A lawsuit containing factual allegations consistent with Hayman's research regarding the Shahan Prarie development will proceed against several UDF entities, the Fifth District Court of Appeals of Texas ruled on May 29, 2020. Megatel Homes III, LLC sued United Development Funding, L.P., United Development Funding II, L.P., United Development Funding III, L.P., United Development Funding IV, and United Development Funding Income Fund V.
“Megatel asserts that neither Shahan Prairie nor the Buffington Entities took any significant steps to develop the land made the subject of their contracts. Megatel further asserts the UDF Parties did not provide BHM, LAMP, or Scenic Loop with sufficient funds to perform their development obligations.”
“The Board is imposing these sanctions based on its findings that: (1) Powell and Babb violated PCAOB rules and standards in connection with the audits of the 2012-2014 financial statements of United Development Funding III, L.P., and the review of that issuer's Q3 2015 interim financial statements; (2) Lawlis violated PCAOB rules and standards in connection with the audits of the 2013-2014 financial statements of United Development Funding IV and the review of that issuer's Q3 2015 interim financial statements; and (3) WP violated PCAOB rules and standards by failing to design, implement, and maintain appropriate quality control policies and procedures.”
“The Board deems it necessary and appropriate, for the protection of investors and to further the public interest in the preparation of informative, accurate, and independent audit reports, that disciplinary proceedings be, and hereby are, instituted pursuant to Section 105(c) of the Sarbanes-Oxley Act of 2002, as amended (the "Act") and PCAOB Rule 5200(a)(1) against Respondents.”
Click here to view Megatel's allegations which are consistent with Hayman's research. Below is an excerpt from the pleading.
"For its part, UDF began operating as a Ponzi-like scheme, using freshly-raised capital in newer funds to pay investors in older funds. To implement this scheme, a newer UDF fund (e.g. UDF V) would loan money to Centurion—ostensibly for a specific land-development project—that Centurion would use to repay loans it had received from an older UDF fund (e.g. UDF III). The older UDF fund, in turn, used this money to pay distributions to its investors, thereby concealing the failure of the loans made by the older fund. Each new loan originated from a newer fund to pay an older fund generated millions of dollars in asset management and origination fees for the UDF Defendants, which starved the funding for development projects for which Megatel had contracted."