United Development Funding Investment Loss Recovery Options

If you are have suffered losses in United Development Funding III, United Development Funding IV, United Development Funding V, or United Mortgage Trust, you may be able to recover your losses though FINRA arbitration. Please call Kons Law Firm at (860) 920-5181 for a FREE, NO OBLIGATION consultation to discuss your investment loss recovery options.

United Development Funding is Raided by FBI on Ponzi Scheme Allegations

United Development Funding is Grapevine, Texas non-traded REIT sponsor that was organized in 2003. United Development Funding purportedly acted as a secured lender to real estate development companies, which raised funds through various investment vehicles which were sold to individual retail investors through United Development Funding's network of stockbrokers and brokerage firms. Since 2003, United Development Funding has raised nearly $1 billion from individual retail investors. Some of the non-traded REITs or investment vehicles that individual investors may have purchased include the following:

United Development Funding III, L.P. (“UDF III”);
United Development Funding IV (“UDF IV”);
United Development Funding Income Fund V (“UDF V”); and
United Mortgage Trust (“UMT”).

In December 2015, after SEC filings revealed that UDF's independent accounting firm Whitley Penn was not reappointed as thier auditor, allegations began to surface that United Development Funding may be nothing more than a Ponzi scheme. In February 2016, the FBI raided United Development Funding's offices in Grapevine, Texas to collect evidence for a pending investigation into its activities.

In 2015, the Securities and Exchange Commission listed non-traded REITs like United Development Funding as one of the five most serious problems affecting retail investors. Brokerage firms and stockbrokers sell non-traded REITs like United Development Funding to unsuspecting "mom and pop" retail investors who are seeking higher yields in the low-interest-rate environment because of the high commissions that non-traded REITs like United Development Funding carry.

Brokerage Firms Had a Duty to Conduct Proper Due Diligence on United Development Funding

Securities broker-dealers have a regulatory duty to ensure that any investments they recommend to customers are suitable for them. This is especially important for brokerage firms selling non-traded REITs like United Development Funding. FINRA Rule 2111 (NASD Rule 2310) requires that securities broker-dealers to conduct a suitability analysis when recommending securities to investors that will take into account the investors’ knowledge and experience. The brokerage firm must make reasonable efforts to gather and analyze information about the customer’s other holdings, financial situation and needs, tax status, investment objectives and such other information that would enable the firm to make its suitability determination.

In addition to ensuring that securities are suitable for its customers on an individual level, FINRA Rule 2111 (NASD Rule 2310) also states that a securities must have reasonable grounds to believe that a recommendation to purchase, sell or exchange a security is suitable for the customer. This “reasonable-basis” suitability requirement means that in the context of non-traded REITs like United Development Funding, brokerage firms have a duty to conduct due diligence on:

-The issuer and its management;
-The business prospects of the issuer;
-The assets held by or to be acquired by the issuer;
-The claims being made; and
-The intended use of proceeds of the offering.

A securities broker-dealer that lacks essential information about an issuer or its securities when it makes a recommendation, including recommendations non-traded REITs like United Development Funding, must disclose this fact as well as the risks that arise from its lack of information. In addition, a brokerage firm “may not rely blindly upon the issuer for information concerning a company,” nor may it rely on the information provided by the issuer and its counsel in lieu of conducting its own reasonable investigation.

United Development Funding Investors May Be Able to Pursue Recovery of their Losses through FINRA Arbitration

Fortunately for investors, they may be able to recover their investment losses in United Development Funding or any of its REITs such as UDF III, UDF IV, UDF V, or UMT through FINRA arbitration against the stockbroker or brokerage firm that recommended this investment to them.

Kons Law Firm represents investors nationwide in securities arbitration and litigation matters. To learn more about the Firm’s securities litigation and FINRA arbitration practice, please visit www.investmentfraudattorneys.com.

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