Should You Join the Class Action or File an Individual Arbitration Claim?
A recently filed class action lawsuit seeks damages on behalf of individuals who acquired shares of United Development Funding IV (NASDAQ: UDF) (“UDF IV”) between June 4, 2014 and December 10, 2015, inclusive (the “Class Period”). UDF IV is a real estate investment trust (“REIT”) created under the auspices of United Development Funding. United Development Funding is a full service residential real estate financing company formed in 2003, which has sponsored four private placements and three public programs, according to its website.
Shares of UDF IV have fallen dramatically since December 2015 after anonymous allegations that it was operating as a Ponzi scheme made in 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 set 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. These allegations culminated in a February 2016, FBI raid of UDF’s suburban Dallas office.
The shareholder class action complaint alleges that UDF IV and several of its executive officers made false and misleading statements during the Class Period, and failed to disclose material adverse facts about the Company’s business, operations, and prospects. In particular, the complaint alleges that the defendants made materially false and misleading statements to investors and/or failed to disclose that:
- subsequent UDF companies provide significant liquidity to earlier vintage UDF companies, allowing them to pay earlier investors;
- 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;
- UDF IV provided liquidity to UDF I, UMT and UDF III, among other affiliates, further exacerbating the problem and perpetuating the scheme;
- defendants were operating a Ponzi-like real estate investing scheme;
- the Company was being investigated by the SEC; and]
- s a result, defendants’ statements about UDF IV’s business, operations, and prospects, were false and misleading and/or lacked a reasonable basis.
Investors who purchased shares of UDF IV through their brokerage firm may file an individual arbitration claim against the firm. Investors filing an individual arbitration claim often receive a greater recovery than those relying solely on class action participation. If you have invested United Development Fund IV, and experienced investment losses, please contact us to discuss your options 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.