United Development Funding CEO Hollis Greenlaw and three other UDF executives have been charged with securities fraud and conspiracy to commit wire fraud.
Federal prosecutors allege that the Grapevine, Texas-based UDF executives conspired to defraud banks and unlawfully used investor money, according to an indictment filed in U.S. District Court for the Northern District of Texas. The indictment says that the scheme ran from 2011 through 2015.
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The heart of the indictment is the allegation that funds created by the defendants, which made loans to residential housing developers, were misused. When returns from one of the funds proved too little to pay investors back, the defendants allegedly tapped later funds to make those payments, rather than make new loans to developers from those later funds as they allegedly said they would.
UDF, which was founded in 2003, specializes in financing residential real estate development through various public and private funds. The company has loaned more than $1B to developers to buy and develop such projects such as Sendera, the Villages of Woodland Springs and The Highlands at Trophy Club, all Dallas-Fort Worth-area projects.
Paul Pelletier, Greenlaw’s lawyer, said in a statement that the charges were baseless and his client and the other defendants would be vindicated, Bloomberg reports. The other executives are Benjamin Wissink, Cara Obert and Jeffrey Brandon Jester.
Previously, the Securities and Exchange Commission sued UDF, making similar allegations. That case was settled in 2018 when UDF agreed to pay about $8.2M without denying or admitting any wrongdoing.
UDF and Greenlaw are also involved in a separate legal battle with hedge fund Hayman Capital Management. UDF alleges in a civil case that Hayman harmed its business operations by accusing UDF of being a "Ponzi-like scheme" while Hayman maintained a short position in the common stock of one of the UDF funds.
Hayman founder and Chief Investment Officer Kyle Bass characterizes the suit as harassment, telling Bloomberg he spared potential investors from putting money into UDF.
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