Securities Arbitration Lawyers BlogFBI Raids United Development Funding (“UDF”) Headquarters Amidst SEC Investigation
On February 18, 2016, the FBI raided the headquarters of UDF, the manager of a family of real estate investment trusts (“REITs”) and other funds, sending shares of UDF’s largest fund, United Development Funding IV (“UDF IV”), tumbling 54% before NASDAQ halted trading, according to InvestmentNews.
The FBI raid is the most recent negative activity for the troubled fund manager. In November 2015, UDF’s auditor, Whitley Penn disclosed he would no longer be auditing UDF’s financial statements and UDF board member William Kahane resigned. A few weeks later in December 2015, Kyle Bass and his firm Hayman Capital Management, posted a report and letter alleging UDF was managed “like a Ponzi scheme.” UDF responded to the reports, saying that it had been under SEC investigation since April 2014.
On February 5, 2016, Bass and his firm set up the website https://udfexposed.com/ in order to further substantiate his allegations. Additionally, Bass revealed that he had a significant short position in UDF.
The UDF funds have amassed over $1 billion, with UDF IV composing almost $700 million and most of the proceeds coming from individual investors, retirees, unsophisticated investors, and “mom and pop” investors. A majority of the securities were sold by RCS Capital Corp., a broker-dealer firm founded by troubled REIT mogul Nick Schorsch and Kahane. Schorsch and Kahane also co-founded AR Capital, the external advisor and co-sponsor to one of UDF’s funds.
UDF has numerous conflicts of interest between it, Schorsch, AR Capital, and RCS Capital. Out of UDF’s more-than-$1 billion in funds, more than 65 % is loaned to two borrowers, creating an immense concentration risk. UDF allegedly posted no losses because it reports the defaulted loans it has issued as deficiency notes rather than taxable losses on its SEC filings. Lastly, the recent law enforcement activity causing the NASDAQ to suspend trading of UDF IV supports allegations that UDF is a fraud or a Ponzi scheme.
Silver Law Group and its attorneys have over 20 combined years of experience earning back investment losses of defrauded individual investors through FINRA arbitration. Silver Law Group has won millions of dollars in Ponzi scheme cases and other instances of investment fraud.
If you invested in UDF IV or any other United Development Funding products, you may be entitled to recover some of your investment losses. Please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345 to speak to an attorney to find out how we may be able to help you recover some of your investment losses.