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Full title: Motion Debtors' Motion for Order of Substantive Consolidation of Non-Debtor Affiliates Professional Investors 28, LLC and PFI Glenwood, LLC with Debtors Filed by Debtor Professional Financial Investors, Inc. (Marum, J.) (Entered: 04/29/2021)

Document posted on Apr 28, 2021 in the bankruptcy, 19 pages and 0 tables.

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United States Code (the “Bankruptcy Code”) (a) authorizing the Debtors to substantively 7 consolidate non-debtor affiliates of PFI, Professional Investors 28, LLC (“LLC 28”) and PFI 8 Glenwood, Inc. (“PFI Glenwood,” and together with the Debtors and LLC 28, the “Company” or 9 “PFI Enterprise”), with the Debtors’ bankruptcy estate pursuant to the terms set forth in the joint 10 Chapter 11 plan filed by Debtors and the Official Committee of Unsecured Creditors (“OCUC”) 11 on April 9, 2021, as Docket No. 554, and (b) granting related relief.While LLC 28 and PFI Glenwood, the only two PFI affiliates not 24 presently in bankruptcy, do not yet meet the relevant criteria sufficient for PFI to file involuntary 25 bankruptcy petitions against them as it has against the 40 LLC/LP Debtors (defined below), FTI 26 has determined that LLC 28 and PFI Glenwood are nonetheless inextricably financially 27 intertwined with the Debtors and overall PFI Enterprise.Because the PFI Enterpris22 likewise meets the standards for both prongs of the Bonham test for substantive consolidation, 23 LLC 28 and PFI Glenwood, as PFI affiliates, should be substantively consolidated with the 24 Debtors’ estates as set forth in the Plan.Indeed, investors in 24 both LLC 28 and PFI Glenwood utilized Rollovers from prior investments in the PFI Enterprise t25 invest in these non-debtor entities, and at least two investors in PFI Glenwood later rolled over 26 proceeds from their investments in PFI Glenwood into other investments within the PFI 27 Enterprise. Based on the Rollovers connecting 5 investments in LLC 28 and PFI Glenwood with investments in other entities within the PFI 6 Enterprise, the intercompany transfers between LLC 28 and PFI Glenwood with PFI and other 7 entities in the PFI Enterprise, and the deposit of proceeds from the refinance of LLC 28’s propert8 directly into a PFI account rather than LLC 28’s separate account, LLC 28 and PFI Glenwood 9 were simply extensions of the same fraudulent Ponzi scheme perpetrated by Mr. Casey and Mr. 10

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1 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 2 A Limited Liability Partnership Including Professional Corporations 3 ORI KATZ, Cal. Bar No. 209561 J. BARRETT MARUM, Cal. Bar No. 228628 4 MATT KLINGER, Cal. Bar No. 307362 GIANNA SEGRETTI, Cal. Bar No. 323645 5 Four Embarcadero Center, 17th Floor San Francisco, California 94111-4109 6 Telephone: 415.434.9100 Facsimile: 415.434.3947 7 Email: okatz@sheppardmullin.com bmarum@sheppardmullin.com 8 mklinger@sheppardmullin.com gsegretti@sheppardmullin.com 9 Counsel for the Debtors 10 UNITED STATES BANKRUPTCY COURT 11 NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION 12 In re Case No. 20-30604 13 PROFESSIONAL FINANCIAL Chapter 11 14 INVESTORS, INC., et al.,1 DEBTORS’ MOTION FOR ORDER OF 15 Debtors. SUBSTANTIVE CONSOLIDATION OF NON-DEBTOR AFFILIATES 16 PROFESSIONAL INVESTORS 28, LLC AND PFI GLENWOOD, LLC WITH 17 DEBTORS 18 Judge: Hon. Hannah L. Blumenstiel Date: May 27, 2021 19 Time: 10:00 a.m. Place: Telephonic/Video Appearances 20 Only 450 Golden Gate Ave. 21 16th Fl., Ctrm. 19 San Francisco, CA 94102 22 23 24 25 26 27 1 A complete list of the Debtors and their respective chapter 11 case numbers may be found www.donlinerecano.com/pfi. The federal tax identification numbers of each of the Debtors is also availabl

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1 I. 2 INTRODUCTION 3 Professional Financial Investors, Inc. (“PFI”) and its affiliated debtors and debtors in 4 possession (collectively with PFI, the “Debtors”) hereby move (the “Motion”) the Court for an 5 order, substantially in the form attached hereto as Exhibit A, under section 105(a) of title 11 of th6 United States Code (the “Bankruptcy Code”) (a) authorizing the Debtors to substantively 7 consolidate non-debtor affiliates of PFI, Professional Investors 28, LLC (“LLC 28”) and PFI 8 Glenwood, Inc. (“PFI Glenwood,” and together with the Debtors and LLC 28, the “Company” or 9 “PFI Enterprise”), with the Debtors’ bankruptcy estate pursuant to the terms set forth in the joint 10 Chapter 11 plan filed by Debtors and the Official Committee of Unsecured Creditors (“OCUC”) 11 on April 9, 2021, as Docket No. 554, and (b) granting related relief. Consolidation is appropriate 12 and will benefit all creditors because (i) LLC 28 and PFI Glenwood were part of the same Ponzi 13 scheme used to defraud investors, (ii) the Company’s investors essentially dealt with the entities a14 a single economic unit and did not rely on their separate identities when making investments and 15 extending credit to the PFI Enterprise, and (iii) the affairs of LLC 28 and PFI Glenwood are so 16 entangled with those of PFI and the other Debtors. 17 As further set forth below, PFI’s founder, Kenneth Casey (“Mr. Casey”), historically 18 operated the PFI Enterprise as one unified real estate investment organization, with PFI holding 19 direct or indirect ownership interests in approximately 71 real properties and providing 20 management operations for PFI, all of PFI’s affiliates, and all properties owned by PFI and its 21 affiliates. Based on a forensic review of the books and records of the Company, FTI Consulting, 22 Inc. (“FTI”) uncovered considerable evidence that the PFI Enterprise operated as a Ponzi-like 23 scheme since at least 2007. While LLC 28 and PFI Glenwood, the only two PFI affiliates not 24 presently in bankruptcy, do not yet meet the relevant criteria sufficient for PFI to file involuntary 25 bankruptcy petitions against them as it has against the 40 LLC/LP Debtors (defined below), FTI 26 has determined that LLC 28 and PFI Glenwood are nonetheless inextricably financially 27 intertwined with the Debtors and overall PFI Enterprise. As part of their Plan, the Debtors seek t

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1 to ensure that defrauded investors receive an equitable distribution based on their invested 2 principal. In the interest of equity, therefore, the Debtors hereby seek to substantively consolidate3 LLC 28 and PFI Glenwood with the Debtors’ estates for the benefit of all creditors and investors. 4 This Motion is based on the discussion below, the Declaration of David Alfaro filed 5 concurrently with this Motion, the other papers of record in this case, and upon such further oral 6 and documentary evidence as may be presented prior to or at the time of the hearing on the 7 Motion. 8 II. 9 JURISDICTION 10 This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This i11 a core proceeding pursuant to 28 U.S.C. § 157(b)(2). Venue of this chapter 11 case is proper 12 pursuant to 28 U.S.C. §§ 1408 and 1409. The statutory basis for the relief sought herein is 11 13 U.S.C. § 105(a). 14 III. 15 STATEMENT OF FACTS 16 A. Procedural Background 17 On July 16, 2020, certain purported creditors of Professional Investors Security Fund, Inc. 18 (“PISF”), commenced an involuntary chapter 11 bankruptcy action against PISF, Case No. 20-19 30579 (the “PISF Case”). On July 26, 2020, PISF filed a consent to the entry of an order for relie20 in the PISF Case, entered by the Court on July 27, 2020. 21 On July 26, 2020, PFI (together with PISF, the “Original Debtors”) commenced its 22 bankruptcy case, by filing a voluntary chapter 11 petition. Subsequently, PFI commenced 23 involuntary petitions against all but two of its affiliated limited liability companies (the “LLCs”) 24 and limited partnerships (the “LPs,” collectively the “LLC/LP Debtors”). On November 20, 202025 under authority granted by the Bankruptcy Court, PFI commenced involuntary petitions against 26 twenty-nine of the LLC/LP Debtors, and on December 11, 2020, PFI consented to such 27 involuntary petitions and the Court entered orders for relief. On February 3, 2021 and February 4

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1 2021, PFI consented to the ten additional involuntary petitions, and on February 18, 2021, the 2 Court entered orders for relief. The Debtors’ chapter 11 cases are jointly administered under Cas3 No. 20-30604. 4 On August 19, 2020, the Office of the United States Trustee appointed the OCUC. 5 Meanwhile, certain parties with membership interests in limited liability companies formed and 6 controlled by PFI have formed an ad hoc committee of LLC members (the “Ad Hoc Committee o7 LLC Members”) and certain lenders to the Debtors who are secured by a deed of trust on property8 owned by one of the Debtors have also formed into an ad hoc committee of DOT holders (the “A9 Hoc Committee of DOT Holders,” and collectively with the OCUC and the Ad Hoc Committee o10 LLC Members, the “Committees”). 11 On April 9, 2021, the Debtors and the OCUC filed the Amended Joint Chapter 11 Plan of 12 Professional Financial Investors, Inc. and Its Affiliated Debtors Proposed by the Debtors and 13 Official Committee of Unsecured Creditors and Supported by the Ad Hoc LLC Members 14 Committee and the Ad Hoc DOT Noteholders Committee (the “Plan”) as Docket No. 554. 15 Additionally, on April 13, 2021, the OCUC filed a Complaint for Declaratory Relief against the 16 Defendants seeking a declaration that the Defendants’ businesses were all part of an overarching 17 Ponzi scheme that began no later than January 1, 2007 (the “Complaint”). Defendants do not 18 oppose the Complaint and are filing a separate Motion to Approve Stipulation for Judgment on th19 Official Committee of Unsecured Creditors of Professional Financial Investors, Inc. and 20 Professional Investors Security Fund, Inc.’s Complaint for Declaratory Relief (the “Ponzi 21 Determination Motion”) concurrently with this Motion with the belief that a declaration from the 22 Court determining that the Debtors were operated as a Ponzi scheme will aid in the goal of 23 consolidating their estates as set forth in the proposed Plan for the purpose of extinguishing 24 intercompany transfers amongst the Debtors and netting investments so that investors will receive25 an equitable distribution on their principal based on distributions received prior to when 26 distributions were suspended. 27

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1 B. The Debtors’ Prior Management 2 Both PISF and PFI were founded as real estate investment and management firms 3 specializing in multi-unit residential and commercial properties in Northern California. On or 4 about November 1, 1983, Mr. Casey founded PISF and served as its sole shareholder, officer, and5 director from that date until his death on May 6, 2020. Mr. Casey’s shares in PISF were held in a6 revocable trust. Upon Mr. Casey’s death, Mr. Casey’s ex-wife, Charlene Albanese2, became the 7 trustee and beneficiary of that revocable trust. On or about August 15, 1990, Mr. Casey also 8 founded PFI and served as its sole officer, director and shareholder until 1998, when he 9 relinquished his corporate positions and placed his shares of PFI in an irrevocable trust for which 10 Ms. Albanese is the current trustee and lifetime income beneficiary. In 1990, PFI hired Lewis 11 Wallach (“Mr. Wallach”) as a bookkeeper who later took over as president of PFI in 1998 when 12 Mr. Casey supposedly assigned his interest in PFI to the irrevocable trust. Despite these actions, 13 Mr. Casey maintained complete de facto control over PFI and PISF until his death on May 6, 14 2020. Mr. Wallach continued to serve as president of PFI until June 2020, when he was asked to 15 resign. 16 It appears that from at least 2007, PFI and the rest of the Debtors were operated by Mr. 17 Casey and Mr. Wallach as a Ponzi scheme, in which investors loaned funds to PFI and its 18 affiliates, which funds Mr. Casey used to service the debt owed to existing investors and Mr. 19 Casey and Mr. Wallach used to enrich themselves personally. From at least September 2015 20 through May 2020, Mr. Wallach misappropriated more than $26 million from investors in the 21 Debtors as part of the fraudulent scheme. Mr. Wallach has admitted to his role in operating the 22 fraudulent scheme involving the Debtors and their affiliates, including his misappropriation of 23 investor funds. 24 As a result of Mr. Wallach’s fraud involving the Debtors, he is currently the defendant in 25 (i) an action brought by the Securities and Exchange Commission (“SEC”) before the United 26 States District Court, Northern District of California, San Francisco Division, as Case No. 20-cv-27

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1 06756 and (ii) criminal proceedings initiated by the Department of Justice and pending in the 2 United States District Court, Northern District of California, San Francisco Division, as Case No. 3 CR20- 365MMC. 4 C. The Forensic Investigation of the Debtors’ Records and Summary the PFI 5 Enterprise’s Fraudulent Scheme 6 Following Mr. Casey’s death, PFI and PISF engaged new counsel, Ragghianti | Freitas 7 LLP (“Ragghianti | Freitas”), to help transition the business. Through these efforts, Ragghianti | 8 Freitas learned troubling facts regarding PFI’s financial condition and Ms. Albanese directed the9 to conduct an investigation into the Company’s finances and operations. Upon learning of 10 possible criminal behavior, Ms. Albanese directed the Company to inform certain government 11 authorities, including the SEC, and to cease accepting any additional loans. Ragghianti | Freitas 12 informed many of the Company’s investors of the SEC’s review via a communication sent to 13 investors on June 4, 2020. On June 13, 2020, and July 21, 2020, all of the respective officers of 14 PFI and PISF resigned, and Michael Hogan was appointed as the Chief Restructuring Officer 15 (“CRO”) of PFI and PISF.3 16 The forensic investigation begun by Mr. Hogan and continued by FTI uncovered many 17 troubling facts indicating that the PFI Enterprise was operated by Mr. Casey as a Ponzi-like 18 scheme that likely defrauded over 1,000 investors.4 As a preliminary matter, the Company 19 engaged in poor record keeping practices making the forensic review extremely difficult since the20 Company does not maintain an electronic system to record or track all investor activity. Rather, 21 investor activity and balances and Company finances are tracked manually in various, 22 unstructured Microsoft Excel spreadsheets, hard copies, and other electronic files, and only partia23 bank statements are available for the over 300 bank accounts FTI was able to identify. As a result24 FTI was only able to track the Company’s finances as far back as 2007, and the review conducted25 thus far has cost millions of dollars. 26 27 3 Effective January 4, 2021, Andrew Hinkelman of FTI has been the CRO of PFI and PISF. 4 FTI’s retention to conduct its forensic analysis of PFI and PISF was effective September 3, 2020, pursua

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1 PFI is the main corporate entity for the PFI Enterprise, owns many of the real properties 2 directly, manages operations for the rest of the PFI affiliates, and serves as the property manager 3 for the real properties owned by PFI and its affiliates. PISF acted as the finance arm of the PFI 4 Enterprise by raising capital on behalf of PFI and other entities and selling fractionalized notes 5 supposedly secured by deeds of trust in the underlying properties. Despite being separate entities,6 PFI, PISF, and their affiliates, were operated and managed as a single enterprise with common 7 accounting and record-keeping systems and a common office space in Novato, California. Indeed8 PFI is the only entity in the Company that maintained any employees. 9 The Company raised capital from both banks and individual investors to purchase 10 residential and commercial rental properties. Capital raised from banks was in the form of 11 mortgage debt, which was often refinanced. The Company typically deposited proceeds from 12 each subsequent mortgage refinancing directly into PFI/PISF corporate bank accounts, of which 13 only a portion was in-turn transferred to the particular refinanced property’s bank account for 14 payment of debt service and operating expenses of the property on which the mortgage was 15 placed. 16 The Company’s books and records indicate the PFI Enterprise has five main types of 17 investors: 18 (a) Lenders to PFI that are secured by deeds of trust on real properties owned solely b19 PFI (collectively, the “PFI DOT Lenders”) and who were generally promised state20 returns of approximately 9% to 10.5%; 21 (b) Lenders to PISF that are secured by deeds of trust on real properties owned by the 22 ten LPs (collectively, the “PISF DOT Lenders”) and who were generally promised23 stated returns of approximately 9% to 10.5%; 24 (c) Members of various LLCs for which PFI is the manager, a member, an equity 25 holder, and a property manager (collectively, the “LLC Members”) and who 26 generally received quarterly distributions of 6% to 9%; 27 (d) Tenants in common to properties owned by PFI or the LLCs (the “TIC Holders”)

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1 (e) Noteholders to PISF who loaned money to PISF in the form of straight notes or 2 promissory notes (together the “PISF Notes”) that were supposedly secured by 3 PISF’s interests in the LPs (collectively, the “PISF Note Holders”) and were 4 promised a stated annual interest rate generally ranging from 9% to 12%. 5 With respect to the PISF Note Holders, Mr. Wallach apparently represented to investors 6 that the monies raised from their investments would be used to purchase new real property and to 7 make improvements to real property already owned by PFI and PISF. However, each of the 8 properties owned by the LPs were nearly or fully encumbered by other debts at the time the PISF 9 Notes were issued, effectively rendering such collateralization worthless. In addition, 10 approximately 60% of all investment accounts contain some sort of exchange or transfer of an 11 investor’s prior investment associated with a single property to a subsequent investment in anothe12 property within the PFI Enterprise (each a “Rollover”). These Rollovers allowed the Company to13 avoid paying out investors upon maturity and instead increased the Company’s debt over time. 14 The forensic accounting investigation also found the following: 15 • No later than January 1, 2007, the Defendants’ business records and other 16 available evidence present attributes commonly seen in Ponzi schemes, and such attribute17 continued through Mr. Casey’s death. 18 • The Company’s debts significantly exceed the estimated value for the 19 portfolio of real properties owned by PFI and its affiliates. As of July 2020, the PFI 20 Enterprise had negative equity of over $250 million based on the value of the real 21 properties owned by PFI and its affiliates and the total reported interest-bearing debts owe22 by the individual entities. 23 • Cashflows from the underlying properties are inadequate to pay the 24 Company’s operating expenses, service bank debt, and service investors’ investments 25 without raising additional investor funds. For example, in 2019 the PFI Enterprise only 26 generated a net operating income of $20.1 million which was insufficient to service the 27 approximate $47 million in debt obligations for the year. As a result, the deficit was

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1 • Distributions included commingled funds raised from current and new 2 investors on an ongoing basis, a significant portion of which came from the issuance of th3 under-secured and/or unsecured PISF Notes. 4 • The Company lacked the cash needed to cover accruing unpaid interest for 5 investors who opted not to receive monthly payments. As of July 31, 2020, approximatel6 35% of the total principal balance of the PISF Notes were accruing interest that was due 7 upon maturity rather than paying interest at regular intervals prior to maturity. 8 • Investor cash was commingled with cash from other investors, cash from 9 the PFI and PISF corporate entities, and cash from other affiliated entities. Indeed, funds 10 were transferred amongst property and entity specific bank accounts indiscriminately and 11 to such a pervasive and complex extent that it is impossible to properly trace the transfers 12 to segregate each investor’s dollars. Additionally, countless complex intercompany 13 receivables and payables are impossible to reconcile as the reported intercompany payable14 and receivables disagree by a significant margin. 15 • Funds from the various entities within the PFI Enterprise were commonly 16 commingled to purchase new real properties, to operate properties, and to conduct 17 corporate-level activities. For example, during the purchasing cycle, investor funds meant18 for the purchase of a specific property owned by a specific entity within the PFI Enterpris19 were often deposited into a PFI or PISF corporate bank account and pooled with general 20 Company funds. 21 • Mr. Casey and Mr. Lewis embezzled tens of millions of dollars from the 22 Company. 23 As a result of the regular commingling of funds across all of the entities included in the 24 PFI Enterprise, the Company’s poor-record keeping, and the majority of investments containing 25 Rollovers, further tracing and analysis of funds to attribute them to each specific entity within the 26 PFI Enterprise would likely prove fruitless and would require significant additional time and cost. 27 In recognition of this, Section 4.8 of the Plan calls for the substantive consolidation of the

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1 of the Plan pursuant to Bankruptcy Code sections 105(a), 541, 1123, and 1129 for the purpose of 2 making equitable distributions to the Debtors’ creditors and investors that will better allow for the3 netting of claims and recoveries across the entire PFI affiliation of companies and extinguish the 4 extensive intercompany payables and receivables. 5 D. LLC 28 AND PFI Glenwood 6 As with the LLC/LP Debtors, the investments and financial transactions specific to LLC 7 28 and PFI Glenwood are inextricably entangled with those of the other entities within the PFI 8 Enterprise. For example, an outside investor in LLC 28 rolled over all but approximately $50,009 of his investment from other previous investments in the PFI Enterprise. Additionally, PFI and 10 LLC 28 engaged in numerous intercompany transactions over the years. When LLC 28 refinance11 its property in May of 2020, the proceeds from the refinance were wired from the escrow account12 directly into a PFI corporate bank account rather than LLC 28’s account. This in turn appears to 13 have at least partially satisfied the numerous intercompany payables LLC 28 had owed to PFI. 14 LLC 28, however, did not otherwise receive a benefit from the refinancing. 15 At the time of the PFI Glenwood purchase, two investors used Rollover investments from 16 PISF Notes to make their investments in PFI Glenwood. Moreover, proceeds these investors 17 received from the refinance of the real property owned by PFI Glenwood were contributed directl18 to their PISF Notes. One of these investors then rolled the PISF Note investment that he had 19 funded with the refinance proceeds into an investment in Professional Investors 44, LLC. 20 IV. 21 LEGAL STANDARD 22 Bankruptcy courts are essentially courts of equity, and their proceedings are inherently 23 proceedings in equity. Pepper v. Litton, 308 U.S. 295, 304 (1939). Although substantive 24 consolidation has never been codified as an express provision of the Bankruptcy Code, courts 25 imposing such relief have relied on the bankruptcy court’s general equity powers as expressed in 26 Bankruptcy Code section 105, which states in pertinent part that “[t]he court may issue any order,27 process, or judgment that is necessary or appropriate to carry out the provision of this title.” 11

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1 U.S.C. § 105(a); see also generally Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 2192 (1941). 3 The Ninth Circuit has expressly adopted the use of substantive consolidation. See Bank of4 Am., N.A. v. CD-04, Inc. (In re Owner Mgmt. Serv., LLC), 530 B.R. 711, 723 (Bankr. C.D. Cal. 5 2015) (citing Alexander v. Compton (In re Bonham), 229 F.3d 750, 766 (9th Cir. 2000) stating, 6 “The primary purpose of substantive consolidation is to ensure the equitable treatment of all 7 creditors.”). Thus to effectuate this equitable purpose, the essential principle of substantive 8 consolidation, as articulated by the Ninth Circuit, is to “combine the assets of separate and 9 distinct—but related—legal entities into a single pool and treat them as though they belong to a 10 single entity.” Meruelo Maddux Props.-760 S. Hill Street, LLC v. Bank of America, N.A. (In re 11 Meruelo Maddux Props., Inc.), 667 F.3d 1072, 1075 n.1 (9th Cir. 2012) (quoting In re Bonham, 12 229 F.3d at 764). Substantive consolidation “enables a bankruptcy court to disregard separate 13 corporate entities, to pierce their corporate veils in the usual metaphor, in order to reach assets for14 the satisfaction of debts of a related corporation.” Id. 15 Because there are no uniform or statutory guidelines for determining when to order 16 substantive consolidation, and “[b]ecause of the fact intensive nature of the consolidation 17 determination, courts must engage in a case-by-case analysis.” In re Stayton SW Assisted Living, 18 L.L.C., 2009 U.S. Dist. LEXIS 119186, *12 (D. Or. Dec. 22, 2009) (citing Bonham). 19 In Bonham, the Ninth Circuit adopted the test set forth by the Second Circuit in In re 20 Augie/Restivo, 860 F.2d 515 (2d Cir. 1988) for determining whether substantive consolidation is 21 warranted. In re Bonham, 229 F.3d 750 at 766. The Bonham test requires that the court consider 22 two factors: “(1) whether creditors dealt with the entities as a single economic unit and did not rel23 on their separate identity in extending credit; or (2) whether the affairs of the debtor are so 24 entangled that consolidation will benefit all creditors.” Id.; see also, e.g., In re Owner Mgmt. 25 Serv., LLC, 530 B.R. at 723; Team Spirit America, LLC v. Kriegman (In re LLS America, LLC), 26 2012 Bankr. LEXIS 2603, *31-32 (B.A.P. 9th Cir. June 5, 2012) (same and quoting Bonham); 27 Stayton SW Assisted Living, 2009 U.S. Dist. LEXIS 119186 at *12 (same); Kismet Acquisition,

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1 2008) (same). “The presence of either factor is a sufficient basis to order substantive 2 consolidation.” In re Bonham, 229 F.3d at 766 (citation omitted); LLS America, 2012 Bankr. 3 LEXIS 2603 at *32 (“These factors are considered in the disjunctive: only one needs to be present4 to support substantive consolidation.”). Moreover, substantive consolidation is appropriate where5 non-debtor entities used as part of a Ponzi scheme to defraud investors “‘were but 6 instrumentalities of the bankrupt with no separate existence of their own.’” In re Bonham, 229 7 F.3d at 766-767 (quoting Soviero v. Franklin Nat’l Bank of Long Island, 328 F.2d 446, 448 (2d 8 Cir. 1964). 9 V. 10 LLC 28 AND PFI GLENWOOD SHOULD BE SUBSTANTIVELY CONSOLIDATED 11 WITH THE DEBTORS 12 In Bonham, the Ninth Circuit found that the debtor’s operation was a Ponzi scheme in 13 which the debtor had utilized two non-debtor shell companies as part of the scheme. The purpose14 of the consolidation was to allow the trustee to pool the assets of the debtor and the non-debtors. 15 Creditors objected to the consolidation on the basis that the court failed to weigh the benefits of 16 the consolidation against the harm to investors. The Ninth Circuit rejected the argument holding 17 that consolidation is premised on a “sole aim: fairness to all creditors” and not any formalistic 18 approach. In re Bonham, 229 F.3d at 767. The Ninth Circuit found that the debtor had 19 commingled her assets with the non-debtor entities and that the creditors dealt with the debtor and20 the non-debtors as a single economic unit. Equity therefore required consolidation so that all 21 creditors of the debtor and non-debtors, as consolidated, could benefit. Because the PFI Enterpris22 likewise meets the standards for both prongs of the Bonham test for substantive consolidation, 23 LLC 28 and PFI Glenwood, as PFI affiliates, should be substantively consolidated with the 24 Debtors’ estates as set forth in the Plan. 25 A. The Creditors Essentially Dealt with All PFI Enterprise Entities as a Single Economi26 Unit and Did Not Rely on Any Individual Affiliate’s Separate Identity in Extending 27 Credit

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1 The first Bonham factor—whether creditors dealt with the entities as a single economic 2 unit and did not rely on their separate identity in extending credit—is based on the consideration 3 that creditors “structure their loans according to their expectations regarding the borrower and do 4 not anticipate either having the assets of a more sound company available in the case of insolvenc5 or having the creditors of a less sound debtor compete for the borrower’s assets.” In re Bonham, 6 229 F.3d at 766 (quoting Augie/Restivo, 860 F.2d at 518-19). “Once the [movant] establishes a 7 close interrelationship between the debtor and the non-debtor entities, there is a presumption that 8 creditors did not rely on their separate credit.” Clark’s Crystal Springs Ranch, LLC v. Gugino (In9 re Clark), 548 B.R. 246, 254 (B.A.P. 9th Cir. 2016). Such a close relationship can be established 10 where there is a commingling of assets and the operations of debtor entities with non-debtor 11 entities without respecting formalities of the entities’ separateness. See Id at 257. 12 As discussed in more detail above, the Company regularly ignored corporate formalities 13 and the separateness of the entities within the PFI Enterprise, including LLC 28 and PFI 14 Glenwood, by commingling assets and operations of the entities to such an extent that it is 15 impossible to reconcile intercompany transfers or to properly trace individual investor funds back16 to specific properties or entities. This is especially true considering the sheer extent of 17 investments which contain some form of Rollover. As a result, a close relationship exists amongs18 all of the Debtors, LLC 28, and PFI Glenwood to raise the presumption that the investors and 19 creditors did not rely on their separate credit when making investments. See In re Clark, 548 B.R20 246, 254 & 257. 21 Moreover, given that approximately 60% of all investments include some form of 22 Rollover, investors apparently did not rely on the separate identities of the various entities when 23 making investments and extending additional credit to the PFI Enterprise. Indeed, investors in 24 both LLC 28 and PFI Glenwood utilized Rollovers from prior investments in the PFI Enterprise t25 invest in these non-debtor entities, and at least two investors in PFI Glenwood later rolled over 26 proceeds from their investments in PFI Glenwood into other investments within the PFI 27 Enterprise. Furthermore, all of the entities shared the same business address and employees and

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1 conducted by FTI, nothing indicates that investors were aware that funds were shifted from 2 various entities and other investors to service the interest on their investments, cover the cost of 3 principal repayment on investments, cover business operation expenses for specific properties and4 entities within the organization, and cover the purchase price of new real properties. For example5 FTI determined from its review of records for LLC 28 that it had engaged in numerous 6 intercompany transactions with PFI, and that proceeds from the refinance of LLC 28’s property 7 were deposited in an account for PFI rather than LLC 28 and used to at least partially satisfy the 8 accrued intercompany payables LLC 28 purportedly owed to PFI. Although creditors and 9 investors likely were aware of the technical corporate separateness of the various entities 10 comprising the PFI Enterprise, they nonetheless dealt with the Company as a single unit. The 11 Rollovers utilized by investors in both LLC 28 and PFI Glenwood for making their investments i12 these entities are a prime example of this. Thus, the first Bonham factor for substantively 13 consolidating LLC 28 and PFI Glenwood with the Debtors is established. 14 B. The Debtors’ Affairs Are So Entangled with Those of LLC 28 and PFI Glenwood tha15 Consolidation Will Benefit All Creditors 16 Consolidation is justified under the second Bonham factor—whether the affairs of the 17 debtor are so entangled that consolidation will benefit all creditors—where “the time and expense18 necessary even to attempt to unscramble [the debtors’ affairs is] so substantial as to threaten the 19 realization of any net assets for all the creditors” or where “no accurate identification and 20 allocation of assets is possible.” In re Bonham, 229 F.3d at 766 (quoting Augie/Restivo, 860 F.2d21 at 519); see also In re Owner Mgmt. Serv., LLC, 530 B.R. at 723. “The language ‘benefit of all 22 creditors’ does not mean each and every creditor. Rather, it means benefit to the creditor body as 23 a whole.” In re Owner Mgmt. Serv., LLC, 530 B.R. at 739 (quoting Stayton SW Assisted Living, 24 2009 U.S. Dist. LEXIS 119186 at *12). Where maintaining the separateness of related entities 25 and tracing the individual claims, assets, and liabilities would result in a diminution of the debtors26 estate and thus would negatively impact the debtors’ creditors, substantive consolidation is 27 appropriate as it would benefit the creditor body as a whole. Id. Moreover, substantive

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1 added assets to the debtors’ bankruptcy estate while only adding relatively few creditors, thereby 2 not substantially burdening the estate. See Id. at 740 (finding where certain principals operated a 3 complicated fraudulent real estate scheme across multiple entities in which they obtained title to 4 distressed residential properties to collect rents while staving off foreclosure actions from lenders 5 through frivolous litigation, the Court determined substantive consolidation of individual non-6 debtors and non-debtor entities with debtors was appropriate since the non-debtors added through7 substantive consolidation brought more assets into the bankruptcy estate while only adding 8 relatively few creditors). Additionally, in Bonham the Ninth Circuit specifically approved of 9 consolidation based on the second factor where, as here, the principal had run several entities 10 together as a Ponzi scheme to defraud thousands of investors. 11 Here, the finances of all of the entities comprising the PFI Enterprise, including LLC 28 12 and PFI Glenwood, are substantively entangled. For example, LLC 28 apparently accrued 13 significant payables owed to PFI for intercompany transfers over the years. Moreover, given the 14 extent of the investments containing Rollovers, including the Rollover investments made by 15 investors in both LLC 28 and PFI Glenwood, tracing investment funds back to specific properties16 and entities would be necessary without the consolidation of LLC 28 and PFI Glenwood with the 17 Debtors and would require more time and come at a significant added cost further depleting the 18 Debtors’ estate to the detriment of the Debtors’ creditors. Indeed, FTI determined that there is 19 limited utility gained from attempting to fully trace all finances and investments prior to 2007 20 compared against the cost of investigating further. Based on the Company’s books and records, 21 distributions to investors were also made with commingled funds from other entities and investor22 Moreover, funds from various entities were commingled to purchase new properties regardless of23 the specific entity that took title to the property, and, as was the case with LLC 28, funds received24 from refinancing mortgages on specific properties were regularly deposited in general corporate 25 accounts for PFI and PISF and transferred to accounts for various entities within the PFI 26 Enterprise. 27 Given the extent of the financial entanglement of all of the entities within the PFI

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1 Glenwood would result in an inequitable result for the creditors since tracing all investor funds 2 attributed to LLC 28 and PFI Glenwood to their original investments and all transfers between 3 accounts for these non-debtor entities with the Debtors’ accounts would be necessary and would 4 be extremely difficult, if not impossible, and would require additional time and expense to the 5 detriment of the Debtors’ creditors. Consolidating LLC 28 and PFI Glenwood with the Debtors’ 6 estate, however, would benefit the creditors as a whole, and likely the creditors of LLC 28 and PF7 Glenwood, because intercompany payables and receivables would be extinguished, and the 8 Debtors’ present creditors as well as the creditors of LLC 28 and PFI Glenwood would likely 9 benefit from access to additional assets for the purpose of distributions. While the creditor pool 10 for the Debtors may increase by consolidating LLC 28 and PFI Glenwood with the Debtors, this 11 increase is likely minor in comparison to the present pool of creditors and given the Rollovers of 12 investments at least some of the investors in LLC 28 and PFI Glenwood are already creditors to 13 the bankruptcy estate through their Rollover investments in the Debtors. Thus, the bankruptcy 14 estate will not be substantially burdened from the consolidation with LLC 28 and PFI Glenwood 15 and the benefit of such consolidation outweighs any such potential harm. 16 For this alternative reason, substantive consolidation may and should be granted. 17 C. Substantive Consolidation with the Debtors is Appropriate Because LLC 28 and PFI18 Glenwood Were But Instrumentalities of the Overall Fraudulent Scheme 19 As the Ninth Circuit noted in Bonham, substantive consolidation of non-debtor entities is 20 appropriate and in the equitable interest of creditors where the non-debtors are but 21 instrumentalities of an overall fraudulent scheme used to defraud investors. See In re Bonham, 22 229 F.3d 750, 766-767. In Bonham the Ninth Circuit determined that the bankruptcy court had 23 properly ordered the substantive consolidation of two non-debtor entities that the debtor had used 24 to perpetrate her Ponzi scheme in which she sought investors to make investments that were 25 allegedly used to purchase frequent flier miles that were then to be used to purchase plane tickets 26 to be sold at profit to travelers. The debtor had complete control over the non-debtor entities, 27 commingled assets with the non-debtor entities, and failed to maintain any degree of separateness

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1 Likewise, here, PFI and Mr. Casey retained control of LLC 28 and PFI Glenwood until hi2 death. Even still PFI provides all operational and management services for LLC 28 and PFI 3 Glenwood and, prior to Mr. Casey’s death, regularly commingled investments and financial 4 transactions amongst Debtors and the non-debtor entities. Based on the Rollovers connecting 5 investments in LLC 28 and PFI Glenwood with investments in other entities within the PFI 6 Enterprise, the intercompany transfers between LLC 28 and PFI Glenwood with PFI and other 7 entities in the PFI Enterprise, and the deposit of proceeds from the refinance of LLC 28’s propert8 directly into a PFI account rather than LLC 28’s separate account, LLC 28 and PFI Glenwood 9 were simply extensions of the same fraudulent Ponzi scheme perpetrated by Mr. Casey and Mr. 10 Wallach via the PFI Enterprise as a whole. Therefore, substantive consolidation is appropriate an11 in the equitable interest of all investors and creditors. 12 VI. 13 CONCLUSION 14 WHEREFORE, the Debtors respectfully request entry of an order, substantially in the for15 attached hereto as Exhibit A, granting the relief requested and providing such other and further 16 relief as is just and proper. 17 Dated: April 29, 2021 18 SHEPPARD, MULLIN, RICHTER & HAMPTON LLP 19 20 By /s/ J. Barrett Marum J. BARRETT MARUM 21 22 Counsel for the Debtors 23 24 25 26 27

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1 Exhibit A 2 [Proposed] Order 3 4 5 6 7 UNITED STATES BANKRUPTCY COURT 8 NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO DIVISION 9 10 In re Case No. 20-30604 11 PROFESSIONAL FINANCIAL (Jointly Administered) INVESTORS, INC., et al., 12 Chapter 11 Debtors. 13 Adv No. 21-3018 14 [PROPOSED] ORDER GRANTING DEBTORS’ MOTION FOR ORDER OF 15 SUBSTANTIVE CONSOLIDATION OF NON-DEBTOR AFFILIATES 16 PROFESSIONAL INVESTORS 28, LLC AND PFI GLENWOOD, LLC WITH 17 DEBTORS 18 Judge: Hon. Hannah L. Blumenstiel Date: May 27, 2021 19 Time: 10:00 a.m. Place: Telephonic/Video Appearances Only 20 450 Golden Gate Ave. 16th Fl. Ctrm. 19 21 San Francisco, CA 94102 22 23 The Debtors’ Motion for Order of Substantive Consolidation of Non-Debtor Affiliates 24 Professional Investors 28, LLC and PFI Glenwood, LLC with Debtors (the “Motion”)5 filed by th25 Debtors on April 29, 2021, as Docket No. [•] came before the Court for consideration. Based 26 27 5 Capitalized terms not otherwise defined herein shall have the same meaning ascribed to them in the

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1 upon the Court’s review of the Motion, the Alfaro Declaration filed in support of the Motion, 2 notice given of the Motion, and all other pleadings and evidence of record in the above-captioned 3 jointly administered chapter 11 bankruptcy cases, 4 IT IS HEREBY ORDERED that: 5 1. The Motion is GRANTED. 6 2. Professional Investors 28, LLC and PFI Glenwood, LLC are hereby substantively 7 consolidated with the Debtors pursuant to the terms set forth in the Plan and to the extent and 8 discretion as determined by the PFI Trustee selected to oversee the administration of the Plan. 9 * * * END OF [PROPOSED] ORDER * * * 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

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