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Texas Hedge Fund Renews Attack on UDF

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Hayman Capital Management, a Texas-based hedge fund, launched a website on Friday doubling down on allegations that real estate investment trust United Development Funding IV (NASDAQ:UDF) is operating a “ponzi-like real estate scheme.”

The website alleges that UDF is using new investor money to pay existing investors.

As previously reported by The DI Wire, anonymous online reports posted in December on investor networking website, Harvest Exchange, detailed unsubstantiated claims against the REIT that sent stock prices plummeting.

It has now been revealed that hedge fund manager, Kyle Bass, is the face behind the original allegations, and that his hedge fund is indeed shorting the company – which UDF alluded to when the claims first came to light.

On Hayman’s website, www.UDFexposed.com, a disclaimer states that “Hayman currently maintains a short position in the common stock of United Development Funding IV. Hayman will profit if the market price for common shares of UDF decline and, conversely, Hayman will lose money if the market price increases for the common shares of UDF.”

UDF IV released a statement acknowledging Hayman’s short position and claimed that the website contains “multiple false and misleading statements about our company and management team.”

The REIT also stated that “our secured loans are underwritten based on collateral value, and UDF IV has not had any realized losses in its portfolio…and we will defend our funds aggressively against these unfounded accusations.”

In a letter posted on the UDF Exposed website, Bass alleges that, “After years of mismanagement, the UDF structure has begun to implode. Evidence of UDF’s dire situation includes a series of defaults, bankruptcy petitions, lawsuits, key resignations – including that of UDF’s audit firm, a key UDF director, and the CFO of UDF’s largest borrower – followed by UDF’s own overdue admission that it has been the subject of an SEC investigation since April 2014.”

When UDF originally disclosed the SEC investigation in mid-December, the company indicated that “this investigation is not an indication that any violations of law have occurred.”

Prior to the public battle that erupted over the Ponzi allegations, Whitley Penn LLP declined to stand for reappointment as the independent registered public accounting firm of the various UDF companies. In the public SEC filing disclosing the auditor’s resignation, it was stated that it was not due to any disagreements between UDF or Whitley Penn., although no explanation for the action was provided.

Shares of United Development Funding IV stock dropped 30 percent on Friday, but inched up 2.40 percent on Monday, closing at $7.25.

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