Texas REIT Plummets Following Ponzi Allegations

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Texas REIT Plummets Following Ponzi Allegations

Stock in United Development Funding IV has gone into a free fall following a report published on an investor website that alleged the real estate investment trust has operated for years like a Ponzi scheme.

Harvest Exchange, an online professional network for investors, published an anonymous post about UDF called “A Texas-Sized Scheme: Exposing the Darkest Corner of the REIT Business, United Development Funding,” which currently controls $1.3 billion of assets in various REITS, including UDF IV.

Based out of the Dallas-Fort Worth area, UDF IV was a nontraded REIT that listed on the NASDAQ in June 2014. It was sold to investors from 2009 to 2013 at $20 per share.

“The UDF umbrella exhibits characteristics emblematic of a Ponzi scheme,” according to the Harvest posting. Those characteristics include new capital used to fund distributions to existing investors and subsequent UDF companies providing significant liquidity to earlier vintage UDF companies, allowing them to pay earlier investors. Once the funding of retail capital to the latest UDF fund is halted, the “earlier UDF companies do not appear capable of standing alone and the entire structure will likely unravel, with investors left holding the bag.”

UDF responded, blaming the post on a hedge fund looking to profit by taking a short position in the company. The UDF companies “are aware that a hedge fund has created a significant short position in” UDF IV shares, according to a company statement. “We believe that this hedge fund is trying to unlawfully profit by manipulating and depressing the price of” UDF IV shares.

In the same release, UDF IV said it was cooperating in an SEC “fact-finding investigation” since April 2014, two months before it became a listed company. “The SEC has informed the companies that this investigation is not an indication that any violations of law have occurred or that the SEC has any negative opinion of any person, entity or security,” according to UDF IV’s statement.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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