J. Kyle Bass, the hedge fund manager who runs the Dallas-based Hayman Capital, has set up a website accusing Texas-based REIT United Development Funding IV of running a Ponzi-like real estate scam. On the site, Bass published a letter to readers, claiming that his firm had conducted research and found that the nontraded real estate investment trust displayed characteristics in line with a billion-dollar Ponzi scheme.
Bass contends that UDF used money from a public affiliate to rescue its first fund. According to Business Insider, Bass also claims that UDF management has been distorting its poor track record and the financial state of its affiliates going as far back as the financial crisis. He alleges that UDF has been taking advantage of retail investors and using UDF- controlled entities and real estate backed loans to conceal the fact that new investors money is b used to pay existing investors.
Bass believes that United Development used money raised for UDF IV to give liquidity to UDFI and UDF II funds. He says that UDF V is supporting the funding of UDF IV.
UDF responded to Bass’s allegations by accusing him of making a number of “false and misleading statements” on his website. The nontraded REIT has been dealing with allegations such as these since December when an anonymous short seller published a report on Harvest Exchange. The blog ValueWalk had speculated that Bass was this short seller.
Already, investors have submitted a class action securities fraud lawsuit accusing UDF IV and a number of its offers of committing federal securities law violations. The plaintiffs believe Bass’s allegations. They also are accusing UDF IV of failing to disclose that it has been under investigation by the SEC.
Texas Securities Lawyers
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Hedge Fund Attacks Texas REIT as ‘Ponzi-Like Scheme,’ Think Advisor, February 8, 2015
Kyle Bass is going to war with his latest short target, Business Insider, February 5, 2016
A Texas Sized Scheme, Harvest Exchange
Investors Files Texas Securities Case Alleging Violations by United Development, Texas Securities Fraud, January 22, 2016