NexPoint Encourages UDF IV Shareholders to Vote for Dissident Board Members
In the ongoing dispute between the parties, NexPoint Real Estate Opportunities LLC sent proxy materials to fellow shareholders of United Development Funding IV – a non-traded real estate investment trust – regarding the upcoming 2024 annual meeting of UDF IV shareholders. NexPoint, which believes it is the largest shareholder of UDF IV with 1.7 million shares, has nominated four individuals to the UDF IV board of trustees who it believes will restore proper oversight of the company and advocate for shareholders’ interests.
In the proxy materials, NexPoint urges shareholders to exercise their voting rights and vote for the following individuals who have “decades of real estate and investment industry experience”: Paul S. Broaddus, Edward N. Constantino, John A. Good, and Julie Silcock. Along with the proxy materials, NexPoint sent UDF IV shareholders a letter with answers to frequently asked questions that highlights the urgent need for change at the company and provides information about the election and voting process.
Although the date of the annual meeting had not been set at the time of AltsWire reporting, shareholders were urged to vote immediately.
In the introductory letter, NexPoint told shareholders of UDF IV that they have been denied fundamental rights by an entrenched board. UDF IV’s trustees “have improperly prioritized their interests and those of former executives – some of whom are currently in prison – over the shareholders’ interests.”
NexPoint went on, alleging that the incumbent trustees “have disenfranchised shareholders, allowed egregious misuse of shareholder funds, and actively fought requests for basic transparency and accountability. This years-long lack of oversight leaves shareholders with a deregistered, illiquid stock and no plans to restore the deeply eroded value of UDF IV shares.”
Preceding these communications, UDF IV issued its own June 24 letter to shareholders warning of NexPoint’s future board nominees, disputing NexPoint’s claims, and reiterating ways it had “safeguarded the value of the REIT portfolio to drive shareholder returns.”
The June UDF IV letter said that NexPoint taking control of the REIT through dissident trustees would present serious risks for the REIT and its shareholders citing previous attempts to disrupt the REIT’s operations, which resulted in “wasted resources” and “a hostile tender offer, which [NexPoint] extended 13 times, to purchase [REIT] shares” at a discounted price.
The latest actions stem from the U.S. Securities and Exchange Commission 2018 settlement with certain executives of UDF IV’s external adviser, including Hollis Greenlaw, who was convicted of fraud in 2022 and sentenced to seven years imprisonment.
In July 2018, the SEC ordered several UDF funds and executives to pay $7.2 million in disgorgement and prejudgment interest, as well as a $1.1 million fine, for misleading investors by failing to disclose that it could not pay its distributions and was using money from a newer fund to pay distributions to investors in an older fund.
The amount was to be deposited into a “Fair Fund” and distributed to investors who owned shares between 2011 to 2015.
NexPoint filed a complaint in August 2022, according to reporting by AltsWire, alleging that the defendants used shareholder money to pay their own personal obligations under an SEC settlement and “then lied about it and tried to cover it up” by making it look like the funds came from a “payment” from its largest borrower and owner of Centurion American, Mehrdad Moayedi.
UDF IV and its board failed to disclose that these “disgorgement payments” were actually paid by the company, not the individuals as required by the settlement. The eligible shareholders who recently received their Fair Fund distributions mistakenly believe these funds were disgorged by the adviser’s executives. The disgorgement payments represent, according to NexPoint, “further misconduct and the continued failure by [UDF IV and the board] to protect shareholders’ interests.”
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