managed the Funds as follows:
  • PMMG managed PPMF.
  • PNFMG managed PSWNF.
  • PPMI managed PFF.
  • PPMP managed POF.
  • AHL managed AFI.

Investor Base and Invested Capital

The Funds and their approximate investor bases and invested capital are as follows:

• PPMF: approximately 191 investors and approximately $47 million in invested capital.
• PFF: approximately 140 investors and approximately $75 million in invested capital.
• PSWNF: approximately 60 investors and approximately $12 million in invested capital.
• POF: approximately $2.2 million from approximately 12 investors.
• Arrival Fund I: approximately 20 investors and approximately $3.8 million in invested capital.

In the aggregate, the Debtors' Funds had approximately 400 investors holding approximately 475 accounts, with total invested capital of approximately $140 million. Not shown on the corporate organization chart are several entities, including Pacific Opportunity Fund REIT I and the North Star entities; in addition, PPMG holds an approximately 20% minority interest in North Star Capital Fund, an independent entity managed by third parties not otherwise affiliated with the Debtors.

Principal Assets

As of the Petition Date, the Debtors' principal assets consist of:

• A portfolio of approximately 45 mortgage and note assets held by the Funds.
• Approximately ten real estate-owned ("REO") properties acquired through foreclosure.
• Cash, intercompany receivables, and certain equity interests in affiliated and non-Debtor entities.

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Prepetition Obligations

As of the Petition Date, the Debtors' creditor obligations, exclusive of investor equity, include the principal categories summarized below.

Institutional Claims

• Saluda Grade holds an unsecured claim of approximately $6.2 million arising from a warehouse lending facility used for loan origination.
• Saluda Grade also holds a $500,000 unsecured claim arising from a share buy-back transaction whereby PCFG, the ultimate parent company of the PPM entities, purchased the approximately 22% interest that Saluda Grade previously held in PCFG.

Secured Creditor Claims

• Edward Brown holds a claim in the approximate amount of $600,000 purportedly secured by a security interest in a promissory note held by PPMI.
  • Mr. Brown filed a UCC-1 to perfect his security interest on June 8, 2026, mere days before the filing of these cases. As a result, the Debtors believe that any security interest held by Mr. Brown is likely avoidable.

Unsecured Creditor Claims

• A promissory note held by Mikhail Brodsky in the approximate amount of $520,000.
• Convertible note claims held by Kevin Albert and Thomas Kolassa in the amounts of $300,000 and $125,000, respectively.

Trade and General Unsecured Claims

• The Debtors estimate there are between 75 and 100 general unsecured creditors (exclusive of investors), with aggregate claims estimated at between $500,000 and $750,000, comprising trade vendors, utility providers, and similar obligations incurred in the ordinary course of business.

Employment-Related Claims

• The Debtors are aware of a limited number of potential employment-related claims from former employees, including potential severance or deferred compensation claims. The Debtors intend to evaluate creditor claims in the ordinary course of these Chapter 11 Cases.

Intercompany Claims and Related-Party Transactions

The Debtors' books and records reflect substantial intercompany balances among the Funds, PPMI, PPMG, and the various fund managers, as well as the non-Debtor affiliates owned by Mr. Hanf. These intercompany obligations were distinct from the mortgage or construction loans that PPMI originated and provided to individual borrowers. No forensic examination has yet been conducted to verify the books and records or to determine the extent of the intercompany transactions. Principal categories include:

• Loans by PFF to PPMI used to fund operations, finance the acquisition and development of real estate, and, in certain instances, fund redemptions in other Funds.
• Loans by PPMI to AHL to provide seed and growth capital.
• Loans to Hanf-affiliated entities (including PRD and Hanf Capital), which the CRO has been told were used in connection with foreclosed real estate, in particular regarding loans to Mr. Deluzak to finish construction on Deluzak projects.
• Many of the intercompany balances were recorded as journal entries on the Debtors' general ledger and do not correspond to documented promissory notes or cash transfers.

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Events Leading to Bankruptcy

Portfolio Impairment and Non-Performing Borrowers

A significant portion of the Funds' loan portfolios is non-performing, attributable in part to defaults and non-payment by numerous borrowers, including several major ones:

• Chris Deluzak. Mr. Deluzak was one of the largest single borrowers from PPMF, with approximately 12 construction loans totaling approximately $10 million, secured by the underlying properties. Mr. Deluzak died in approximately 2021, after which the Debtors learned that he had misappropriated loan draws and that the collateral consisted primarily of undeveloped land or partially completed construction.
• Desmond Gumbs. Mr. Gumbs is the principal of three to four limited liability companies that are borrowers from the Funds. His loans are non-performing, and as of the Petition Date the outstanding balance, including accrued interest and fees, is believed to exceed $20 million. On May 19, 2026, PPMI demanded repayment of all of Mr. Gumbs' loans.
• Bob West / West Coast Land and Development. Mr. West and his affiliated entity borrowed approximately $12 million from the Funds. These loans are substantially non-performing, and in October 2025 Mr. West and PPMI entered into a settlement agreement.

The Funds' portfolios include other non-performing or impaired loans, and the portfolio of available loans to foreclose on has been shrinking over time, with a number of remaining loans under-secured or unsecured because the underlying property was sold or lost by the borrower through foreclosure by a senior lienholder. Separately, PFF made a $5 million equity investment in Scottsdale REI, a non-Debtor entity that may itself be facing insolvency proceedings, and the recoverability of this investment is uncertain.

Liquidity Deterioration and Suspension of Distributions

The Debtors experienced liquidity challenges for several years, driven by factors including the defaults of major borrowers described above and the sharp increase in market interest rates.

• PFF was originally designed to fund mortgage loans and sell them on the secondary market shortly thereafter, intended to provide rapid liquidity to investors. When market interest rates rose sharply, the secondary market for these loans contracted.
• By 2023, redemption requests across the Funds—and particularly in PFF and PPMF—exceeded available cash.
• In 2025, the Debtors' cash position became extremely stressed, prompting cost-reduction measures including staff reductions, salary reductions, and the elimination of discretionary expenses such as subscriptions, software, and memberships.
• In late 2025, the Debtors ceased making distributions and redemptions. For the Arrival Fund, the last distributions were made in December 2025; for all other Funds, distributions were paid in October 2025 for September 2025 earnings, but were not made thereafter.

Engagement of the CRO and Counsel; Management Transition

In late December 2025, the Debtors engaged William R. Brinkman of Jigsaw Advisors LLC to advise on liquidity, evaluate restructuring options, and assist in identifying strategic alternatives, and to serve as Chief Restructuring Officer.

• On December 24, 2025, the Debtors emailed investors in PPMF, PFF, and PSWNF stating that they were experiencing challenges impacting their ability to operate as a going concern, and that they were in the process of engaging a restructuring professional.
• On January 9, 2026, the CRO communicated to investors that his immediate focus had been on improving and extending cash liquidity, evaluating assets and liabilities, and assessing potential paths forward, and that the situation was extremely distressed. Several subsequent communications provided updates on his assessment and the wind-down of operations.
• In or around January 2026, the Debtors retained Jeffer Mangels & Mitchell LLP as restructuring counsel. Following an initial diagnostic phase, the Debtors and their advisors determined that a managed wind-down through Chapter 11 represented the most viable path to maximize value and ensure fair and orderly treatment of investors and other stakeholders.
• PPMG terminated all remaining employees on or about February 4, 2026 and wound down operations around the same time.
• Nam Phan resigned as Chief Operating Officer of PPMI on or around January 22, 2026 and resigned from all board and manager roles on or around May 29, 2026. Mark Hanf ceased operational management and effected a management transition, and Mr. Brinkman was named Chief Restructuring Officer of the Debtors with the powers and duties of the Chief Executive Officer.

Investor Engagement

Following the pause of distributions and redemptions, investors began contacting the Debtors with increasing frequency and urgency through phone calls, emails, certified letters, and in-person visits.

• An informal ad hoc investor committee formed and assisted in communications between the Debtors and their investor base. Beginning in early 2026, the Debtors and their advisors held a series of meetings with this committee addressing, among other things, the Debtors' financial condition, the status of the Funds' loan portfolios, the regulatory and governmental investigations, the contemplated Chapter 11 process, and potential treatment of investor claims.
• The Debtors established a secure electronic data room populated with corporate, financial, and operational information relating to the Debtors, the Funds, and the loan portfolio detail, made available to investors and other qualifying parties subject to customary confidentiality protections.

Civil Litigation; Regulatory and Criminal Investigations

The Debtors and certain of their current and former officers and directors are defendants in several civil actions filed by investors and counterparties, including Brodsky v. Pacific Private Management, Inc., et al.; Descalso v. Edward Brown, et al.; Santa Cruz Imports v. Mark Hanf, et al.; WE Alliance v. Mark Hanf, et al.; Kevin Albert, et al. v. Mark Hanf, et al.; and Ronald Lachman, as Trustee of the Ronald Lachman Living Trust v. Own Marin Real Estate, et al.

• The DFPI initiated an investigation of PPMI and its affiliates in late 2025. On March 16, 2026, the DFPI suspended PPMI's California Financial Lending license, and on May 4, 2026 issued a Desist and Refrain Order pursuant to Section 25532 of the Corporate Securities Law of 1968, ordering PPMI, Mr. Hanf, and Mr. Phan to desist and refrain from offering, selling, buying, or offering to buy any security in California by means of any communication containing an untrue statement of a material fact or omitting a fact necessary to make the statements made not misleading.
• There are ongoing investigations by the U.S. Securities and Exchange Commission, the U.S. Department of Justice and Federal Bureau of Investigation, the Internal Revenue Service, and the DFPI into PPM's practices. Subject to applicable confidentiality obligations, the Debtors intend to keep the Court and parties in interest informed of material developments.

First Day Motions and Go-Forward Administration

The Debtors plan to file certain First Day Motions, including: (1) a Motion for Joint Administration; (2) a Motion to Extend the Time for the Debtors to File Schedules and Statements of Financial Affairs; (3) an Emergency Motion for Authorization to File a Redacted Mailing Matrix to redact certain personal identification information for individual creditors; and (4) an Ex Parte Motion pursuant to B.L.R. 9006-1 requesting an order shortening time for hearing on the First Day Motions. The Debtors also plan to file a motion to approve debtor-in-possession financing in the coming days.

• Given the number of Debtors and the large number of investors, the Debtors seek joint administration to handle the matter effectively and efficiently.
• Because all of the Debtors' employees were terminated in February—with certain former employees assisting the CRO on a part-time consulting basis—and in light of the 13 Debtors, over 500 investors, and limited staff, the Debtors require additional time to file schedules and statements.
• Given several elderly investors and creditors, as well as the ongoing governmental investigations, the Debtors seek approval to file a redacted mailing matrix implementing narrowly tailored redactions to protect vulnerable investors and creditors.
• The Debtors intend to file an ex parte motion shortening time for hearing on the First Day Motions to avoid disruption of operations and promote a smooth transition into Chapter 11 for the benefit of all parties in interest.
• Given the number of Debtors, the over 600 investors and creditors, the anticipated volume of notices and claims-related inquiries, and limited remaining staff, the Debtors require the assistance of a claims and noticing agent to facilitate efficient administration of these cases.