Fraud Convictions Stand For UDF IV Executives – This Major Shareholder Wants The Board Out

Earlier this year, the U.S. Supreme Court declined to review the fraud convictions of four former United Development Funding Income Fund V (UDF IV) executives. In light of this, major shareholder NexPoint is now calling on fellow shareholders to oust the current board of trustees.

NexPoint is an alternative investment advisor and one of the largest shareholders in UDF IV. The firm is sending a letter to shareholders, many of whom are "mom and pop" retail investors, urging them to vote out current independent trustees Lawrence Jones, Philip Marshall, J. Heath Malone and Steven Finkle.

To replace them, NexPoint proposes Paul Broaddus, Edward Constantino, John Good and Julie Silcock. 

While the current board states in its own recent letter to shareholders that NexPoint is pursuing "a self-interested campaign at the expense of all UDF IV shareholders," NexPoint believes that a years-long lack of oversight has left shareholders with a de-registered, illiquid stock and no plans to restore the eroded value of UDF IV shares.

For several years, UDF IV failed to file quarterly and annual reports, resulting in the stock being delisted by Nasdaq and deregistered by the Securities and Exchange Commission (SEC), as well as failing to hold shareholders’ meetings.

Now, after NexPoint petitioned a court to order a meeting to be held by Dec. 31, an annual shareholder meeting is expected to be held in the fourth quarter of 2024.

In 2022, a federal jury convicted UDF CEO Hollis Morrison Greenlaw, Partnership President Benjamin Lee Wissink, CFO Cara Delin Obert, and Asset Management Director Jeffrey Brandon Jester of ten counts, including conspiracy to commit wire fraud affecting a financial institution, conspiracy to commit securities fraud, and securities fraud. They were sentenced to a combined 20 years in federal prison.

U.S. Attorney Chad Meacham stated, “UDF executives shuffled money from one fund to another without disclosing the comingling to investors or regulators.” The convictions were upheld by the Fifth Circuit, citing an "avalanche of evidence," and the Supreme Court declined to review the case.

NexPoint alleges the management team was able to carry out their fraud for years under the current board’s watch. The board then authorized the use of millions of dollars of shareholder money to defend the management team in court and to pay the management team’s $7.2 million SEC disgorgement.

“Even after the management team was sentenced to prison, the board maintained the status quo, allowing the advisor to continue to collect millions of dollars of YOUR money in advisory fees — while making no effort through offset or otherwise to recover advanced fees from the advisor and its management team,” NexPoint wrote in its letter to shareholders.

The upcoming shareholder vote will be a crucial moment for UDF IV, potentially reshaping the company’s governance structure. The outcome of this vote carries broader implications for investor protection and corporate accountability within the real estate investment trust industry.

TMX contributed to this story.

Featured photo by Anne Nygård on Unsplash.

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