According to UDF’s website, the company was founded in 2003 and claims to provide investors with an opportunity to diversify their portfolios with “fundamentally sound investments in affordable residential real estate.” However, prominent hedge fund manager, Kyle Bass, who previously predicted the 2008 subprime mortgage crisis, alleged on his website that UDF IV was using new investor money to pay existing investors and therefore essentially operating a billion dollar Ponzi scheme.
Other allegations have been made that UDF IV made false or misleading statements and omissions about its business; failed to disclose the company was being investigated by the SEC for its practices; and UDF IV’s business prospect representations were false and misleading.
Investigation into Ponzi Scheme and other Misconduct by UDF
The Furgison Law Group securities fraud attorneys are investigating the activities of United Development Funding (“UDF”) on behalf of investors in United Development Funding I, United Development Funding III, United Development Funding IV and United Development Funding V. The UDF investments were non-traded real estate investment trusts (Non-Traded REITs) or publicly traded shares of UDF funds.
The Furgison Law Group securities lawyers are also investigating a number of brokerage firms’ sales practices involving recommendations for investors to invest in United Development Funding I, United Development Funding III, United Development Funding IV, United Development Funding V, or other investment programs sponsored by UDF. According to offering materials, all UDF REITs were sold by brokerage firms. Those firms include, but are not limited to IMS Securities Inc., Berthel Fisher & Co., Financial Services Inc., Centaurus Financial Inc., VSR Financial Services, Inc., Geneos Wealth Management, and Realty Capital Securities, LLC. Brokerage firms, like those listed above, reportedly sold over $1 billion of UDF REITs to individual investors.
In November 2015, a UDF board member resigned and the auditor of UDF IV and the other public UDF affiliates auditor declined to stand for reappointment after having been approved by shareholders, without indicating that such declination is the result of any misconduct.
On December 10, 2015, UDF IV issued a press release disclosing that it has been cooperating with the SEC in an investigation since April 2014.
On February 18, 2016, the FBI raided United Development Funding's office in Grapevine, Texas.
On February 18, 2016, all trading in UDR IV (Nasdaq: UDF) was halted until UDF fully satisfies the Nasdaq requisition for additional information. The last trading price was $3.20. UDF IV’s share price has plummeted nearly 81% in the last year following the Ponzi scheme allegations of payments to existing investors with new investor money.
On February 22, 2016 United Development Funding IV filed an 8-K stating: “law enforcement authorities executed a search warrant at the corporate office of United Development Funding IV (the "Trust") in Grapevine, Texas... In addition, law enforcement officers served executive officers of the Trust and certain other employees of the Trust's advisor and its affiliates with grand jury subpoenas seeking the production of documents related to the operations of the Trust. The Trust does not believe that it, its officers or the employees of its advisor and its affiliates have violated any laws or regulations, and the Trust intends to cooperate fully with the government's investigation. The Trust cannot, however, predict what additional action, if any, government authorities might take in the future.”
Class action lawsuits on behalf of some, but not all, of the UDF IV investors have recently been filed. UDF IV has denied any misconduct.
While class actions often help large groups of investors, each with relatively small losses, recover their investments, the percentage of recovery is often less than in individual claims. Investors with significant losses are often better off pursuing their own individual claims in FINRA arbitration.
Investors Have the Right to Recover Their Losses
Because the UDF REIT's were sold by brokerage firms licensed by FINRA, they are subject to the laws that FINRA enforces. The brokerage firms are responsible for ensuring that their brokers are trading fairly, ethically and in the best interest of their clients. Ideally, they would accomplish this through careful supervision. Unfortunately, too often this supervision has been inadequate to fully protect investors. If you purchased any of UDF REIT's through a representative of a registered brokerage firm and suffered loses through negligence or fraud, it immediately puts the brokerage firm at fault for failing to supervise their broker. FINRA law then dictates that you can hold the firm legally liable to recover your damages.
How FLG can help
Our law firm represents institutional and individual investors nationwide who have lost a substantial portion of their retirement savings or other assets. We represent securities investors in their disputes with their investment advisers or brokerage firms, related to losses caused by investments in UDF I, III, IV or V. Our securities arbitration attorneys have successfully represented hundreds of investors in broker dispute cases against large and small investment firms. We also have extensive experience working on the opposite side, defending the brokerage firms and financial advisers. We now use our knowledge of how the other side operates to get the best possible results for our clients.
Each lawyer and staff member of our firm is devoted to assisting investors to recover losses caused by fraud, misrepresentation, omissions of material facts, breach of fiduciary duty, conflicts of interest, self-dealing, unauthorized trades, selling away, unsuitability, over-concentration, or other wrongful acts, whether intentional or negligent. Whether in state or federal court, or in arbitration proceedings in FINRA or the American Arbitration Association ("AAA"), Furgison Law Group helps investors recover their investment losses.
Don't let the brokerage firms get away with loosing your hard earned money. Contact us today for a Free Case Evaluation. We will tell you if you have a case worth pursuing.
Click the link above to check the background of your financial adviser, brokerage firm or any other investment professional
Click above for News and Investor Alerts and sanction in the securities industry
Click above to check for SEC filings