NEWSDefrauded Shareholders Seek To Replace Board Of Troubled Maryland Real Estate Investment Trust
Sept. 5 2024, Published 1:21 a.m. ET
After the fraud convictions of four former executives of United Development Funding Income Fund V (UDF IV), a Maryland real estate investment trust (REIT), were upheld this year, one of its largest shareholders is seeking to replace the trustees who oversaw the fraud.
Alternative investment advisory firm NexPoint, one of the largest shareholders in UDF IV, is sending a letter to fellow shareholders, many of whom are "mom and pop" retail holders, calling on them to vote out current incumbent independent trustees Lawrence Jones, Philip Marshall, J. Heath Malone, and Steven Finkle.NexPoint is calling on them to vote instead for Paul Broaddus, Edward Constantino, John Good and Julie Silcock.
NexPoint says shareholders have been left with a de-registered, illiquid stock with no plans to restore share value after a years-long lack of oversight from the current board. The stock was delisted by Nasdaq and deregistered by the Securities and Exchange Commission (SEC), after the company failed to file quarterly and annual reports for several years, as well as failing to hold shareholders' meetings.
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.
"These executives conspired to commit multiple fraud schemes in order to mislead investors and the SEC, with multi-million dollar losses," Matthew DeSarno, Special Agent in Charge of the FBI's Dallas Division, said at the time of the conviction.
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The executives appealed to the Fifth Circuit, which upheld the convictions citing the “avalanche of evidence.” In May of this year, the U.S. Supreme Court declined to review the case, allowing the convictions to stand.The elaborate fraud, which took place over several years, was carried out under the current board’s watch, NexPoint said. The board further 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 current board of trustees in its own letter to shareholders dated Aug. 8, alleged that NexPoint is pursuing “a self-interested campaign at the expense of all UDF IV shareholders.”An annual shareholder meeting is expected to be held in the fourth quarter of 2024, after NexPoint petitioned a court to order a meeting be held by Dec. 31.
TMX contributed to this story.
