Four executives from a North Texas REIT each face up to 25 years in prison after being convicted on multiple federal counts of fraud.
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United Development Funding CEO Hollis Greenlaw, Chief Financial Officer Cara Delin Obert, Director of Asset Management Jeffrey Brandon Jester and Partnership President Benjamin Lee Wissink were found guilty on Friday of all 10 charges each faced, the Dallas Business Journal reports.
The jury found that together, the UDF executives took investor money for one of the REIT's five funds, UDF IV, and used it to pay off the obligations of a previous debt fund, UDF III, when borrowers from the latter fund were slower than anticipated in making payments on their loans, DBJ reports. The defendants plan to appeal, said Paul Pelletier, who represented UDF and Greenlaw in court.
The scheme was carried out from 2011 to 2015, according to prosecutors, and had already attracted attention from federal authorities when the company and the four defendants agreed to pay an $8.2M fine to the Securities and Exchange Commission without admitting or denying wrongdoing in 2018.
A total of $65M was siphoned from UDF IV to pay investors in UDF III a return on their money and enrich the defendants, prosecutors alleged. Jones Day attorney Neal Stephens, who represented Obert, claimed in closing arguments that no UDF investors lost money as a result of the executives' actions, DBJ reports.
Upon the announcement of the conviction, representatives from UDF IV and UDF V, UDF's newest fund, announced in a press release that Greenlaw had resigned as a trustee from the boards of both funds. UDF Chief Strategy Officer and Chief Compliance Officer Jim Kenney was named acting CEO of both funds and named to the UDF IV board of trustees as managing trustee, while Stacey Dwyer, who served as UDF's chief financial officer until 2018 and in an untitled position at UDF since, was named acting CFO of both funds.
On Jan. 19, two days before the conviction, UDF IV issued a press release urging investors to vote against what it called the 12th hostile takeover offer from hedge fund NexPoint Diversified Real Estate Trust. Another hedge fund, Hayman Capital Management, accused UDF of running a Ponzi scheme in 2016 while holding a short position in the company, for which UDF sued Hayman and its founder, Kyle Bass. In December, a judge sanctioned Bass and his attorneys for their conduct against UDF's outside counsel in the case, which is still ongoing.
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