SEC v. United Development Funding III, LP, et al. Case No. 3:18-cv-01735-L (N.D. Tex.)
Oct. 6, 2022
On July 3, 2018, the Commission filed a complaint (the “Complaint”) against United Development Funding III, LP (“UDF III”) and United Development Funding IV (“UDF IV”) (collectively, “UDF”); as well as three voting members of UDF’s investment committee (collectively, the “Voting Members”): Hollis M. Greenlaw (“Greenlaw”), Benjamin L. Wissink (“Wissink”), Theodore F. Etter (“Etter”), and Cara D. Obert (“Obert”), as well as David A. Hanson (“Hanson”), the chief accounting officer of UDF IV. In the Complaint, the Commission alleged, among other things, that from at least January 2011 through December 2015, UDF used money from a newer fund to pay distributions to investors in an older fund, without adequately disclosing the use of funds and the nature and status of loans made to developers. More specifically, the Commission alleged that, in 2011, UDF IV began loaning money to developers of UDF IV projects who had also borrowed money from UDF III and directed the developers to use the UDF IV money to pay down separate UDF III loans, instead of using the funds loaned from UDF IV to develop UDF IV projects. Using these transactions, which were not adequately disclosed to investors, UDF was able to cause UDF III to pay its investors at least $67 million of distributions using funds from UDF IV. See Complaint.
On July 31, 2018, the Court entered final judgments against each of the defendants, in relevant part directing the aggregate payment of $8,275,000 in disgorgement, prejudgment interest, and civil penalties to the Commission (the “Final Judgments”). See UDF’s Final Judgment, the Voting Members’ Final Judgment, and Hanson’s Final Judgment.
The Defendants have paid in full and the Commission currently holds the funds in an interest-bearing account at the U.S. Treasury’s Bureau of Fiscal Services.
On July 16, 2019, the Court entered an order establishing a Fair Fund, so that the civil penalties, along with the disgorgement and prejudgment interest, collected can be distributed to harmed investors (the “Fair Fund”) and appointed Miller Kaplan Arase LLP as the Tax Administrator for the Fair Fund. See the Court’s Order.
On April 26, 2021, the Commission filed a motion for an order appointing Strategic Claims Services to act as Distribution Agent for the Fair Fund, to assist in overseeing the administration and the distribution of the Fair Fund in coordination with the Commission’s counsel of record, pursuant to the terms of a distribution plan to be approved by this Court. See the Commission’s Motion and Supporting Memorandum.
On May 28, 2021, the Court approved the Commission’s Motion and entered an Order appointing Strategic Claims Services as Distribution Agent. See the Court’s Order.
On July 27, 2021, the Commission filed a Motion for an Order to Show Cause, seeking the entry of an Order to Show Cause why the Court should not approve the Commission’s proposed distribution plan in connection with the Fair Fund. See the Commission’s Motion with its Attachments.
On August 3, 2021 the Court entered an Order to Show Cause pursuant to which individuals and entities that held limited partnership interests in UDF IV and/or the common stock of UDF IV that was traded on the Nasdaq Global Select Market under the symbol UDFI during the period January 1, 2011 through December 31, 2015, inclusive (“Potentially Eligible Investor”), or other interested parties shall by 11:59 p.m. EST on September 30, 2021, show cause, if there is any, why the Court should not enter an order approving the Proposed Plan. Objections must be made by written correspondence to info@UDFFairFund.com in accordance with the directions set forth in the Order to Show Cause here.
On October 1, 2021, in accordance with the Order to Show Cause, the Commission filed a Notice of No Objection, seeking the entry of an Order approving the Proposed Distribution Plan to govern the administration and distribution of the Distribution Fund. See the Commission’s Notice.
On October 4, 2021, the Court approved the Proposed Plan. See the Court’s Order together with the Plan.
On September 8, 2023, the Commission filed with the Court a Motion to Disburse $8,280,362.06 for distribution in accordance with the Distribution Plan. See the Commission’s Motion.
For more information, please contact the Distribution Agent: