United Development Funding IV, the Texas REIT was operating like a Ponzi scheme

United Development Funding IV, the Texas REIT hit by anonymous allegations late last week that it was operating like a Ponzi scheme, provided fresh details Monday on an unnamed hedge fund or funds that it claims have been illegally distorting its share price for its own benefit.

In a Securities and Exchange Commission filing, UDF IV said it was the victim of a type of securities trading scheme known as a “short and distort,” in which an investor builds up a significant short position in a stock “with the intention of unlawfully manipulating” its shares. In this instance, the goal of the “short and distort” was to create a negative perception about the company through Internet posts.

Last Thursday, Harvest Exchange, an online professional network for investors, published an anonymous report about UDF titled: “A Texas-Sized Scheme: Exposing the Darkest Corner of the REIT Business, United Development Funding.” The REIT has $1.3 billion of assets on the books of various REITs and real estate private placements, including UDF IV. “The UDF umbrella exhibits characteristics emblematic of a Ponzi scheme,” according to the anonymous post.

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