United Development Funding IV (fka UDFI)

[Phaedrus77]

Sure, but you’ve still got 3 days to put your name in for this year. Somebody needs to run against these clowns.

[Enterprising Investor]

Maybe next year?

[Phaedrus77]

From the bylaws regarding shareholder nominations:

that in connection with the Trust’s first annual meeting after July 22, 2020, or in the event that the date of the annual meeting is advanced or delayed by more than 30 days from the first anniversary of the date of the preceding year’s annual meeting, notice by the shareholder to be timely must be so delivered not earlier than the 150th day prior to the date of such annual meeting and not later than 5:00 p.m., Central Time, on the later of the 120th day prior to the date of such annual meeting, as originally convened, or the tenth day following the day on which public announcement of the date of such meeting is first made.

The announcement was made on 8/31, so the deadline is 9/10…or this Sunday.

Call me crazy, but I bet they purposefully didn’t put the notice on their website until yesterday rather than the day the PR was released.

Since nexpoint is engaged in litigation with them, it can’t even nominate trustees.

[Davlund]

I see IV and V are getting the same quarterly dividend as in the past or should I say the same return of capital as in the past!

[Phaedrus77]

Shareholder meeting is Dec 15th. Not sure why this isn’t also posted on UDF’s news page. It was apparently released last Thursday.

https://www.globenewswire.com/news-release/2023/08/31/2735753/0/en/United-Development-Funding-IV-Announces-Third-Quarter-Distribution-and-Date-of-Virtual-Annual-Shareholder-Meeting.html

[Runaway27]

Anybody else get the "Dear Shareholder" letter stating the audit and value of UDF V at $3.90 a share and thanking us for out continued F..king..I mean support?

[Jh5142]

The stock was driven down to less than $2 from $17 when, it appears, the asset value is above $10 per share.

There's a reason www.udfexposed.com website was taken down around the time that UDF published audited financials that countered the 'UDF IV is a worthless Ponzi like scheme' thesis.

Seems to me like a potential problem for those who profited by the decline well below asset value. Much of the info contained in udfexposed appears to have been incorrect. And, based on some court filings, that info was aggressively marketed.

[Phaedrus77]

I recently set up an account at CTT auctions.

UDF IV sold between $2.40 and $3.04 per share from June - December of 2022.

I wonder why UDF “opportunistically” paid $5.75/share when it repurchased 11,813 shares in 2022. Maybe they can explain this at the annual meeting…

Anyone want to bet those repurchased shares belonged to one of the felons?

[ofirm]

one of the things going over here is running the statue of limitation by those of used monies not belonging to them.
if you show that the trusties would not sue their executives, you extend the statue of limitation in certain cases.

[Phaedrus77]

Yes, but the Insys case is the equivalent of the UDF Trustees suing the felons to recoup the legal fees, not a shareholder suing the Advisor.

I hope shareholders elect new trustees (assuming a meeting is actually held), but it’s not a given.

[ofirm]

This is actually a very important judgement. once management is changed, the management entities (who are Delaware corporations) will be
very volunerable to a lawsuit from the new management.

[Phaedrus77]

Must be nice to have someone actually looking out for shareholders.

[Enterprising Investor]

Insys founder Kapoor should repay $6 mln for failed legal defense, judge rules (8/18/23)

By Dietrich Knauth

Aug 18 (Reuters) - Convicted Insys Therapeutics Inc founder John Kapoor should repay his bankrupt opioid manufacturer about $6 million in legal fees that the company paid for unsuccessful criminal defense, a U.S. bankruptcy judge ruled on Thursday.

Kapoor was convicted in 2019 of conspiring to bribe doctors to prescribe the fentanyl spray Subsys and defraud insurers into paying for the drug. He was released from prison in June after serving two years of a 5-1/2 year sentence.

Arizona-based Insys, which filed for bankruptcy in 2019, advanced $5.97 million to pay Kapoor's criminal defense attorneys, as required by the company's bylaws and a separate indemnity agreement with Kapoor.

But Kapoor was not entitled to the defense for any "knowingly fraudulent or deliberately dishonest" misconduct, according to an opinion by U.S. Bankruptcy Judge John Dorsey in Wilmington, Delaware.

Dorsey sided with bankruptcy trustee William Henrich, who was appointed to pursue legal claims and recover assets for the benefit of Insys's creditors. Henrich argued that Kapoor's conviction meant that he was not entitled to a legal defense funded by the company.

Dorsey rejected Kapoor's arguments that his defense was partially successful and his attorneys at the law firms Paul, Weiss, Rifkind, Wharton & Garrison and Ropes & Gray also performed work that benefited the company.

Kapoor hired Paul Weiss in 2016 in response to investigations launched by the U.S. Departments of Justice and Health & Human Services, and he retained Ropes & Gray after being indicted on criminal charges in 2017.

Dorsey did not issue a final order, saying that the bankruptcy court does not have final authority to rule on matters of state law, like the interpretation of indemnity agreements and company bylaws. But he recommended that a federal judge in Delaware award the full reimbursement to Insys.

Eric Madden, an attorney representing the trustee at Reid Collins & Tsai, said that Henrich was pleased with the decision and would continue to pursue claims against Kapoor for the broader damages that he inflicted upon Insys and its creditors.

"This is only the beginning of holding Kapoor accountable," Madden said Friday.

Attorneys for Kapoor did not immediately respond to a request for comment.

Kapoor is the highest-level corporate executive convicted at trial of crimes related to the opioid epidemic that has killed hundreds of thousands of Americans in the past two decades.

Kapoor unsuccessfully appealed his conviction to the 1st U.S. Circuit Court of Appeals, and the U.S. Supreme Court declined to review his case in 2022.

The case is Insys Liquidating Trust v. Kapoor, U.S. Bankruptcy Court for the District of Delaware, No. 21-50557.

For the Insys Liquidating Trust: Morgan Menchaca, Eric Madden and Michael Yoder of Reid Collins & Tsai

For Kapoor: Peter McGivney and Michael McDermott of Berger Harris; Richard Pedone and Mark Knights of Nixon Peabody

https://www.reuters.com/legal/government/insys-founder-kapoor-should-repay-6-mln-failed-legal-defense-judge-rules-2023-08-18/

[Phaedrus77]

Shareholder meeting intended to be held in Q4. Rest of the letter is more fluff.

https://udfonline.com/wp-content/uploads/2023/08/2023-UDFIV-ShareholderCommunication-Aug15-FINAL.pdf

I see they filed another appeal in the Nexpoint case. Delay, delay, delay.

[Phaedrus77]

UDF V released its financials. BV is about $3.90 per share.

It has one loan outstanding. The loan was supposed to mature on 7/31 but is in the process of being extended to 6/30/25.

Maybe we’ll get an annual meeting announcement next.

[REITInvestor58]

Technically they can apply to have shares quoted in the Pinks (which is not nearly the same thing as a "listing" on a formal exchange). Practical issue for them is they have to find a sponsoring broker-dealer and a sponsoring law firm. Once shares begin trading again, they become liable for the information they disseminate (or do not disseminate), and broker-dealers and law firm take on potential additional liability as well.

[Enterprising Investor]

Michael Best: OTC Markets Guide

https://www.michaelbest.com/portalresource/OTC-Markets-Guide_Michael-Best-Securities-Team

[Jh5142]

I believe they could list on the OTC Pink:

https://www.otcmarkets.com/corporate-services/pink-market

[TruthSheperd]

Are they still spending UDF funds on legal fees? I'm hoping 2023 will not have ridiculous G&A expense.

[REITInvestor58]

http://www.ca5.uscourts.gov/opinions/pub/22/22-10511-CR0.pdf

Criminal convictions affirmed!

[REITInvestor58]

There is zero chance of re-listing. To re-list, UDF IV would have to file a Form 10 with the SEC and that Form 10 would have to be declared effective. To meet the financial reporting requirements under the Exchange Act, they would need a minimum of two years of balance sheets and income statements that comply with Regulation S-X. Also, the auditor would need to be a PCAOB registered accounting firm. The audited statements they released a week ago do not come close to compliance. Moreover, to properly present two years of income statements, the auditor would have to effectively audit the beginning balance sheet for the 2021 year, and it would have to test impairments during 2021. Finally, they would have to present comparative interim statements for the six months ended June 30, 2023. I don't see them doing any of that. Eisner Amper couldn't get there, and I suspect most other PCAOB firms will not get there. Client acceptance procedures will focus on the criminal convictions, Stacy Dwyer's continued involvement with the company while she was there during the period of the prior investigation, Phil Marshall's SEC enforcement issue and the circumstances surrounding the de-registration in August 2020.

[Davlund]

Wasn't there supposed to be hearing of some type in late July? We are about as late in July as you can get, or were they talking '24? And Runaway27, me and a couple buds feel your pain, but we are still in IV.

[Runaway27]

What I will say is that after investing over 100k in UDF III, IV and now stuck in V my broker filed bankruptcy and fled, I heard about all the cruises and incentives that he got along with the outings with Hollis and company, he got paid to go to Houston on several occasions, never have I felt so ripped off in my life, luckily I got out of 3 and 4 unscathed… not the same with V.

[ofirm]

You are mixing multiple things here:
1. Book value in 2015 could have included fees paid to brokers to lure in investors. they could have
included 100% of accrued interest for all loans (assuming that 100% of loans were money good).
2. Bass was accusing the fund of being a ponzi scheme. no such thing as ponzi like - either there is
actual economic activity to generate actual income or not. if you said 20% of portfolio of loans was
a scheme - that would be different. he painted with a wide brush all the loans. he went into lengths
to misinform investors about the loans and their collateral as well.
3. The FBI did run cover for the Bass short and he employed an ex fbi worker in the same office of the
fbi that was handling the case. they both sat in the office and sent vanishing messages to the traders
of the fund. are the fbi office people lying - yes. if they admit they ran an op for a friend that works for
Bass they would be fired.
4. Are the UDF managers crooks - yes they are. the 2008 episode of taking loans from an old fund
changing the rate to 1.75% per year once the market crashed was a theft. that should have been it
to send them packing. that was breaking of any duty (even in an lp in Delaware with no duties that
would be way too far).
5. UDF IV partnerships should be hidden value as the collateral is probably at historic costs until
land is sold in pieces.
6. money was lent at 13% plus various bonuses, but there was the Centaurion interest rate
"adjustment" to 7% from 13% on some loans - what is some loans - who knows. how much was the
write off - who knows. if you have cross collateral agreement, how do you get to this kind of
agreement? who knows. things defy logic here at times.
7. big question - does the fact that audited financials are published mean that no more inflated g&a
in order to desguise outsized legal fees? who knows.

[Enterprising Investor]

Five Dallas-Fort Worth communities among top-selling in the U.S. (7/25/23)

By Mitchell Parton

Five residential developments on the outskirts of Dallas-Fort Worth were among the top-selling master-planned communities in the nation in the first half of 2023, according to a new report.

Communities in Aubrey, Little Elm, Northlake, Argyle and Celina made RCLCO Real Estate Consulting’s mid-year list. Aubrey’s Silverado, a D.R. Horton development, was the highest-ranked local community, tying for No. 19 with a community in Ave Maria, Fla., with 355 home sales.

The research firm previously ranked Silverado as the nation’s sixth top-selling development in 2022. Residents have been drawn to Silverado for its relatively low price points, the location and the community, The Dallas Morning News reported last year.

The other four communities were all developed by Hillwood Communities, the Dallas-based development company founded by local real estate mogul Ross Perot Jr.

These North Texas communities made the list:

Silverado (No. 19), Aubrey, D.R. Horton, 355 sales

Union Park (No. 37), Little Elm, Hillwood Communities, 263 sales

Pecan Square (No. 42), Northlake, Hillwood Communities, 230 sales

Harvest (No. 46), Argyle, Hillwood Communities, 220 sales

Lilyana (No. 48), Celina, Hillwood Communities, 216 sales

Texas had 22 communities on the list, topped by Katy’s Sunterra near Houston at No. 3 with 669 sales. Sun Belt cities dominated master-planned home sales this year, with The Villages in Florida at No. 1 with 1,960 sales.

RCLCO compared sales of each community in the first half of 2023 to the first half of 2022. Sales in Silverado dropped 41% compared to the same period a year ago. Sales were up in the other D-FW communities. Celina’s Lilyana did not report sales in the first half of 2022.

At the end of 2022, RCLCO reported that sales among the top-selling communities declined by 20% compared to 2021. The company said some of that decline has since recovered after builders used incentives such as discounts and mortgage-rate buy-downs to boost sales.

Over half of developers and master-planned community representatives reported strong optimism for sales in the second half of the year, according to the research firm’s survey. Local builders sold a record number of homes in the spring as the inventory of existing homes remained low while sellers held back on listings due to still-elevated mortgage rates.

[Phaedrus77]

$18 to $13 may just be a 27% decline in value, but shouldn't book value have grown? If book value was $18 in 2015 and it grew at 10% per year, then it'd be ~$36 in 2022. If they didn't pay any distributions and were loaning money at 13-15%, there's no reason it shouldn't have grown at that rate.

UDF's second biggest borrower (Buffington) went bust, not because of Bass, but because he refused to keep playing UDF's game of extend and pretend (i.e. he wouldn't borrow even more money from UDF V).

UDF lied to its auditor about Buffington's ability to repay, which led to an SEC investigation and a levy of fines on UDF executives.

The audit firm was fined $250k(?) and the two auditors were sanctioned for the poor quality of the audits (pre-Bass).

The FBI raid wasn't due to Bass, unless you think every FBI agent was lying.

The top execs weren't merely charged with crimes, but were actually found guilty and sentenced to prison.

UDF presumably refused to let its new auditors continue their work once UDF figured out that it would hurt them at the criminal trial.

UDF went from paying ~$1.70 per share in distributions to $0.26 per share (return of capital, not distribution of income).

UDF couldn't even pay a $1.25 million bank loan on time. As the prosecutor rightly pointed out, if this business was so successful, why couldn't they pay off such a small loan?

The TX real estate market has been red-hot for almost a decade now, and apparently is still strong. And yet over 1/2 of UDF's loans currently aren't accruing interest. Yeah, the financials were audited, but we really have no idea how solid the book value actually is.

I'd say Bass was spot on. I believe the SEC and FBI were investigating before he got involved. If he would've just kept his mouth shut, he would've saved himself a bunch of wasted time/energy & legal fees.

[Jh5142]

I don't recall Hayman's claims that UDF was overvalued by 27%.

If these audited numbers are accurate then book value for UDF IV went from $18 to $10; down 44%

If you add back $60 million in legal and other fees, and $30 million in distributions the book value would be $13. I'm guessing fees and distributions were even higher.

$18 to $13 is an approx 27% decline in value. Adjusting for probably higher actual legal fees the decline is even less than 27%.

They argued it was a Ponzi that was essentially worthless.

If the audited numbers are accurate then one would have to wonder about the allegations and level of interference from Bass.

[Jh5142]

udfexposed.com is still down

There were a lot of published reports on that site that would be wrong given the audited financials.

[ofirm]

look, all jokes aside, when Centaurion needs to move ownership of parcells to a builder they have to
release the lien and for that to happen, they need UDF to release and thats the checking mechanism.
If udf released liens without payment, forensic investigator can find it out very quickly. bragging aside,
there is limited ability for frauds in this kind of business.

[TruthSheperd]

Curious has anyone checked what the latest pricing is on the secondary market? Last I checked you were lucky to get $2. Curious if audit changed things for the good or bad.

[Jh5142]

It's good to see the audited financials. Happy to see current management publish this information.

Assuming these statements are accurate it's encouraging there is $10 per share of value.

Hayman shorted at 17 and covered under 3 and there is still 10 per share of value... not sure if that is a good or bad set of facts for Hayman. I wonder if the stock would have ever traded in the low single digits without interference.

www.udfexposed.com website seems to be down.

[Phaedrus77]

In one of his emails (posted on UDF’s website), Bass says these guys are worse than Madoff…cocaine, hookers, Rolls Royce and Iranians.

Seems like the trial skipped over the good parts.

I also seem to recall Bass’ claim that Moayedi was bragging to people that he really didn’t owe all that money to UDF. Again, makes me wonder how he escaped prosecution.

[ofirm]

Moayedi is anything but incompetent. I believe there was a document in a lawsuit which stated
how he was basically bragging that the revenues of the projects are his money. that line of thinking
should explain some of the liquidity picture. not everything, but some.

[Phaedrus77]

So does that mean Moayedi is just incompetent since he apparently can’t repay his loans in this booming market?

I’m somewhat surprised UDF hasn’t offered to loan Trump money to build another casino in Atlantic City.

[Davlund]

Does the release of the audit get us any closer to a shareholders meeting, establishing a BVPS and getting UDF IV relisted on an exchange? Or are we going to see the delay game continue to run its course? Regardless, I'll more than likely ride it out at this point and see where it goes.

[Enterprising Investor]

I’ve lived in Dallas County all of my life.

Currently, Rockwall County - smallest one in Texas - is less than one mile away to the east and Collin County is a couple of miles to the north.

When I hear of people moving to Hunt County, I cringe. There are only two highways in Rockwall County that pass over Lake Ray Hubbard.

There are tens of thousands of acres of land scattered throughout North Texas being converted from farm and ranch to better uses. The same can be said for Central Texas. Lots and houses are big.

The problem is no one can build homes fast enough.

[Enterprising Investor]

Development booms on outskirts of Dallas-Fort Worth as sprawl swallows small towns

https://www.star-telegram.com/news/business/growth/article276987113.html

[Phaedrus77]

Doesn’t that beg the question if the market is strong, why are >50% of the loans on non-accrual status?

[Enterprising Investor]

The Dallas-Fort Worth Metroplex remains very strong. If you live within 15 miles of downtown Dallas and want to sell an existing home and buy a new home 60 miles out, it is still a wash.

Austin has slowed a little.

[ofirm]

I assume that most of the loans will be repaid. (they need $60M out of $120M in 23). I also assume
that the commitments are to complete projects already liened to them. regarding Centaurion wiggle
room - cross collateral is a powerfull thing. as far as sales - we are talking here end of 2022 and
the sales and prices may not be as good as in 2020 - 2021, but its still a pretty good situation vs a
few years ago. that is my impression from what I read in other places.

[Phaedrus77]

The management fee is based on equity + cost of treasury stock.

That seems kind of ridiculous that we pay a management fee on treasury stock.

The advisors should put us all out of our misery and have the trust tender for all its shares at book value. After the tender, the advisors would still earn the same mgmt fee even though the trust has no assets.

And with no assets, the advisors would have to do even less work than they currently are doing.

Talk about a win win situation.

[REITInvestor58]

For liquidity, you are assuming 23 and 24 maturing loans are repaid. I am extremely skeptical that that will happen. North Dallas new home sales are down and a number of these Centurion development projects are floundering. Not sure Mehrdad has ability to refinance UDFI out. My bet is there are a number of defaults resulting in extensions and further reductions in terms. G&A should be down to a pittance since they are no longer public. This is unlikely to get dramatically better anytime soon.

[Phaedrus77]

We should all remember to send Kyle Bass a thank you card for finally allowing an audit to be completed.

[ofirm]

I think that they have well over $100M of loans due to be repaid in 2023 & 2024 and together with
$50M of cash they are in a good position to be good on their commitments while they are basically
financing the completion of their liened projects. the big issue here is that there were no specifics
regarding the $23M of G&A. how do you skip over that without deep analysis? that is the bulk of
your expenses. another issue is that the management fees are continuing while the management
reneged on its obligation to provide audited financials and annual meeting in which the manager
can be let go. how does anyone get a contract in which he/she gets paid while they are breaking
the contract and not letting the investors opt out of the contract?
The G&A can be assumed as higher than normal at 2015 and that is $7.5M. if we take that for
2015 - 2021 (7 years) with a 3% per year growth, you should see:
$7.5M X 1.03 ^ 3.5 X 7 = $59.2M. instead (based on the sept. 2022 unaudited) we have $110.27M.
In 2022 we have $23M instead of $7.5M. thats another $15.5M. that all total $65M (the number
that was mentioned as legal fees in the Maryland lawsuit?).
I believe there are more issues, but these ones are the most visible ones to me.

[Phaedrus77]

Yep, in the audited financials, the implied 12/31/21 notes receivable balance was $8,534,766 lower than was shown on the unaudited financials. The interest receivable was $40,206 higher.

The 2021 letter said notes receivable - related party were approximately $9.1 million. If you take that number and add/subtract the 2022 activity in related party notes, you get a balance of $13,730. The 2022 balance sheet shows a balance of $19,589 (after adding back the $349 reserve taken in 2022).

So apparently the 12/31/21 related party notes balance was adjusted up $5,858 and the non-related party was adjusted down $14,393. Or maybe UDF classified a note as non-related party and the auditors considered it a related party.

Advisor fees were $5.6 million for the year (Footnote H). The management fee is 1.5% of the equity, so that implies the average equity was $5.6 / .015 = $373,333. And yet beginning equity was $338,926 and ending equity was $326,372.

WTF kind of adjustments are included in the Advisory Agreement such that the equity used to calculate the mgmt fee is 10-15% higher than the actual equity? Any chance we can extend the felons' prison terms by 10-15%?