United Development Funding's family of investment funds have reached a settlement with the U.S. Securities and Exchange Commission to resolve all outstanding issues related to the agency's probe that started in April 2014.
The regulator earlier filed a complaint against United Development Funding III LP, United Development Funding IV and certain individuals affiliated with the entities for allegedly misleading investors of its funds. From at least January 2011 through December 2015, the United Development Funding family allegedly used money from a new fund to pay distributions to investors of an older fund, without properly disclosing the use of funds as well as the nature and status of the loans it made to developers. In addition, United Development Funding IV allegedly failed to adequately disclose the nature of the multiphase projects in its loan portfolio.
Meanwhile, the five executives named in the lawsuit agreed to settle with the agency. United Development Funding CEO Hollis Greenlaw, Chairman and Partner Theodore Etter, CFO Cara Obert, Chief Accounting Officer David Hanson and Executive Vice President Benjamin Wissink were ordered to pay a total of about $8.3 million in civil monetary penalty, disgorgement of profits and prejudgment interest.
The United Development Funding family has agreed to a consent order that enjoins the companies from future violations of federal securities laws. The defendants neither admitted nor denied the allegations of the complaint.
The companies said in a statement that they will continue to pursue their litigation against Hayman Capital Management LP, a hedge fund that disclosed a short position in the company and alleged that the company was operating like a Ponzi scheme. Their lawsuit against the Hayman funds accused the hedge fund of making disparaging statements that led to "a sudden and severe loss of credit" that the United Development Funding companies needed to conduct real estate development and acquire land.