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one of the emails in the discovery a long time had nexpoint saying
that they will buy assets at 10c on the dollar (in email conversation
with the Bass group). they know the market, so I would think that
as of 4 years ago you had $11.
maybe its a dumb question, but IV is supposed to get audited financials
while Bass has been doing his best to prevent UDF from getting new
auditors and any auditor knows well Bass will try to destroy his/her
firm. something has to give, right?
My understanding most loans (if not all) whose proceedings were used
to pay back the debt were simply not extended. due to the cross
collateral nature of them, Centaurion simply had to find alternative
financing and the loans were paid in full. if I had to connect dots
over here, I would have guessed that Bass was trying to prevent
Centaurion from being able to refinance the debt. he was hoping to
destroy Centaurion as well and maybe to take over some of their
assets as well. I have not seen anything in discovery regarding that
period yet, so its only my thought. in any case, I am sure that
today's builders' environment would render the collateral value
as pretty high vs loan balances. these are mostly advanced
projects (well on their way towards development) in a market that
is looking for such projects.
Bass made very specific claims. anything that says the entities are
sustainable makes his claims false. based on preaching those claims
Mr Bass convinced people to sell their units at a reduced price. if
the collateral for the loans made is solid (as he made private claims
to potential investors for a private fund to buy those "bad" loans) -
Bass has a problem. it gets worse for him as the UDF loans deal
mostly with one to two large developers - but they are part of a
cross collateral contract. that means that individual loan value
are less important. what is more important is the solvency of the
borrower (which explains why Bass tried to take Centaurion down -
to cover for its false claims). Bass's interference with financial
borrowing and agreements with lenders (lenders confirm it) based on
what seems as false information while knowing its false is a huge
problem. I think Mr Bass did not know when to cut hisa losses. you
have here multiple UDF entities and each has its own damages, but
the only public one is IV. public entity is a problem for many
reasons. one of them is that the SEC will eventually have to do
something about it.
They are not offering those securities. having a shelf registration
allows you to quickly get securities sold on the market and when
there are warrants, you need to be able to provide the shares if
the warrants are exercised.
The SEC was insisting on quater to quarter audited financials until
2018 and UDF IV was proposing reports starting from 2018. the issue
is that by 2018 there is an actual value of the Buffington loan, so
value is pretty clear. proper reserves would be a discussion, but
when debts are miniscule its less of an issue.
Did Bass not create an entire compaign to deter auditors from
certifying UDF IV (or other UDF funds) financials? getting non
audited might have a valifity issue in court.
An agent of the government acting as an agent for a private fund
doing illegal things to begin with is not really potentially
illegal. detering new auditors from approaching UDF (their funds
actually) is as bad as it goes. the worst thing is that they
probably got caught. would love to see their defense arguments.
These are mostly the Edelman related emails which Bass was trying to
convince the court were all related to legal advice. UDF fought for
that part of the discovery since 2018. the key here is that the
strategy Bass employed was not connected to being right or wrong.
it was all done in order to reach a certain resolution regardless
of the facts. the FBI & SEC guys seem to be working in tandem
towards the same results and these emails help to understand the
amount of coordination they had with Bass.
UDF have good lawyers so they make a strong case, but we do not have
the defense story yet. I believe that, if nothing else, these
government people should have a problem with the government itself.
I think the chances look pretty good for the IV and rest of the funds
as far as damages and for the old equity holders the prospects of
damages also look decent.
very interesting reading. one of the interesting things is that finally
we are getting a more complete breakdown of the damages done to IV
business. this is important as that is the relevant part of current
equity holders.
1. if the equity holders (of that time) that acted on
the (supposed) false information provided by Hayman are considered
as lost their money due to fraud, you are talking $200M more or less.
that is for actual permanent losses. that belongs to the specific
trades during those times. that is opposed to market value loss.
2. Loss of reputation, future income streams etc. of UDF itself - has
no connection to current IV equity holders.
3. Loss of opportunities for other udf funds - no connection to IV
equity holder today.
4
Look at the filling - it says that 0.1M out of 7.1M shares were sold.
Many hedge funds lose AUM and have to sell positions as a result.
Many sales are not due to believing or not in the position - its a
need for cash to return to investors.
https://courtsportal.dallascounty.org/DALLASPROD/DocumentViewer/Embedded/95NO0rKunl0EN1bvkXZHLUMpwzIT74m44E2M0Jf9Fv3xTjVEreKopJ7eLfdIU7PS0yYPXB0KgP19WD-F6hh5pA2?p=0
if you read that filling (as I did), there are claims about new funds
enabling distributions for an older fund. Mr Bass thinks it shows ponzi
scheme. if it does, many private equity funds are ponzi schemes as they
raise money in new funds in order to take over maturing assets from
older funds. the question about ponzi schemes is if the assets given
in return are real and have the economic value stated. Surely to think
that a judge would forget that point is insulting.
Mr Bass have made some valid claims in the past about executive
activities with the assets of certain older fund, but needless to say,
Mr Bass did not short those funds involved or the executives. he
shorted IV which he does not mention as being taken advantage of.
I guess all is thrown at the wall and we will see what sticks.
I am pretty sure that Mr Bass saying that UDF is basically in
liquidation mode will make the judge laugh out loud. the entire
point of the alleged damages to UDF and its funds is that Mr Bass
took illegal actions that basically prevented them from initiating
new business. over time projects are developed and what was lent
against bare land gets recycled as construction loans for the
development and later on, as bonds get issued, money gets paid for
water infrastructure etc. as projects reach certain sales milestones
things move on, but UDF basically have very little access to outside
capital.
Due to the cross collateral security contract between Centurion its
pretty much impossible to show that UDF is a scam. the problem with
that claim is that even if this guy really went to the feds, any
immunity would not void an nda with regards to this lawsuit.
Unless the feds go and claim that centurion is a fraud and they
never purchased the lands they got money for or that they stole
the proceeds of the sales AND there is a conviction by the time a
jury trial happens here, Bass has a very big problem.
I think that the subject is about as of then. it is not very relevant
to the case if land values went up or down since then (and we do have
the issue of Bass preventing UDF from getting auditors...). what will
matter is how honest mr Bass was in his actions. I think discovery
has been telling us just how much honesty was in his actions.
If Mr. Bass would have not continued beyond the short and distort,
damages would have more or less been capped at the lost value for
equity holders. doing more harm on purpose could even be more
costly.
This is weird. one of the things a grown up needs to know is when
to say enough is enough. Mr Bass does not seem to act like a grown
up. you make a very costly error (I am being really polite) - get
it right, admit, pay some and move on.
One has to wonder if Mr Bass actually believe what he says here. if he
is, I feel sorry for him, but I doubt he actually believes that. based
on the discovery from years ago - he knew exactly what he was doing.
How can you file audited results when Bass scares off all the
auditors? part of the problem is that Nexpoint has been one of
Bass's partners in crime and was now trying to take over the
lawsuit by taking over the management of UDF IV management.
There are plenty of problems with UDF's handling of the situation,
but this was an attempted clean up by a Bass ally.
From what I have seen so far, Bass will have quite the task to show
why he called V & IV ponzi scheme. obviously, we have only seen one
side but the courts did reject Bass's arguments with distain so far.
If Bass can not make a coherent case to why what he did was not just
a malicious attack because he could - he will be liable for most or
all of the value lost at the time. the other side is the damage to
the value of the business by systemically destroying the ability to
conduct business. even under what UDF paid the SEC $8M of fines, I
do not see much relevance to the claims made by Bass.
Thank you. I was not an investor in UDFI at the time and I hope those
who were will get most of their losses back if not more.
The targeting of the auditor is something else. Mr Bass is some kind
of a person so full of himself that he can not even tolerate the
idea he might be wrong. we are looking at lack of empathy from all
involved. surely this will sit very well with a jury. is this how
they would want their retirement money to be dealt with?
Here is another one which actually tells you the requests for
productions and Hayman declining.
https://courtsportal.dallascounty.org/DALLASPROD/DocumentViewer/Embedded/Hrxsg-qMWdCKXagbTg_ruTM_caW1r5TT6zvlGAYek5mpxs87JKbcHhTk6atzmwEnyVJGbBsK7GJdLEh3Z0IFCg2?p=0
I do not know what you are referring to, but these pages tell me that
the major items of discovery have not been given by Bass yet. it is
easy to see how damaging those requested documents will be (at least
potentially) and why Hayman / Bass would be fighting tooth and nail
to not disclose them in discovery. good thing that they do not get
the last say in the matter.
see the bellow link from 4/16/21
https://courtsportal.dallascounty.org/DALLASPROD/DocumentViewer/Embedded/Hrxsg-qMWdCKXagbTg_ruZuDHSygG1Ls_15EhiHbw5gGXYMSs-UH7zuYiMZT0nItFnhhsvglk4rnOgsxth-n0w2?p=0
according to this the discovery of orders 1 & 5 has not been even close
to fully done. Hayman is still trying to waste time. we all know what
they do not want to show (despite the fact that some of it was
already disclosed from other emails).
I was trying to find it and did not see it. please provide a link
or something. I did see that the UDF managed to get most of the
300+ previously "privileged" documents to not be marked as such,
but I have not seen any new documents on the website yet.
I was looking at the court portal and what I saw was preparation for
a jury trial on 1/18/22. Banks will be deposed. the rest was the
regular Bass tactical diversions away from the merit of the case.
It will be interesting.
based on 13% rate and 1.25 years, 1.165 x 733 = 850. means $16M was
repaid assuming no new loans. I assume lines of credit from udf
are given while development takes place. that would indicate that
long standing loans are declining with development loans exist
now (shorter term in nature).
These loans are specific against projects with a cross collateral
clause. projects take years to develop and sell and those lands
are usually a bank land and not held for sale. that means that
12% - 13% accumulates on most loans. some are repaid as projects
get built and sold. that takes a long time.
thanks. will try it today. lets see what prices people want.
I agree with you about the way management treated unitholders is not
right, but we have to look at the whole picture:
1. the collateral over here is subject to a lot of assumptions in order
to come up with a value. since those lands take years to become lots
and years to be finished and sold and since time is money (discount
rate determines value) and since you have to apply discounts due to
the builder being involved together with a third party financing
company (UDFI can not make the construction loan due to no funds for
that) - you have an issue.
2. would you want to be the auditor who would make a valuation fight
with Bass in court regarding YOUR opinion? I would not. that is
(my guess) a big reason why nobody would sign off on the books while
there is an ongoing litigation regarding the validity of the books.
3. argument #2 has a twist to it (or so I understand): I understand
that UDF suggested to basically skip years 2015,2016 and just do the
books as of 2017 and forward. this way the problematic periods that
are related to the litigation would be skipped and later on filled
after the lawsuit is done. the sec refused (for logical reasons)
and here we are. Bass thinks he has a card by leaving the fund unit
holders in limbo and one of his semi partners comes along and offer
$1.10 per unit - how generous. if the latest part could be proven
as coordinated - that is material for yet another lawsuit...
4. here is what we can tell - some of the collateral is being
developed and those loans should be converted into cash. actually
its a decent part of the parcels that have been developed in parts
so far. we also know that instead of selling loans to payoff debt,
UDFI simply did not rollover some loans and made the developers
get the cash. its horrible for UDF, but good for NAV of UDFI. they
probably liquidated many of the over secured loans in this way, but
they got their debt balance to close to zero by 2017 without a huge
hit to their NAV. they did have the one write off we know off.
Bottom line: UDF did not present UDFI as what it is and people did
not understand the true proposition and HOW LONG IT TAKES TO MAKE
MONEY USING THE TRUE BUSINESS MODEL. once you get over that, you
should realize the value should still be there. I wish I had a way
of buying more units even at $1.50. that is my opinion.
Phaedrus77 - a smoking gun would be showing that the legal advice
from the lawyers was about covering your tracks. you do not cover
your tracks unless you have things to hide (meaning that you know
what you are engaging in is illegal).
The lawsuit here is not about UDF inflating the value of their loans
by a few tens of millions. its about UDFI being a ponzi scheme or
not and weather Mr Bass made false allegations in order to induce
selling at low prices and if he worked to drive UDF out of business
in order to buy the assets on the cheap.
If you have a problem with the framing of the questions - you should
approach mr Bass and ask him why he made those allegations.
for UDF settlement would be a way to move forward with their business.
Bass knows that. while there is a cloud over UDF they can not
create new funds to manage and another thing to keep in mind is that
UDF can not settle anything that has to do with loss of unit value.
That part is owned by the unitholders of back then. that is also
the majority of the damage. I think UDF are very emotional in
their fight and for Bass its mostly a matter of ego at this point.
I do not see a way any judge will say what he did is ok based on what
was in his emails. free speech is to voice opinions - what is clear
is that his opinions were contrary to his claims and that he
knowingly lied about the facts to the unitholders. that is market
manipulation - not free speech.
I believe this is going to set a scary precedent for people.
plea deal would be for criminal proceedings. this is a civil
proceeding (as far as I can tell) and I would think at some
point there will be some negotiations. at what point?
good question.
That court really needs to tell us what it thinks...
I guess Mr Bass never heard of cutting losses...
Interesting statement is that the long term value in the fund
EXCLUDING potential restitution should be higher than $1.1 and
that the price is not reasonable.
My point is that the board can not say anything definitive as there
are no audited financials, but the value that remains in the fund
right now is way more than $1.1.
I think Nexpoint is looking to get units from tax selling. I doubt
they will get too many, but each is their profit.
I hear what you say and UDF is certainly not a innocent bystander.
The trial over here will be about the actual actions of the Bass
side vs what they presented to the markets. their actions (knowledge
of which comes from discovery)shows that they believed there is
substantial value in the loan portfolio while they presented a
case for no value to the unitholders. it boils down to that.
Now, regarding what you say:
1. you talk about the remedy (compensation) which will be monetary
only for the fund and its management for damage to the business.
2. the other thing you say is who is to fault with the loss of
value of the shares / units.
Lets start with the loss of value for the unit holders:
The auditors were in trouble for a single loan being kept on the books
at full value instead of being impaired. the fund claims that if it
was not for the misrepresentations, there is a good likelihood of
being able to get full recovery for that loan as well.
The disclosures missing which caused the fund management to pay the
fine to the sec: my take is that the sec did not say that there was
no economic value in the fund - which is what Bass claimed. udf now
explains their business model differently than they did in the past
financial results (and prospectus). that is what they paid those
fines for doing.
Those two facts do not really help Bass. the point is that Bass made
very concrete claim While knowing the real story WITHOUT DISCLOSING
even its identity (while much of the value destruction was done).
People can argue about facts and what they mean. in order for that to
happen, the facts need to be known and Bass deliberately created
misinformation while gaining monetarily from that to the detriment
of the unitholders. its hard to know what would have happened in a
different scenario, but its pretty clear that with the steep interest
rates Bass was paying for borrowing units, even a 6 month wait would
have been very material to their short position. that gave them a
clear incentive to do the wrong thing. the fact they were talking
about gaining control of the underlying assets / loans at a fraction
of the cost to the fund.
Lets think of that for a minute: you have $400M debt and the plan is
to sell all the loans for, lets say, $250M. that leaves $150M for
CODI plus whatever other obligations the fund would be charged with
doing and can not complete. not only is the downside not limited to
zero, but its very much unknown. that would be a pretty good reason
for anyone who knows the law to run away. that is pretty damming if
you ask me.
Now, lets talk about the damage to the fund itself: that is pretty
obvious that the fund got evidence that their funding bodies were
affected by the misrepresentations that the Bass group created AND
DISTRIBUTED IN A TARGETED WAY to disrupt the fund's financing
sources. now you show the results and you have a pretty much clear
cut case.
Finally: there is a very large issue with five years of not obtaining
certified results with clear opinion. that can probably be explained
in many ways, but the question here is how is it relevant to
2015 when these allegations were made. does UDF not want to show just
how extensive was the damage to the fund due to forced liquidation?
very possible. is it legit? that is a matter of a different case
(the case Nexpoint is trying to make in order to compel UDF to show
certified results). keep in mind that (according to discovery)
Nexpoint was approached by Bass as part of the original scheme and
was opining on what they can do as part of the plan. they, either,
are not coming with clean hands to the table.
keep in mind there are multiple buckets for that $1B:
1. damage done to the management firm and its reputation.
2. damage done to the unitholders through the price manipulation
(that is actually the biggest chunk and usually is demanded
directly through a class action - I do not see one here)
3. damage to the operations of the fund (directly done to the
equity value and not the price).
combined value might be close to $1B, but I would guess that
bucket 2 would be ~$12 per unit ($450M or so).
bucket 3 would be ~$9 per unit ($333M or so).
bucket 1 would be the rest.
bucket 1 has nothing to do with the fund holders and bucket 2 is
for the holders of units at the time of the initial claims.
bucket 3 is the relevant part for the equity holders at the time
of the lawsuit resolution.
Anyway, that is what sounds logical to me. Delaware has this
common sense legal rule that whoever suffers the injury can claim
compensation for it and I believe most states adopted that approach
a long time ago.
here is the good news: in the discovery they said they would be
interested in the collateral at 10-20% of book value. since
you had in 2017 appx. $400M of debts covered, that means that
assets (which were at $1B pre debt paydown) were liquidated at
more than 40% of book value. now they are offering $1.1 per
unit, which by the same logic would yield $5 - $11 per unit
leftover value. that is pre lawsuit resolution. going further,
lets assume $3 of dividends were paid since the mess started.
if you use $17 of assets as a starting point - $3 of dividends -
( $5 - $11 leftover value ) = $3 - $8 of reduction in value in
nominal terms. the other dynamic part is that the loans were
made at 13% per year and lets assume 4% management fees +
expenses. that leaves 9% per year. assume 1-2% of credit loss
and assume 7% net expected return (outside of participation in
project profits).
using $17 as 2016 and 9% with $3 of dividends over 2 years (for
simplicity) you have 5 years of lost accumulation of 7% per year
as well. at the end of 2017 you would have seen $16.35 per unit
and $20 by now. I am also ignoring the return on investment -
interest on the lost leverage. that is a 4% on $400M of loss as
well.
for simplicity: the total adjusted loss of value here is:
$6 - $11 per unit + loss of spread of 4% over leverage ($16M on
$400M at 2016) + loss of profit participation in projects.
total: $8 - $13 per unit. multiply by 37M units and that is a big
number. that is total loss and the question is how much could
be attributed to Hayman. to be determined.
sorry that I have been writing things that you guys already discussed
years ago. I will refrain from posting any more. thank you.
look at what happened to the former auditors. you think anyone else
wants to go that route? what you do not know is the conditions
before they paid their debts. how much should have been recognized
as potential loss provisions (even if reversed later) and those
things have huge implications on the financial conditions. what
were supposed to be the disclosures etc.? its not rocket science,
but its safe to assume that much ammunition would have been
provided to mr Bass if a proper annual would have been done.