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Appeals Court Denies Kyle Bass and Hayman Capital’s Motion to Dismiss UDF Lawsuit

The Texas Judicial Branch Fifth Court of Appeals has affirmed the decision by the Dallas County Court to deny defendants J. Kyle Bass and Hayman Capital’s motion to dismiss a lawsuit filed by United Development Funding.

The Texas Judicial Branch Fifth Court of Appeals has affirmed the decision by the Dallas County Court to deny defendants J. Kyle Bass and Hayman Capital’s motion to dismiss a lawsuit filed by United Development Funding.

UDF filed a lawsuit in Dallas County Court against Bass and his hedge fund Hayman Capital in November 2017, claiming the defendants made false statements that damaged UDF’s business and interfered with its contracts and business relations.

The lawsuit stemmed from a series of anonymous online reports that were allegedly authored by Bass and posted to an investor networking website, detailing unsubstantiated claims that UDF operated as a Ponzi scheme – which the company has vigorously denied.

UDF contends that Bass and Hayman Capital instigated a “short-and-distort” campaign, where the defendants spread damaging information in order to profit from their short positions in UDF’s plummeting stock to the tune of $60 million.

In June 2018, the Court allowed limited discovery and ruled that UDF had set a cause of action to defend the intentional business disparagement and tortious interference by the defendants, denying the defendants’ motion to dismiss the lawsuit under the Texas Citizens Participation Act.

Bass and Hayman attempted to appeal the decision, and UDF filed its appellate brief in November 2018 opposing the appeal and presented its oral argument to the court in May 2019.

The appeals court reviewed more than 2,000 pages of pleadings, affidavits and evidence, concluding that, “Hayman’s initial anonymous posts on a website it created using a false name further indicate its state of mind. UDF offered sufficient evidence to support a fact finding that Hayman did not want to be identified as the publisher of the posts challenging the legitimacy and legality of UDF’s business so that its statements would be more certain to plunge UDF’s stock value, resulting in a huge profit to Hayman, which, in fact, is what happened.”

UDF’s Hollis Greenlaw said, “We believe the court’s 47-page opinion speaks volumes. All should read it. We will continue to see that all facts and people involved will be pursued. We also strongly affirm that it is our commitment to work vigilantly to expose Bass’s actions, to have him held accountable and to preserve and continue to create shareholder value. Our employees and our investors deserve both vindication and justice, and we are one step closer.”

The UDF funds had previously raised more than $1.2 billion in investor capital between 2003 and December 2015. UDF V, a non-traded REIT, terminated its $1 billion offering in March 2016. United Development Funding IV is a publicly traded real estate investment trust that was delisted in October 2016.

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