United Development Funding IV, the Texas
REIT hit by anonymous allegations late last week that it was operating like a Ponzi scheme, provided fresh details Monday on an unnamed
hedge fund or funds that it claims have been illegally distorting its share price for its own benefit.
In a Securities and Exchange Commission filing, UDF IV said it was the victim of a type of securities trading scheme known as a “short and distort,” in which an investor builds up a significant short position in a stock “with the intention of unlawfully manipulating” its shares. In this instance, the goal of the “short and distort” was to create a negative perception about the company through Internet posts.
Last Thursday, Harvest Exchange, an online professional network for investors, published an anonymous report about UDF titled: “A Texas-Sized Scheme: Exposing the Darkest Corner of the
REIT Business, United Development Funding.” The
REIT has $1.3 billion of assets on the books of various REITs and real estate private placements, including UDF IV. “The UDF umbrella exhibits characteristics emblematic of a Ponzi scheme,” according to the anonymous post.
UDF shares went into a freefall after the post was published. The
REIT's share price on Thursday dropped to $10.10 from $17.53, a decrease of 42.4%. Shares fell further on Friday, closing at $8.55, down 51% for the week.
On Tuesday afternoon, UDF's share price had recovered slightly. Shares were trading at $9.40.
The short position in UDF shares has risen dramatically in the past year, according to the company. UDF's short position at the end of November was more than 4.1 million shares, while at the end of December 2014 the company had a short position of about 59,000 shares, according to the filing.
“Consistent with a short and distort scheme, the posts about UDF have appeared on Internet sites and contain misleading statements, speculation and rumors,” according to the filing. “The statements clearly demonstrate a lack of understanding of the residential development project life cycle, which typically involves multi-phase master planned communities and the related financing structures.”
A UDF spokeswoman, Stacey Dwyer, did not return a call on Tuesday for comment.
