At Hayman Capital, we attempt to identify market inefficiencies and invest around opportunities created by those inefficiencies. Last year, we took a short position in United Development Funding (UDF) IV. Our research showed that UDF exhibited characteristics consistent with a Ponzi scheme, the size and scope of which exceeded a billion dollars.
The Securities and Exchange Commission (SEC) describes a Ponzi scheme, in part, as “an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.”
This is consistent with, in many ways, how UDF operates:
After years of mismanagement, the UDF structure has begun to implode. Evidence of UDF’s dire situation includes a series of defaults, bankruptcy petitions, lawsuits, key resignations – including that of UDF’s audit firm, a key UDF director, and the CFO of UDF’s largest borrower – followed by UDF’s own overdue admission that it has been the subject of an SEC investigation since April 2014.
Today, as a consequence of mismanagement and concealed losses, UDF faces significant bankruptcy risk, which would leave its shares virtually worthless.
The research on this website exposes how a Texas real estate developer built a billion dollar house of cards and why it is now on the verge of collapse. If you take the time to review the facts on this site, we believe you will come to a similar conclusion.
J. Kyle Bass
Chief Investment Officer and Principal
Hayman Capital Management L.P.