Articles Tagged with UDF IV

Investors who placed their funds in the Texas-based United Development Funding IV real estate investment trust are asking a federal judge to approve a $13.5M REIT fraud settlement they’d reached with the company over the allegations that it had been run like a Ponzi-like scam and concealed this. The plaintiffs contend that UDV IV and its affiliates not only made false statements but also they did not disclose material facts involving business and operations.

They brought their REIT fraud case against the UDF companies three years ago, accusing the defendants of using investors’ funds from newer offering to pay investors who had gotten involved in earlier offerings. The investors, who want class certification, alleged that disclosures they were offered were misleading and lending practices lacked transparency.

Both sides eventually arrived at the $13.5M settlement—$10.5M in cash and another $3M once the REIT hits its $75M cash flow target in two years. This deal is separate from a settlement the plaintiffs reached with UDF accountants, as well as those that underwrote and sold the allegedly fraudulent offerings.

United Development Funding IV, a Texas real estate investment trust,  said that it has received a Wells Notice from the U.S. Securities and Exchange Commission. This is a sign that the regulator’s staff will likely recommend an enforcement action against the mortgage and development REIT.  There are individuals connected to the company and its adviser that also received SEC Wells notices.

The UDF REITs have been in trouble for months now, ever since Harvest Exchange, a hedge fund that had a short position in UDV IV shares, published a report  about how it believes the company has been run like a Ponzi scam for years. Harvest Exchange claimed that the REIT utilized new capital to pay current investors their distributions, while providing earlier UDF companies hefty liquidity in order to pay earlier investors. The hedge fund noted the earlier companies do not appear to be able to stand on their own without this liquidity from the latest UDF REITs.

UDF IV not only denied the hedge fund’s claims, but also it filed a complaint with the SEC claiming it had been the victim of a securities trading scam in which an investor was building a short stock position to illegally manipulate its shares.

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The Federal Bureau of Investigation has raided the Dallas offices of United Development Funding. The publicly traded real estate investment trust recently came under fire amid allegations that it has been run like a Ponzi scam for years.

Since the accusations against UDF IV were published on the Harvest Fund website, the REIT’s stock has dropped 81% in the last two months. News that the FBI went to the UDF headquarters caused the company’s share price to plunge nearly 55% during the raid on Thursday to close at $3.20/share.

UDF IV has denied the allegations that it is a Ponzi scam. Following news of the accusations, It filed a complaint with the U.S. Securities and Exchange Commission alleging that it was the victim of a “short and distort” securities trading scam involving an investor that was building up a short position in a stock. The aim , said UDV, was to illegally manipulate shares. In December, UDF revealed that it has been under investigation in a fact-finding probe by the SEC since 2014.

This month, hedge fund manager Kyle Bass said that he is the one who has been shorting UDF. He accused the nontraded REIT of using new investor funds to pay existing investors and exploiting “Mom and Pop” retail investors. Bass’s Hayman Capital Management LP has been betting against UDF IV shares. He was the one who made the Ponzi scam claims against UDF at the end of last year.
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United Development Funding IV Shares Fall After Allegations of Texas Ponzi Scheme
United Development Funding IV (“UDF IV”), a Texas-based real estate investment trust (“REIT”), saw its share price drop after Harvest Exchange published a post that said the REIT had been run like a Ponzi scheme for years. United Development was a nontraded REIT that became traded when it listed on Nasdaq last year under the symbol “UDF”.

In the report on the Harvest site, the anonymous author said that the UDF umbrella had traits indicative of a Ponzi scam, such as, it uses new capital to pay distributions to current investors and UDF companies and gives substantial liquidity to earlier UDF companies to pay earlier investors. The article said that once the funding of retail capital to the most current UDF stops, the earlier UDF companies do not seem able to stand on their own. This purportedly indicates that the structure will likely fail and investors will be the ones sustaining losses.

After the report by the online professional network of investors, UDF IV saw its share price plunge from $17.53 to $10.10. It later dropped further to $8.55/share.

Over $1M Awarded in Senior Financial Fraud Case Against Morgan Stanley and a Former Financial Adviser
A Financial Industry Regulatory Authority Inc. arbitration panel has awarded 92-year-old Genevieve Lenehan (“Mrs. Lenehan”) over $1M in her claim against Morgan Stanley (MS) and former Morgan Stanley advisor Justin Amaral (“Amaral”). Mrs. Lenehan accused Amaral of churning and reverse churning her account. Amaral also advised Mrs. Lenehan’s husband until his death five years ago.
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