UDF IV Responds to NexPoint, Expresses “Serious Concerns” with Connection to Kyle Bass
The board of United Development Funding IV (OTC PINK: UDFI) has responded to the recent letter from NexPoint Advisors L.P. and its affiliates expressing interest in managing the company.
United Development Funding IV (OTC PINK: UDFI) has responded to the recent letter from NexPoint Advisors L.P. expressing interest in managing the company. In its response, UDF IV points to “serious concerns” relating to NexPoint’s purported connections to Kyle Bass and Hayman Capital, particularly James Dondero, the president of NexPoint GP, the general partner of NexPoint Advisors.
In a related matter, UDF IV is actively pursuing civil litigation against Bass/Hayman for allegedly perpetrating a “short and distort” campaign that began with anonymous online posts on the Harvest Exchange website accusing UDF of operating as a Ponzi scheme.
“The board believes that Mr. Dondero, Highland Capital Management L.P. (which was co-founded by, and until earlier this year controlled by, Mr. Dondero) and their affiliates were aware of and involved in the short and distort scheme, which they discussed with the perpetrators,” the UDF IV letter stated.
The letter continued, “The board also understands that Highland Capital made substantial investments in Harvest Exchange Corp., the company that owns the website on which the perpetrators maliciously posted anonymous false statements disparaging [UDF], and hired one of the co-founders of Harvest as Highland Capital’s chief strategy officer. Further, the board is aware that the other co-founder of Harvest recently was asked to provide information to the SEC regarding the short and distort scheme.”
“The board is not interested in discussing a potential transaction with persons whose principal interests may be in protecting the participants in a scheme to defraud [UDF] and its shareholders. The board is not prepared to accept at face value your statements that your interest is unrelated to, and you do not want to interfere with, [UDF’s] claims in the Bass litigation,” UDF added.
UDF further expressed concerns that NexPoint and its affiliated funds purchased shares of UDF IV soon after the conclusion of the alleged short and distort scheme.
UDF also claims that engaging with NexPoint “would be a significant distraction that would divert attention and resources from the Trust’s much more pressing concerns.”
These include, according to UDF IV, bringing the company up-to-date on its SEC filings, pursuing the Bass litigation, and resolving the remaining lawsuits and other proceedings that were triggered by the alleged short and distort campaign.
UDF also pointed to public statements made by creditors of funds managed by Highland Capital when Dondero was president of the company, including a January 2020 report in The Dallas Morning News that stated, “Creditors have blamed Dondero for the bankruptcy, with one saying he is ‘not worthy of placing the trust of the state of 70 employees and hundreds of millions of dollars of creditor claims in his hands to do as he wishes.’”
UDF also claims there are inconsistencies between public SEC filings and statements Dondero made last year when he met with Hollis Greenlaw, UDF’s president and chief executive officer, when he expressed interest in taking over management.
Specifically, UDF said that in a share ownership filing made in February 2019, NexPoint certified that its share purchases were not made with the intention to change or influence control of the company.
In NexPoint’s original letter, the company indicated that if UDF IV does not receive “meaningful engagement” from the board, it intends to file a lawsuit in Maryland state court to compel the board to call the annual meeting of the shareholders.
UDF IV said that it plans to “conduct a vigorous defense” if that lawsuit goes forward.
“As you well know, [UDF] has not held an annual meeting because it could not comply with related SEC disclosure requirements due to the actions of the perpetrators,” UDF said in the letter “As a direct consequence of the short and distort scheme, [UDF] has not been able to file periodic reports with the SEC including audited financial statements since the [company] was attacked. As a result, the [company] is currently engaged in legal proceedings with the SEC to determine whether [its] shares will remain registered under the Securities Exchange Act.”
In closing, UDF IV welcomed responses from NexPoint on the concerns outlined in the letter, as well as dialogue and detailed information relating to a specific transaction.
As of July 13, 2020, NexPoint Strategic Opportunities Fund owned 1.76 million shares of UDF IV common stock, or 5.7 percent of the outstanding shares. NexPoint Advisors L.P owns 1.8 million shares, or approximately 5.9 percent of the outstanding; NexPoint GP LLC owns 1.8 million shares, or approximately 5.9 percent of the outstanding; and James Dondero owns 2.1 million shares, or approximately 6.8 percent of the outstanding shares.
NexPoint Strategic Opportunities Fund is an investment fund structured as a Delaware statutory trust. James Dondero is the president of NexPoint GP, which is the general partner of NexPoint Advisors. NexPoint Advisors serves as the investment adviser to the NexPoint Strategic Opportunities Fund and other NexPoint funds.
