The securities lawyers of Gana LLP are investigating investors that were recommended to invest in non-traded real estate investment trusts (Non-Traded REITs) or publicly traded shares of United Development Funding (UDF) funds. Based upon the investor’s investment objectives and other information such investments may have been unsuitable for the investor. Recently, UDF IV, a publicly traded REIT, plummeted about 50% in value after allegations arose claiming that UDF runs its REIT programs like a Ponzi scheme.
As a background, according to UDF’s website the company was founded in 2003 and purports to provide investors with an opportunity to diversify their portfolios with “fundamentally sound investments in affordable residential real estate.”
However, allegations have been made that UDF IV made false or misleading statements and omissions about its business. It has been alleged that UDF IV failed to disclose that: (1) subsequent UDF REIT companies provide significant liquidity and capital to earlier UDF companies which allows those companies to repay earlier investors; (2) if funding from retail investors to the latest UDF company were halted the earlier UDF companies would not be capable of continuing operations; (3) UDF IV provided liquidity to UDF I, UMT and UDF III, as part of an investment scheme; (4) UDF IV was being operated in a manner similar to a Ponzi scheme where new capital is being used to pay prior investors; (5) UDF IV failed to disclose that the company was being investigated by the SEC for its practices; and (6) UDF IV’s business prospect representations were false and misleading.
These allegations came to light on December 10, 2015, after an anonymous author published a report on UDF IV on the Harvest Exchange website. The report alleges that UDF IV has been providing liquidity to UDF I, UMT and UDF III. The report also alleges that many development sites show that there is no real estate development and constitute non-income producing raw land potentially more than 10 years after UDF acquired the property through loans. On December 10, UDF IV issued a press release disclosing that it has, in fact, been cooperating with the SEC in an investigation since April 2014.