UDF says board-authorized investigation finds no evidence of fraud

Nearly three months after an FBI raid put a halt to trading of its stock, Grapevine-based United Development Funding is breaking weeks of silence, claiming that an independent probe shows no evidence of fraud.

In a press release issued Tuesday, United Development Funding IV, one of the financing company’s publicly-traded REITs, said it received findings of an “independent in-depth investigation” conducted by the Thompson & Knight law firm with assistance from forensic accountants. It was commission’s by UDF IV’s audit committee.

According to the release, the investigation found:

▪  No evidence of fraud or misconduct on the part of the trust, its management, or its advisor.

▪  No evidence to substantiate allegations levied by Hayman Capital Management, the Dallas hedge fund led by Kyle Bass, that it is operating like a Ponzi scheme.

▪  No evidence of deception, no evidence that auditors were misled, and no evidence that efforts were made to defraud investors.

To review:

UDF is a leading provider of financing for some big residential developers in North Texas, having made more than $1 billion in secured loans to residential developers under the guidance of CEO Hollis Greenlaw.

Starting in December, Hayman waged an aggressive campaign — first in anonymous posts online and later on a website titled udfexposed.com — calling UDF “a billion-dollar house of cards” with the characteristics of a Ponzi scheme, using money raised in new investment funds to replenish and pay investors in its older funds.

In February, Bass acknowledged that Hayman had been shorting UDF IV stock, meaning that he would make money if it declined in value. And decline it did, sinking about 80 percent.

Then on the morning of Feb. 18, the FBI showed up at UDF’s headquarters on Municipal Way in Grapevine, and carted off boxes filled with documents. The following week, UDF said its executives had been served with grand jury subpeonas and said it intended to cooperate fully with the government investigation.

Trading in the stock hasn’t resumed. And since then, there’s been largely silence.

In the press release, UDF called the investigation “a rigorous and exhaustive review” of the allegations, saying more than 1.7 million emails and thousands of documents were reviews.

The company noted that investigation did identify areas to be considered for remedial action, but did not provide more detail.

This story was originally published May 18, 2016 at 10:38 AM with the headline "UDF says board-authorized investigation finds no evidence of fraud."