Troubled Texas real estate investment trust United Development Funding IV on Tuesday afternoon said it had been hit with a double whammy.
According to a company press release, the Securities and Exchange Commission has issued a Wells notice against the firm, an indication that SEC staff has made a preliminary determination to possibly recommend an enforcement action against the company. Meanwhile, the Nasdaq stock market has delisted UDF IV shares, according to the company.
The UDF family of REITs have been in turmoil for almost a year. A hedge fund with a short position in UDF IV shares last December said the company had been operating for years like a Ponzi scheme. Then, the FBI in February raided the REIT's offices in suburban Dallas. At the time, Nasdaq halted trading of UDF IV shares at $3.20, down 81% over the prior 12 months.
Over the past several months, UDF IV has publicly stated it was working to file its 2015 annual report and its past three quarterly reports with the Securities and Exchange Commission in order to start trading again.
That never happened.
UDF IV, with $684 million in assets according to SEC filings, is a mortgage and development REIT. UDF branded REITs and private deals were high yield offerings, promising investors returns of 8% to 10%.
UDF IV plans to to appeal the Nasdaq suspension, according to the company. Meanwhile, certain individuals associated with the REIT and its adviser have also received Wells notices.
A Wells notice is not a formal allegation of a finding or wrongdoing, but a preliminary determination by the SEC that it may recommend a civil enforcement action or administrative proceeding against a company or individual.
In September, the company issued a press release that stated its continued listing on Nasdaq was on the condition that, by October 17, it become current in its quarterly financial reports with the SEC. That deadline passed Monday.
A spokesman for the company, Jeff Eller, did not return several calls to comment. The CEO of UDF, Hollis Greenlaw, did not return calls Tuesday to comment. A spokesman for Nasdaq, said it does not comment about specific companies.
Various UDF REITs, including UDF IV, have halted paying investors distributions over the past year.
UDF IV investors are in the dark about the current state of the company, which last filed a quarterly report and financial statement in November 2015. “It's not unexpected, and we are preparing to take more action," said Alan Rosca, a plaintiff's attorney with close to 200 clients who invested in various UDF REITs. "UDF did no service to investors for letting things hang for so long. " Advisers from independent broker-dealers sold UDF REITs to clients.
“I haven't heard anything from them in over a year,” said Kevin Gannon, president and managing director of Robert A. Stanger & Co. Inc., an investment bank that specializes in REITs. “The first priority as a public company is to get financial statements out. To renege on that promise is troublesome.”
“The company made loans against property,” he said. “You think that it would not be that difficult to figure out what's going on. Why aren't they able to monetize those loans and get appraisals on all the assets? The bottom line is to produce the financials.”
Based in the Dallas area, UDF IV was a nontraded REIT that listed on Nasdaq in June 2014. It was sold to investors from 2009 to 2013 at $20 per share.