February 19, 2016- Grapevine, Texas
The FBI raided the offices of United Development Funding (UDF) yesterday causing the shares of its largest fund United Development Funding IV to fall over 50%, before trading was suspended. In December 2015 UDF IV was trading at over $17. At the time of this writing it is trading at just over $3.
UDF IV 90 Day Chart
UDF is based in Grapevine, Texas, and was founded in 2003. The company sells shares to investors and loans the money to real estate companies. Over $1 billion has been raised by UDF from mostly individual investors, many of which are older retired individuals who purchased the UDF real estate investment trusts (REITs) seeking safe, dependable fixed income.
The Wall Street Journal (WSJ) published an article earlier this week that highlighted risks related to the UDF business model, including the following:
- UDF IV Loans are Concentrated Geographically– while also operating in North Carolina, South Carolina and Florida, 99% of the UDF IV portfolio consists of loans made to borrowers in Texas, which is contrary to representations made to investors that UDF IV has portfolio diversification by submarket and loan type. Closer examination reveals that 68% of the loans are in the Dallas area, the WSJ reports.
- UDF IV Loans are Concentrated to Single Borrower– 67% of its loans are to a single borrower, Centurion American Development and its affiliates.
- UDF III Loans are Concentrated Geographically– 86% of its loans are secured by Texas properties.
- UDF V Loans are Concentrated Geographically– 100% of it loans are secured by properties in Texas.
Recovery Option for Investors Who Suffered Losses on UDF
Brokers have a duty to make suitable recommendations to investors. You may be able to recover damages from the brokerage firm that sold you the investment if the recommendation was not suitable for you taking into account your age, health and level of financial sophistication.
Brokers also have a duty to conduct an independent due diligence review of investments before offering the product for sale.
Call to discuss how you may be able to recover damages through FINRA arbitration, a process much more expedient & efficient than court litigation.
Rex Securities Law , with offices in Boca Raton, FL, and Austin, TX, provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney.
Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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