Sonn Law Group is investigating claims for investment losses related to United Development Funding IV, a publicly traded real estate investment trust. Thursday the FBI raided the Grapevine, Texas office of United Development Funding, according to Investment News. The company is a mortgage REIT that lends money to develop properties. Shares of United Development Funding IV fell 54% on Thursday before trading was halted, according to The Wall Street Journal. In December, UDF shares were trading at $17.20, according to Investment News.
Prior to Thursday’s raid, UDF’s stock price already had fallen significantly after anonymous allegations that it was operating as a Ponzi scheme. In particular, a report, entitled “A Texas Sized Scheme,” was published on the Harvest Exchange website. In addition, Texas hedge fund manager J. Kyle Bass, the founder of Dallas-based Hayman Capital Management, recently revealed that he was shorting UDF. In a website, udfexposed.com, Hayman sets forth the allegations and evidence surrounding the Ponzi scheme. “UDF Management is misleading investors and is preying on ‘Mom and Pop’ retail investors,” said Bass, according to Investment News.
UDF IV’s total assets were $684 million, of which $513.2 million were notes receivable, according to its November 2015 quarterly report. The quarterly report further stated that notes receivable for related parties was $69.6 million.
Ponzi schemes got their name from Charles Ponzi, who was the first known operator of a fraudulent investment scheme. Ponzi operators attract investors with promises of consistent high returns, which seem incredible compared to their peers. Traditional, legitimate investments draw their returns from profits, while Ponzi schemes use the capital paid by new investors to pay false “profits” to old investors. While all investments involve some form of risk, Ponzi scheme investors typically have no idea of the illegal, speculative scheme in which they have become involved. Ultimately, Ponzi schemes fail, often because investors become suspicious and try to withdraw their capital, only to discovery that their capital is gone. Operators of Ponzi schemes also improperly use investor capital for personal expenses or other extravagances.
If you have invested United Development Fund IV, and experienced investment losses, please call us at 844-689-5754 or complete our “contact form.” Sonn Law Group is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies.