The U.S. Attorney’s Office is looking for investors that may have been defrauded by four executives that were found guilty of fraud in a Fort Worth federal court.
Four executives with the real estate investment trust United Development Fund were found guilty in late January after a five-day trial and 12 hours of deliberation and now face up to 25 years in prison.
A federal jury convicted UDF CEO Hollis Morrison Greenlaw, UDF Partnership President Benjamin Lee Wissink, UDF CFO Cara Delin Obert, and UDF Asset Management Director Jeffrey Brandon Jester of 10 counts, including conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and securities fraud.
According to Dallas Central Appraisal District records, Wissink and Obert live in Highland Park.
UDF is based in Grapevine and was founded in 2003, offering a family of five funds to invest in residential real estate development and private homebuilders.
According to court documents, when developers didn’t repay the money they borrowed from one fund, the defendants would transfer money out of another fund to cover the multi-million dollar shortfall and pay distributions to the original fund’s investors — without disclosing the transfers to the Securities and Exchange Commission and the public as required by law.
They then, according to evidence presented at trial, schemed to mislead investors and the SEC about their funds’ performance.
“UDF executives shuffled money from one fund to another without disclosing the comingling to investors or regulators,” said U.S. Attorney Chad Meacham. “The Justice Department takes financial improprieties seriously, and we are proud to hold these defendants accountable for their crimes. After a long battle, justice has been done.”
The SEC said that from “at least” January 2011 to December 2015, UDF continued to use money from a newer fund to pay investors in an older fund.
“More specifically, the Commission alleged that, in 2011, UDF IV began loaning money to developers of UDF IV projects who had also borrowed money from UDF III and directed the developers to use the UDF IV money to pay down separate UDF III loans, instead of using the funds loaned from UDF IV to develop UDF IV projects,” the SEC said in its original complaint filed in 2018. “Using these transactions, which were not adequately disclosed to investors, UDF was able to cause UDF III to pay its investors at least $67 million of distributions using funds from UDF IV.”
The company paid an $8.2 million fine in 2018 related to the civil case filed by the SEC, but didn’t admit to or deny the allegations.
Matthew DeSarno, Special Agent in Charge of the FBI’s Dallas division, said it took “years” to investigate the allegations.
“These executives conspired to commit multiple fraud schemes in order to mislead investors and the SEC, with multi-million dollar losses,” DeSarno said. “One of the FBI’s goals is to investigate corporate fraud in order to protect market integrity and investor confidence in the U.S. markets.”
Shortly before the four were convicted, UDF IV alerted shareholders to what it said was an “unsolicited tender offer” made by hedge fund NexPoint Diversified Real Estate Trust — or a hostile takeover. The press release asked shareholders to vote against it.
In 2016, hedge fund Hayman Capital Management and its founder, Kyle Bass, accused UDF of running a Ponzi scheme. Bass began shorting the stock of one of the funds in 2015, and then Hayman disclosed its findings to federal regulators.
UDF then sued Hayman and Bass in civil court, alleging that his accusations harmed its business.
According to a Jan. 24 press release from UDF, Greenlaw resigned as a trustee of two of the trusts, and a management shuffle put new leadership in place for several of the funds.
The press release also indicated that at least two of the executives found guilty would be appealing.
All four were required to make restitution, and that money was placed in a fund to pay victims. The U.S. Attorney’s Office estimates that there are about 30,000 people who invested in the funds that may be entitled to restitution.
To keep up with developments on the case, victims should go to the Justice Department webpage devoted to it. It will also provide information on how to submit a victim impact statement, which can be emailed to [email protected].
Prosecutors are requesting that broker-dealers and financial advisors who offered UDF III, IV, and V to their clients notify investors of this information as well.
Sentencing is scheduled for May 20.