Shares of Grapevine REIT sink after Dallas hedge fund levels fraud accusations
Shares of Grapevine-based United Development Funding plummeted by 30 percent Friday after Dallas hedge fund manager Kyle Bass disclosed that he’s shorting the stock and leveled fraud accusations at the company.
On a website called udfexposed.com, Bass says United Development faces “significant bankruptcy risk” after years of mismanagement. He accuses the real estate investment trust of using new investor money to pay existing investors, “perpetuating a Ponzi-like real estate scheme across multiple funds.”
Shares of United Development (ticker: UDF) dropped $3.12 to $7.08 a share.
In a message to shareholders posted on the company’s website, United Development founder and CEO Hollis M. Greenlaw called Bass’s statements “false and misleading” and said its UDF IV fund “has not had any realized losses in its portfolio.”
“The hedge fund acknowledges on its website that they will profit if the stock price of UDF IV falls, and given this financial incentive we believe the hedge fund intends to continue disseminating misleading information,” Greenlaw wrote.
According to its website, UDF “invests in the development and construction of new, affordable, single-family homes through a family of public and private funds, which direct investor capital towards the financing of homebuilders and land developers.”
In a filing with the Securities and Exchange Commission in December, UDF called the hedge fund attacks “a short and distort scheme” that demonstrated “a lack of understanding of the residential development project life cycle, which typically involves multi-phase master planned communities and the related financing structures.”
UDF also disclosed that it has been cooperating with a “fact-finding investigation” by the SEC since April 2014 and that the company has not been accused of any wrongdoing.
Steve Kaskovich: 817-390-7773, @stevekasko
This story was originally published February 5, 2016 at 4:46 PM with the headline "Shares of Grapevine REIT sink after Dallas hedge fund levels fraud accusations."