In early July 2018, UDF announced that it had settled a SEC investigation that had started in April 2014. UDF agreed to pay $8.3 million in fines and disgorgements, and its executives agreed not to violate the securities regulations named in the settlement. The SEC complaint is quite a document, and the link to it is here. In it, the SEC states, among other allegations, that UDF used $67 million of UDF IV investor funds to make distribution to UDF III investors, failed to disclose the nature of multi-phase projects and that some loans were actually on unimproved raw land parcels rather than entitled projects under development, and it failed to disclose impaired loans.
The UDF letter to investors (linked to above) quotes Hollis Greenlaw, CEO of UDF IV, who states, “We believe it was time to put this matter behind us and that this settlement is in the best interest of UDF and its investors.” UDF’s SEC issue may be over, but I don’t think its legal troubles ended with the SEC settlement. The SEC investigation started in April 2014, but in a separate action in February 2016, the FBI raided UDF’s offices and UDF executives were served with grand jury subpoenas. I did not read anywhere in the SEC settlement filing or UDF’s press release about the grand jury / FBI investigation. I searched the internet and found no filing or news stories on a resolution to the grand jury / FBI investigations. Do these investigations just end without a public notification? If the investigation is sill ongoing, I imagine the FBI either found on its own or would have interest in some of the Factual Allegations in the SEC settlement filing.
And, as a periodic reminder, UDF funds still have not filed financial statements since the third quarter of 2015.