United Development Funding IV (NASDAQ:UDF), a publicly traded real estate investment trust, announced that an independent investigation commissioned by the company’s audit committee is now substantially complete. In addition to UDF IV, United Development Funding is the sponsor of several non-traded real estate investment trusts.
In December 2015, UDF IV hired law firm Thompson & Knight LLP with the assistance of independent forensic accountants from an unnamed global accounting firm.
According to the company, “the independent investigation team performed a rigorous and exhaustive review of allegations made by Hayman Capital Management L.P. and others. The Audit Committee provided the independent investigation team with full and unrestricted access to documents, records, communications and personnel and asked it to pursue every path that the facts warranted.”
During the course of the investigation, the team reportedly searched more than 1.7 million e-mails and reviewed thousands of documents. UDF also stated that the investigation team performed an in-depth review of the allegations regarding the company’s business and conducted extensive interviews with key management, its advisor and its asset manager. The team also analyzed the company’s legal and financial reporting documents and records.
UDF IV indicated that the investigation found:
* No evidence of fraud or misconduct on the part of UDF IV, its management, or its advisor.
* No evidence to substantiate allegations levied by Hayman Capital Management of the operation of a Ponzi scheme.
* No evidence of deception, no evidence that auditors were misled, and no evidence that efforts were made to defraud investors.
* Nothing that indicated any deficiency in the integrity of the management team of the Trust, its advisor and its asset manager.
The investigation did identify areas to be considered for remedial action, although they were not disclosed.
Last December, Kyle Bass of Texas hedge fund Hayman Capital Management accused UDF IV of operating a “ponzi-like real estate scheme.” The claims were first disclosed anonymously on Harvest Exchange and later on Hayman’s website, www.UDFexposed.com where it was revealed that the hedge fund was shorting the company.
When the allegations came to light, UDF disclosed that they were the subject of an SEC fact-finding investigation since April 2014, but maintained that Bass’s allegations were false and misleading. UDF IV’s stock has been suspended since February 18th for not filing its 2015 annual report with the SEC. The REIT was required to submit a plan to regain compliance with NASDAQ this week.
Last week, UDF IV notified the SEC that it would not be able to complete its first quarter filings within the prescribed period due to the November resignation of its auditing firm, Whitley Penn LLP and “lack of final financials.”