SEC v. United Development Funding III, LP. et al., Civil Action No. 3:18-CV-01735-L (N.D.Tex.)
Current Status
On October 4, 2021, the Court approved the Securities and Exchange Commission’s (the “SEC”) proposed distribution plan (the “Plan”). The plan is attached to the Court’s order, available directly below. The Distribution Agent is administering the Plan.
Order Approving a Distribution Plan
Case Overview
The Civil Action
The SEC instituted this action (the “SEC Action”) by Complaint filed on July 3, 2018 in the federal district court for the Northern District of Texas (the “Court”) against Defendants United Development Funding III (“UDF III”), UDF IV, Hollis Greenlaw, Benjamin Wissink, Theodore Etter, Cara Obert, and David Hanson. In the Complaint, SEC alleged that from at least January 2011 through December 2015, the UDF family of investment funds (“UDF”) used money from UDF IV to pay distributions to investors in in UDF III and to pay down UDF III loans, without adequately disclosing to investors, among other things, the use of funds. The SEC further alleged that UDF caused UDF III to pay its investors at least $67 million of distributions using funds from UDF IV. The SEC alleged that this use of UDF IV funds to pay down UDF III loans and to make distributions to UDF III investors was not adequately disclosed in the annual reports on Forms 10-K filed by UDF III and UDF IV during that period. The SEC alleged that the Defendants, variously, violated of Sections 17(a)(2) and (3) of the Securities Act of 1933 and Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-13, and 13a-14 thereunder.
The UDF Fair Fund, the Tax Administrator, and the Distribution Agent
The matter has since been resolved against all Defendants. By final judgments entered by consent on July 31, 2018, the Court ordered the individual defendants to pay, in the aggregate, $8,275,000.00 in disgorgement, prejudgment interest, and civil penalties. The SEC has since collected this monetary relief in full and holds over $8.2 million in an interest-bearing account at the U.S. Treasury’s Bureau of Fiscal Service that it now seeks to distribute. The Court has established a fair fund pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 [15 U.S.C. §7246(a)] (the “UDF Fair Fund”) so that collected civil penalties can be distributed along with the collected disgorgement and prejudgment interest. Accrued interest, and any amounts directed to the UDF Fair Fund by administrative or Court order, or otherwise, will be added to the UDF Fair Fund.
By Order dated July 16, 2019, the Court appointed Miller Kaplan Arase LLP as Tax Administrator (the “Tax Administrator”) and authorized the SEC to pay all taxes and tax administrative costs and expenses without further Court order. Separately, by Order dated May 28, 2021 (the “DA Appointment Order”), this Court appointed Strategic Claims Services (“SCS’) as Distribution Agent and authorized the SEC to pay SCS’s administrative fees and expenses without further Court Order. You can review and download copies of the TA Appointment Order and DA Appointment Order through the “Important Documents” tab on this website.
The Distribution Plan
On July 27, 2021, the SEC filed with the Court a proposed a distribution plan (the “Proposed Plan”) that sets forth the method and procedures for distributing the assets of the UDF Fair Fund to investors harmed by the conduct alleged in the Complaint. On August 3, 2021, the Court issued an Order to Show Cause pursuant to which individuals and entities who held limited partnership interests in United Development Funding IV (“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 from January 1, 2011 through December 31, 2015, inclusive, or other interested parties, had until September 30, 2021, to object to the Proposed Plan. 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. On October 4, 2021, the Court approved the Proposed Plan.
Contact Information
You can contact the Distribution Agent toll-free at (855) 379-9007; by emailing info@UDFFairFund.com; or by mailing a letter to:
UDF Fair Fund
c/o Strategic Claims Services
600 N. Jackson St., Ste. 205
P.O. Box 230
Media, PA 19063