UDF management claims that its business model is sound.
Using cash from new investors to repay existing investors is not sound.
According to the SEC, “a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.”
UDF has been the subject of a
“non-public fact-finding investigation”
being conducted by the SEC,
according to UDF disclosures.
"[T]he court denies the UDF Defendants’ Motion to Dismiss Plaintiffs’ First Amended Complaint (Doc. 47), and denies Defendant Mehrdad Moayedi’s Motion to Dismiss Plaintiffs’ First Amended Complaint (Doc. 49). The court and its staff have expended numerous hours and scarce judicial resources in ruling on Rule 12(b)(6) motions. The court directs all Defendants not to file any further Rule 12(b)(6) motions."
“Plaintiffs [UDF] sued Defendants [Hayman Capital and Kyle Bass] for business disparagement, tortious interference with contract, tortious interference with business relations and civil conspiracy. Plaintiffs hereby nonsuit all of Plaintiffs’ claims against Defendants."
UDF executives used $65M of investor money between 2011 and 2015 to pay previous investors, The Dallas Morning News reported. They used another $7.4M to funnel money between two funds between 2014 and 2015.
The quartet of UDF executives was found guilty by a jury in January of taking investor money for one of the REIT's five funds, UDF IV, and using it to pay off the obligations of a previous debt fund, UDF III, when borrowers from the latter fund were slower than anticipated making payments on their loans. The company and the four defendants agreed to pay an $8.2M Securities and Exchange Commission fine without admitting or denying wrongdoing in 2018.