Four United Development Funding executives who were recently sentenced to a combined 20 years in federal prison for fraud have lost their bid to remain free pending their appeal. The executives have appealed their convictions to the U.S. Court of Appeals for the Fifth Circuit.
In January 2022, each UDF executive was found guilty of 10 counts of conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and securities fraud.
Chief executive officer Hollis Greenlaw was sentenced to seven years. Partnership president Benjamin Wissink and chief financial officer Cara Obert were sentenced to five years each; and asset management director Jeffrey Jester to three years. The judge also ordered Greenlaw, Wissink, and Obert to pay fines of $50,000 each.
While the court found that the defendants are not flight risks and are not appealing for the sake of delay, their attorneys failed “to present any substantial question of law or fact that will result in a reversal or new trial” – a deciding factor in granting a request for continued release pending appeal.
U.S. District Judge Reed O’Connor ruled that the executives should report to federal prison in July, except for Jester who on Friday was granted a six-week extension from July 5th until August 16th.
In addition to the current surge of COVID-19 in the Bureau of Prisons, Jester requested that his surrender date be extended because his teenaged son, an avid baseball player, is playing in “a high-level baseball series” that starts on July 5th – Jester’s original report date.
“This is a pivotal event in [Jester’s son’s] life and could be the point in which he decides where he will go to college. At the very least, it will indicate which colleges show interest in him, whether he has an opportunity to play college baseball, and where he may want to play college baseball. If Mr. Jester reports on July 5, this will impact his son’s performance since this will likely be the worst day in [his son’s] life,” the motion stated.
Founded in 2003 in Grapevine, Texas, UDF utilized a family of five funds – UDF I, II, III, IV, and V – to invest in various residential real estate developers and private homebuilders.
When developers failed to repay money borrowed from one fund, triggering multimillion-dollar shortfalls, the defendants transferred money out of another fund to pay distributions to the original fund’s investors, all without disclosing the transfers to the SEC and the investing public.
From January 2011 until November 2015, approximately $65 million in UDF IV investors’ money was used to pay UDF III investors a return on their investment and fulfill other financial obligations. Similarly, approximately $7.4 million in UDF V investors’ money, along with money obtained from a financial institution, was purportedly used to pay returns to UDF III and UDF IV investors.
The registration statements of UDF III, a limited partnership, UDF IV, a real estate investment trust that previously traded on the Nasdaq and later the over-the-counter market, and UDF V, a non-traded REIT, were revoked by the SEC in August 2020 for “failure to comply with periodic filing requirements.”
The case dates to 2016, when the FBI raided the UDF offices in response to concerns raised by Dallas-based Hayman Capital Management about the company’s operations. Hayman Capital’s Kyle Bass dubbed the actions a “Ponzi-like scheme” and short-sold its stock; he said he later earned more than $30 million on the UDF trades.
In July 2018, UDF agreed to pay $8.3 million to settle similar charges brought by the SEC without admitting to wrongdoing.