After the Federal Bureau of Investigation raided residential finance and investment firm United Development Funding, executives were reportedly served grand jury subpoenas to provide documents related to the operations of the firm.
According to multiple sources, UDF, based in a suburb of Dallas, financed more than $1 billion in residential development across Texas.
However, one, local investor publicly accused the company of mismanaging investor funding.
Here's more from the Dallas Morning News:
Since late last year, United Development Funding has been battling allegations by Dallas hedge fund investor Kyle Bass that the company has made improper real estate loans, has mishandled funds and defrauded its investors.
Bass has called labeled the firm a “billion-dollar house of cards” and a “Ponzi-like real estate scheme.”
And, according to the Star Telegram:
Three shareholder lawsuits have been filed in U.S. District Court in Fort Worth, alleging that the company deceived investors. Citing information put forward by Hayman Capital, the lawsuits say that UDF failed to disclose that UDF IV provided liquidity to earlier companies, such as UDF I, UMT and UDF III.
“If the funding mechanism funneling retail capital to the latest UDF company were halted, the earlier UDF companies would not be capable of standing alone, and the entire structure would likely crumble with investors left holding the bag,” a lawsuit alleges.
Here’s how UDF’s CEO Hollis Greenlaw described the REIT: “Since our inception in 2003, we have enjoyed considerable success as a company by investing in all aspects of the home development cycle – from equity and land banking to mezzanine financing to first lien lending."
Nasdaq currently suspended UDF stock trading.