United Development Funding IV

Robbins Arroyo LLP: United Development Funding IV (UDF) Misled Shareholders According to a Recently Filed Class Action

Robbins Arroyo LLP announces that a class action complaint was filed in the U.S. District Court for the Northern District of Texas. The complaint alleges that officers and directors of United Development Funding IV (NASDAQGS: UDF) violated the Securities Exchange Act of 1934 between June 4, 2014 and December 10, 2015, by making materially false and misleading statements about United Development’s business prospects. United Development operates as a real estate investment trust (“REIT”) in the United States. It primarily originates, purchases, participates in, and holds for investment secured loans made directly by the company or indirectly through its affiliates to persons and entities for the acquisition and development of parcels of real property.

United Development Accused of Operating Ponzi-like Real Estate Investing Scheme

According to the complaint, on December 10, 2015, an anonymous author under the pseudonym “Investor for Truth” published a report about United Development on the Harvest Exchange, an investment website. The report alleged that the company was engaging in a “Ponzi-like real estate scheme” and that it was part of a larger family of REITs under the United Development Funding umbrella, whereby the company allegedly had an unstable funding mechanism that used new capital to fund distributions to existing investors, potentially leaving investors financially vulnerable should the funding structure unravel. The report also alleged that United Development provided liquidity to several of its affiliates, further exacerbating the problem and perpetuating the scheme.

Additionally, visits to actual development sites, which serve as collateral to the company’s development loans, showed that there was no development and the collateral was still non-income producing, raw land, as much as 10 years after loans were issued. The report further noted that on November 19, 2015, the company’s independent registered public accounting firm, Whitley Penn LLP, declined to stand for reappointment as the auditor for the company. Then, on December 10, 2015, after the close of trading, the company disclosed that it has been the subject of a nonpublic fact-finding investigation by the U.S. Securities and Exchange Commission since April 2014. On this news, the company’s shares fell $2.60 per share, or more than 23%, to close at $8.55 on December 11, 2015.

United Development Shareholders Have Legal Options

Concerned shareholders who would like more information about their rights and potential remedies can contact attorney Darnell R. Donahue at (800) 350-6003, or you can complete the form below and we will contact you directly.

 

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