United Development Funding (UDF) and United Mortgage Trust (UMT) are Real Estate Investment Trusts (REIT) based in Texas. A REIT is a company that owns or finances income-producing real estate. REITs provide investors of all types regular income streams, diversification and long-term capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.

While most REITs are traded on major stock exchanges, most UDF and UMT are public non-listed private REITS

They are considered public because they have the minimum number of shareholders to be considered public. The two main types of REITs are Equity REITs and Mortgage REITs. Equity REITs generate income through the collection of rent on, and from the sales of, the properties they own for the long-term. Mortgage REITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.

In December, 2015, UDF’s stock plummeted after an anonymous short seller published a report on the investing website Harvest Exchange. In the published letter, a long list of suspicious activity led to the conclusion that there are significant questions about the legitimacy of the UDF structure and the financial condition of the companies. The report alleged that UDF and its subsidiary UMT had operated for years like a Ponzi Scheme.

The FBI raided UDF’s office in February of 2016 indicating the company had been under investigation for fraudulent activities. It was reported that the FBI agents were carrying boxes out of the company’s headquarters. The shares of the stock have fallen 54% and was last trading at $3.20 a share.

Kyle Bass, founder and principal of Hayman Capital Management, LP, launched a website also accusing the company of operating a “Ponzi-like real estate scheme.” He pointed out that UDF had raised over $1 billion for different public entities.

It partnered with the brokerage firm RCS Capital (RCAP) to raise money from retail investors (individuals who purchase securities for his or her own personal account rather than for an organization) for UDF IV. RCAP, along with many broker dealers, were paid commission fees for selling the REIT. Bass claims that the funds for UDF IV were used to provide cash for UDF 1 and UDF III. Currently, it’s believed that UDF V funds are being used to fund UDF IV.

Bass believes it’s the ordinary folks seeking a higher yield on their investment than they can get from a bank savings account who were being urged to invest in these non-traded REITS by their financial advisors.

Some of those ordinary investors are clients for whom and on their behalf I have filed a Statement of Claim with the Financial Industry Regulatory Authority against broker IMS Securities, Inc. Customers invested their life savings in these products at the recommendation of their brokers and lost. We are asking for reimbursement of their losses.

If you would like more information about REITs in general, Ponzi Schemes and United Development Funding or United Mortgage Trust, please contact me at: 313-962-7777 for a case evaluation.