Unlike other non-traded UDF funds, UDF IV is unique in that, while it was initially distributed as a non-traded REIT, in June 2014 UDF IV went public and listed its shares (NASDAQ: UDF, now OTC: UDFI). UDF IV operates as a real estate investment trust (“REIT”), focusing on originating, purchasing, participating in, and holding investment secured loans for the acquisition and development of parcels of real property as single-family residential lots, as well as the construction of new homes and the development of mixed-use master planned residential communities.
By late 2015, following allegations of misconduct by a Dallas hedge fund manager, UDF’s share price suffered a severe decline. The allegations raised concerned the overall UDF business model and called into question whether the UDF enterprise was propping up poorly performing investments in earlier funds with new investor capital raised from later fund vintages.
In late November 2015, each of the UDF funds, including UDF IV, filed an 8-K with the SEC in order to disclose the fact that UDF’s accounting firm had declined to stand for reappointment as auditor. Shortly thereafter, in early December 2015, UDF IV publicly disclosed that it had been under investigation by the SEC since April 2014. In early February 2016, the FBI, acting under a search warrant issued by the U.S. District Court for the Northern District of Texas, conducted a search of UDF’s Grapevine offices, reportedly seizing numerous paper and electronic documents.
In May 2017, NASDAQ announced that it would be delisting the common shares of UDF IV from its exchange. The delisting came as little surprise, given the fact UDF IV has not filed quarterly or annual reports since late 2015. According to its most recent filing with the SEC, UDF IV remains unable to timely file its required quarterly report. Further, UDF IV has reiterated that it continues to work with a new auditor in order to “… complete and file all necessary periodic reports as soon as practicable….”
Various third party institutional investors continue to make tender offers to purchase UDF IV shares. Most recently, in early 2017, third party MacKenzie Capital Management, LP (“MacKenzie”) offered to purchase up to 1,550,000 common shares of UDF IV at a purchase price equal to $1.25 per share. For investors who participated in the most recent MacKenzie tender offer, it appears they would have sustained significant losses based on UDF IV’s offering price of $20 a share.
Before recommending an product to a customer, particularly a non-conventional investment which includes non-listed REITs, broker dealers are first required to perform adequate due diligence on that investment. In addition, brokers and broker dealers are required to perform a suitability analysis, in order to determine if the investment product is suitable for that investor based on his or her age, risk tolerance, net worth and income, investment experience, etc.
The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with non-traded REITs and other illiquid alternative investments. Investors may contact our office at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.