A lawsuit filed by United Development Funding L.P. against Kyle Bass and his hedge fund Hayman Capital will proceed in the trial court after the Supreme Court of Texas denied the defendant’s petition to review the matter.
UDF originally filed its lawsuit in Dallas County Court against Bass and Hayman Capital in November 2017, claiming the defendants made false statements that damaged its business and interfered with its contracts and business relations.
The lawsuit stemmed from a series of anonymous online reports allegedly authored by Bass and posted to an investor networking website, detailing unsubstantiated claims that UDF operated as a Ponzi scheme – an accusation 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 Dallas County Court ruled that UDF had sufficient grounds to proceed with the case and denied Bass’s motion to dismiss the lawsuit under the Texas Citizens Participation Act.
Bass and Hayman filed an accelerated appeal with the Texas Judicial Branch Fifth Court of Appeals, which affirmed the Dallas court’s decision to deny Bass’s motion to dismiss the lawsuit.
UDF said in a statement that the appeals court reviewed more than 2,000 pages of pleadings, affidavits and evidence, and concluded, “UDF’s pleadings and affidavits explain how and why Hayman’s statements were false” and “Illustrate and describe how and why Hayman made the false statements knowingly or recklessly, and chronicle the economic and business damages and losses UDF sustained as a direct result of Hayman’s false statements.”
Bass then filed a petition with the Texas Supreme Court to review the appeals court decision, which it upheld, and UDF expects the case will be remanded to the trial court in 30-40 days, where full discovery and a trial will follow.
The UDF funds 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, a publicly traded REIT, was delisted in October 2016.