UDF IV, a troubled real estate investment trust that had its shares stop trading in February after its offices were raided by the FBI, said on Tuesday that it had conducted an independent investigation of its business and found no evidence of fraud.
Formerly a nontraded REIT marketed by Nicholas Schorsch's defunct Realty Capital Securities, UDF IV was listed on the Nasdaq in June 2014. In December, an anonymous post on an investor website claimed that UDF IV, a lender to real estate developers, was operating like a Ponzi scheme.
It was later revealed that hedge fund manager Kyle Bass, founder of Hayman Capital Management, was shorting UDF IV. Company shares plunged for months before they stopped trading at $3.20.
The trust's audit committee in December commissioned the investigation by the law firm Thompson & Knight, along with a group of forensic accountants from an unnamed firm. According to a press release, the independent investigation team found “no evidence to substantiate allegation levied by Hayman Capital Management of the operation of a Ponzi scheme.”
UDF IV's
statement also said that there was “no evidence of fraud or misconduct on the part of the trust, its management, or its adviser.” However, the internal investigation “did identify areas to be considered for remedial action,” according to the statement, which gave no detail about that aspect of the investigation.
Hayman Capital stood its ground on Wednesday morning.
“UDF's internal investigation was commissioned by the same board members who provided oversight of the company throughout the period in question, and the resulting press release provides only vague statements claiming no wrongdoing, without depth or documentation,” Hayman Capital said in a statement. The hedge fund “stands by the extensive, fact-based research presented on our website, UDFexposed.com — specific facts that UDF continues to counter with unsubstantiated generalities.”
UDF IV, which has $684 million in assets, has not issued financial results for the last quarter of 2015 and the first quarter of this year. Its auditor, Whitley Penn,
resigned in November, a few weeks before Mr. Bass claimed the company was operating a Ponzi scheme, and has not been replaced.
Phillip Marshall is the chair of UDF IV's audit committee. He is also the chair of the audit committee for United Mortgage Trust, another REIT that operates under the UDF umbrella and brand. He and another member of the UDF IV audit committee, Steven Finkle, are trustees of UDF V, a nontraded REIT.
A company spokesman, Jeff Eller, said he could not comment about the manner in which the internal investigation was completed. The investigation focused only on UDF IV and not the other handful of REITs and funds sponsored by UDF, he said.
