NexPoint Advisors Accuses Imprisoned REIT Execs Of Using Shareholder Funds To Pay Legal Fees
A Dallas-based company has accused three imprisoned executives of a jointly owned real estate investment trust of using $65M in shareholder assets to pay for their appeals.
NexPoint Advisors filed a preliminary injunction in Dallas State District Court last week seeking to prevent Hollis Greenlaw, Benjamin Wissink and Cara Obert from using shareholder money to cover their legal fees, according to a news release.
The three executives, as well as fellow executive Theodore Etter, were convicted in January on 10 counts of securities, wire and bank fraud in conjunction with operating United Development Funding IV as a Ponzi scheme. All four are now serving five-to-seven-year sentences, per the release.
"The defendants have engaged in egregious acts of misconduct and, despite their convictions, continually seek to benefit themselves at the expense of shareholders, with the active consent of UDF IV independent trustees,” NexPoint general counsel D.C. Sauter said in a statement. “On behalf of fellow shareholders, we believe the time has come to put an end to this outrageous behavior."
In August, NexPoint filed a complaint that alleged more improper use of shareholder funds. It accused the defendants of using the money to bankroll a Securities and Exchange Commission settlement, spending millions to fund their defense, paying themselves lucrative management fees on overvalued assets, and attempting to obscure their illegal activities by blocking audited financials.
Back in January, a jury found the UDF executives took investor money for one of the REIT's five funds, UDF IV, and used it to pay off the obligations of a previous debt fund, UDF III. The scheme had already attracted the attention of the SEC and the four defendants agreed to pay an $8.2M fine without admitting or denying wrongdoing in 2018.
"NexPoint believes this practice continues to this day as the three felons are appealing their convictions but using UDF IV to pay for their lawyers," NexPoint said in a release late last week.
In its August lawsuit, lawyers for NexPoint allege the former executives used shareholder money to pay their own personal obligations under the SEC settlement and tried to cover it up by purportedly making it appear as though the funds came from a payment from its largest borrower, Centurion American President and CEO Mehrdad Moayedi, who it says owes UDF in the neighborhood of $1B.
"It is as if a bank robber paid his criminal penalty for robbing a bank by robbing the same bank a second time," NexPoint said in its complaint.
"Despite knowing they engaged in the very conduct that they were ultimately indicted and convicted for, Defendants used tens of millions of dollars in shareholder funds to pay their legal fees in defending the SEC lawsuit and the resulting criminal prosecution," the suit continued.
A spokesperson for UDF declined the opportunity to comment. UDF has repeatedly fended off what it calls "hostile tender offers" from NexPoint, most recently in February when it rejected NexPoint's 13th attempt, noting "the Tender Offer price of $1.10 per share represents a substantial discount to the Trust’s current value."
NexPoint owns 5.8% of the outstanding UDF shares, according to the DIWire. Plaintiffs in the case are NexPoint Diversified Real Estate Trust, a publicly traded REIT, and its wholly owned subsidiary, NexPoint Real Estate Opportunities LLC.
