A Financial Industry Regulatory Authority arbitration panel has awarded eight retirement investors $1,019,211 in a Texas real estate investment trust case involving three United Development Funding (UDF) REITs. United Development Funding is made up of private and publicly traded investment funds that use investor money to give loans to land developers and homebuilders.
According to the claimants, IMS Securities, a Houston-based brokerage firm that is no longer in operation, and its chief executive Jackie Divono Wadsworth recommended through a third party that investors purchase retirement accounts in the:
- United Development Funding II
- United Development Funding III
- United Mortgage Trust
The investors accused IMS Securities of conspiracy, breach of fiduciary duty, fraud, negligent supervision and RICO violations. They contend that a non-party that the respondents supervised persuaded the claimants to invest in the REITs, which were not only very risky and illiquid investments but also, they were unsuitable for the investors.
IMS Securities was expelled by FINRA a few months ago.
Texas-based REIT Accused of Ponzi Fraud
It’s been nearly four years ago since the United Development Funding IV, which is a Texas-based nontraded REIT, came under fire over allegations that it was being run like a Ponzi scam. The claims came from a then-anonymous short seller that published them on the website Harvest Exchange. J. Kyle Bass of Hayman Capital has since been disclosed as the short seller. UDF IV, in turn accused the hedge fund manager of “creating a significant short position” and seeking to illegally profit by manipulating the REIT’s shares. Soon after, the FBI raided the United Development Funding office in Grapevine, Texas. The fraud allegations and the FBI raid, not to mention allegations of possible concentrated lending practices by UDF IV, caused shares of REIT to plunge.
In July, The US Securities and Exchange Commission announced that it was charging UDF IV, the UDF III, and a number of UDF executives with misleading investors by not telling them that it was using funds from the newer UDF IV to pay investors of the older UDF III. The UDF funds allegedly promoted up to 9.75% yearly returns, in addition to distributions, to prospective investors. Among those charged in the SEC case were UDF President Benjamin Wissink, CEO Hollis Greenlaw, Chairman Theodore Etter, CFO Caro Obert, and UDF IV chief accounting officer David Hanson.
Wissink, Etter, Greenlaw, and Obert settled the SEC’s case over their alleged involvement in misleading investors, but they did so without denying or admitting to the allegations. They will pay $8.2M in disgorgement, civil penalties, and prejudgment interest. Hanson will pay a $85K penalty for his alleged role in signing SEC filings that were “false.”
UDF Investor Fraud Lawyers
In the wake of the Ponzi fraud allegations against UDF, Shepherd Smith Edwards and Kantas, LLP (SSEK Law) has been meeting with UDF investors to help them determine whether they have grounds for a REIT fraud case. Our investor fraud lawyers work with investors based in Texas and throughout the US who invested in the UDF funds and sustained losses in the wake of the allegations.
Quite a number of broker-dealers recommended UDF REITs to investors. Our UDF investor fraud lawyers can help you explore your legal options for a possible broker fraud claim against the firm and/or its broker. Contact us today.