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UDF IV Delisted from NASDAQ; Issues Distribution Despite Delisting

United Development Funding IV (“UDF IV”) announced a distribution amidst a continuing SEC investigation and delisting from NASDAQ exchange.

On November 8, 2016, United Development Funding (“UDF”) announced that its public real estate investment trust United Development Funding IV’s board of trustees has authorized a cash distribution of $0.08 per share payable on November 28, 2016 to its shareholders.

Though UDF shareholders do not have much to celebrate,  this distribution presents some   good news given the storm the company has been through.  For example, most recently, in October 2016, UDF IV was delisted from the NASDAQ Stock Market and is now listed on the OTC Markets under the symbol UDFI.  It’s currently trading at $2.76 per share.

A week after being delisted from the NASDAQ exchange, UDF IV filed a Schedule 14D-9 with the SEC disclosing an unsolicited tender offer by SCM Special Fund 3, LP and MacKenzie Capital Management, LP to buy up to 1,550,000 common shares of UDF IV at $1.00 per share.

According to the UDF IV’s letter to shareholders, the $1.00 represents a steep discount on the latest reported book value per share of $16.63 at September 30, 2015.  However, there is some concern that this may further depress the value of common shares.

Silver Law Group has been monitoring the situation since March 2016.

UDF has undergone incredible scrutiny dating back to late 2015.  In December 2015, Hayman Capital Management principal Kyle Bass, anonymously at the time, posted a report and letter enumerating UDF business red flags and alleging it was being run like a Ponzi scheme.

While Bass later revealed himself and that he has a significant short position in UDF, the real estate finance company revealed after the anonymous post that it had been subject to an SEC investigation for over a year and a half.  Then, to make matter worse, the FBI raided UDF headquarters and left with stacks of documents.

Amidst the investigation and negative news, shares have plummeted from trading around $17.00 per share late in 2015 to the current $2.76.  Civil and criminal investigations remain ongoing.

UDF is a mortgage REIT that lends money to develop properties through its family of funds.  It has raised over $1 billion – $700  million in UDF IV alone – with a majority of that money coming from retirees, unsophisticated investors, and “mom and pop” investors.

RCS Capital, J.P. Turner, and Cetera Connection to UDF

A majority of the proceeds were allegedly raised by RCS Capital, a broker-dealer firm founded by REIT mogul Nick Schorsch.  Schorsch is the founder of AR Capital, the external advisor and co-sponsor of one of UDF’s funds.  Additionally, UDF has been tied to J.P Turner & Company, L.L.C. (CRD# 43177) as a sponsor of some of the now-closed firm’s yearly conferences.  This makes sense given Schorsch’s acquisition of J.P. Turner in 2014.

J.P Turner was promptly placed under the Cetera Advisor Networks LLC (CRD# 13572) in 2014 and then closed completely in July 2015, allegedly because of its poor reputation in the industry.  A list of other Cetera-owned brokerage firms can be found here.  Additionally, our firm has also compiled a list of other formerly Schorsch- and Cetera-sponsored REITs and business development companies (“BDCs”).

If you invested in UDF IV or any other United Development Funding products or were sold these or other unsuitable investments by RCS Capital, J.P. Turner & Company, or Cetera Advisor Networks LLC and any of its subsidiaries (Hyperlink to subsidiary blog), you may be entitled to recover some of your investment losses.

Please contact Scott Silver of the Silver Law Group for a free consultation at ssilver@silverlaw.com or toll free at (800) 975-4345 to speak to an attorney to find out how we may be able to help you recover some of your investment losses.  You owe us nothing unless we recover.

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