Company Flagged By Kyle Bass As A Ponzi Scheme Was Just Raided By The FBI

Tyler Durden's picture

Over the years, Hayman Capital's Kyle Bass has gotten heat for his trade recommendations, with "virtual portfolio" pundits accusing the Texan of being a "one-hit wonder" ever since his subprime trade, with little else to show for his repurtation.

That is no longer the case: after making a strong case over the past 3 months that Texas-based REIT United Development Funding IV is nothing but a Ponzi scheme - a name he has been short -  the stock tumbled, jumped, and then tumbled again.

However, after its most recent plunge moments ago which led to its being halted, we doubt it will rebound again.

 

The reason for today's most recent, and surely final crash: an FBI raid of UDF's Texas office.

As NBC DFW reports, the FBI on Thursday raided the office of a Grapevine company that has financed more than $1 billion in residential development across Texas, but some say the company operates as a Ponzi scheme.

Agents were seen carrying boxes out of United Development Funding on the 1300 block of Municipal Way and loading the boxes into large trucks.

 

UDF has acknowledged it has been under investigation by the U.S. Securities and Exchange Commission and said it was cooperating, but added no specific charges of wrongdoing have been made.

 

The FBI raid was the first indication that a criminal investigation into the company was under way.

A hedge fund founded by Dallas investor Kyle Bass, Hayman Capital Management, claims in a website that, "UDF exhibits characteristics consistent with a Ponzi scheme."

Two weeks ago, UDF’s chief executive officer, Hollis Greenlaw, tried to defend his company when he posted an online message to shareholders accusing Hayman of making “false and misleading statements about our company.” We doubt he will have any witty rejoinders this time:

FBI spokeswoman Allison Mahan confirmed that agents were at the firm's offices conducting a law enforcement operation, which she declined to characterize as a search warrant.

UDF stock is currently T1 halted, and we doubt it will reopen ever again.

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venturen's picture

should have donated to the Clinton Slush Fund

E.F. Mutton's picture

The Clinton Crony Card - don't shear sheep without it.

knukles's picture

Kyle musta made the right campaign contributions

WillyGroper's picture

Been a helluva lot better had it been knuckles...BRASS.

Boris Alatovkrap's picture

Boris is read headline and thinking, what organization is operate large Ponze scheme. Is dissappoint that FBI is not raid Socialist Security Administration…

NoDebt's picture

Ackman's been trying to get HLF shut down for years now.  Bass works faster, I guess.

Silky Johnson's picture

The first warning should have been the guy's name. Hollis Greenlaw? It's got a very cunty ring to it. Other names you should never give money to, Jayden and Tanner, 100% cunt.

KesselRunin12Parsecs's picture
KesselRunin12Parsecs (not verified) Silky Johnson Feb 18, 2016 4:23 PM

Ponzi schemes using US nickles never work unless you work for BRINKs

tarsubil's picture

The HLF blueprint of having your salesforce be a ponzi behind a legitimate looking operation seems to last longer and get away with it in the end. Other companies have done it and didn't get in big trouble when they ultimately went bankrupt.

booboo's picture

My SS is held in a secure " Lock Box" so there is no worry where mine is. Al Gore said so

Son of Loki's picture

Shadiness in residential real estate?

 

That's odd.

eatthebanksters's picture

Never happens...especially in the loan business...

FreedomGuy's picture

They had probably just finished a three-part home flipping course using OPM.

zeronetwork's picture

So what happens if I have a short position in a company and company goes bankrupt or trading is halted?

mosfet's picture

And Trump instantly comes out to side with the FBI and against individual privacy. It doesn't take much to see that he's all talk and zero conviction.

Sivad UK's picture

No he didn't. He answered a question but that wasn't the question he answered. He was asked if Apple should unencrypt the phone. He said yes. If you read the briefs - Apple offered to do just that in house but the FBI refused.

And to be honest both sides are focusing the press battle on a tertiary issue. Apple don't wanna lose the moral high ground by saying they'd offered to do it already if they didn't have to release code to the FBI - and the FBI are using the quasi terrorist attack to try and win public opinion and force Apple to create a backdoor...


In reality - if politics weren't in play here - both sides would wait until the discovery phase and have a judge approve a process the defence could agree to for Apple to extract the data in house and turn it over to FBI. This is how it should be done.

Both sides are fighting a bigger issue that isn't totally relevant to the actual case in question...

Max Cynical's picture

What could possibly be on that phone the FBI doesn't already have? Phone and text message records can be obtained directly from the telco. If he was syncing his contacts, they can most likely be obtained from the respective Google, Outlook or Apple iCloud accounts. So the only "data" that may not be accesible are photos, music and location data. I'm not certain, but location data may be available from the carrier as well.

BidnessMan's picture

Text messages are purged from Telco servers after 30 days. Someone forgot to get the texts?

yrad's picture

Dallas in the news again! I'm surprised Scalia didn't die here.

markettime's picture

Key words, Kyle Bass was short so of course there was some incentive here. I have seen this happen to a few small companies before, hedge funds build a short position and then have some friends make some accusations and it gets all over the news and splat! Well I just hope the shareholders from UDF's other offerings are going to be ok.

1stepcloser's picture

US treasury department?  of course not! 

Janet Shalom Bernanke's picture

lock the founder Hollis Greenlaw, up, and throw away the key.

 

LawsofPhysics's picture

Interesting.  For me Kyle's "prediction" is simply more confirmation of at least two "clubs" of American oligarchs.  Neoconservative and neoliberal, middle america loses regardless, but it will be fun watching the corrupt fuckers tear each other apart.

Interesting times....

WillyGroper's picture

Read page 1247/8 of Tragedy & Hope.

It's one club & we ain't init.

wildbad's picture

well that escalated quickly

Shaznardickleze the Doon's picture

Wait until China proves Kyle Bass right... That'll redefine quick escalation.

buzzsaw99's picture

would have gotten there sooner but they had to get clearance from goldman sachs first.

insanelysane's picture

Wouldn't it be easier to list the corporations on stock exchanges that aren't ponzi schemes?

Dragon HAwk's picture

One Down,  3 thousand 2 hundred and eight to go..

Lumberjack's picture

This is on their website:

 

http://www.udfiv.com

 

IMPORTANT MESSAGE FROM THE CEO | February 5, 2016 Dear Shareholders,

On February 5, 2016, after launching a website containing multiple false and misleading statements about our company and management team, a Dallas-based hedge fund has confirmed they have built a significant short position in UDF IV.

We direct you to our initial response filed with the SEC on December 14, 2015.  As is clearly detailed in our regulatory filings, our secured loans are underwritten based on collateral value, and UDF IV has not had any realized losses in its portfolio.  We are confident that we have appropriate policies and procedures in place to ensure accurate financial reporting and compliance with all applicable rules and regulations.

The hedge fund acknowledges on its website that they will profit if the stock price of UDF IV falls, and given this financial incentive we believe the hedge fund intends to continue disseminating misleading information. We remain focused on protecting investor value through the preservation of our portfolios, and we will defend our funds aggressively against these unfounded accusations.

Sincerely,

Hollis M. Greenlaw 
Chief Executive Officer

LawsofPhysics's picture

simply more confirmation that publically traded "markets" are in fact casinos.

So what?  this type of gambling is not illegal.

Lumberjack's picture

Just pointing out what the accused has up on their site.  I've followed some REIT's and the worst offenders are connected to renewable energy concerns. REIT's such as PLUM Creek sold out to Weyerhauser recently but the renewable concerns (associated with Larry Summers and DE Shaw under the name First Wind (they have changed their name several times and have hundreds of shell and shelf LLC's), have recently sold FW to Sun Edison (SUNE) and formed yieldco's TERP and GLBL. 

First Wind started out as Evergreen then changed their name to UPC/IVPC then First Wind, which has operated in every conflict area ISIS is located under the auspices of global warming, even in China. Mostly former Enron Guys with board members reading like a who's who... enough said.

 

Harry Markopoulis has stated that he has proof that there are bigger ponzi schemes out there and I wonder who they are. Stay tuned.

Lumberjack's picture
Hedge fund billionaire Leon Cooperman dropped two of Wall Street's horror show stocks

http://www.businessinsider.com/omega-dumps-valeant-and-sunedison-2016-2

 

Hedge fund billionaire Leon Cooperman, the founder of Omega Advisors, ditched two of Wall Street's nightmare stocks.

In the fourth quarter, Cooperman sold all of his shares in SunEdison and Valeant Pharmaceuticals, his fund's latest 13F filing shows.

Omega had held more than 5.32 million shares of SunEdison at the end of the third quarter.

Life of Illusion's picture

 

and to think the FED purchased same MBS...........collateral value.....right

zeronetwork's picture

I don't know now but once Overstock was something like upto 80% short.

azusgm's picture

IIRC, CALM once topped the most shorted list. I looked into the company and decided I liked it well enough to buy some for me and for my mother too. I think I held onto that one until I completely bailed out of the market after MF Global Halloween.

firstdivision's picture

"As is clearly detailed in our regulatory filings, our secured loans are underwritten based on collateral value, and UDF IV has not had any realized losses in its portfolio"

 

This is the biggest red flag there is.  The only way I'd half-ass believe it, is if you're Goldman Sachs.  Yep, UDF is a ponzi, and they admitted it with that statement.

insanelysane's picture

It seems to me like they only need some more "mark to fantasy collateral."

WillyGroper's picture

So Ba$$ can move the SEC's a$$ but Markopolis couldn't.

WTF is wrong with that?

Mad_Scientist's picture

If you're short UDF you probably made a ton on paper the past few weeks, but how do you cover and get your money if the stock is permanently halted?

Sivad UK's picture

When it's delisted you have no obligation to cover... But even if you did it would come pretty cheap...

That said, knowing KB he was probs long puts and not short paper... He's a big fan of the asymetric bet... 

StychoKiller's picture

In a short sale, you get yer Munny by selling high, then wait for the shares to fall in price.  So, it's the foolz that bought the shares from the short seller that have a problem.

Bluntly Put's picture

Flip on the lights, there's never more than 1 cockroach.

wmbz's picture

Sincerely,

"Hollis M. Greenlaw" 

 

~ Hollis, Hollis, Hollis did no one a-splain to you how the "system" works? You must, must grease the correct palms!

Failure to do so... the club will fuck you up! 

NEOSERF's picture

Can we start a kickstarter campaign to get Rick Perry and his TX miracle back into the Presedential Carnival...he belongs there along with the two headed sheep and bearded woman.

WillyGroper's picture

Any one of these criminals get shot in the face?