GRAPEVINE, Texas, Sept. 01, 2020 (GLOBE NEWSWIRE) — United Development Funding IV (the “Trust” or “UDF IV,” and together with its affiliates “UDF”) issued a response on August 31, 2020 to NexPoint Advisors, L.P. (together with its affiliates “NexPoint”) regarding their request to inspect certain materials of the Trust (the “Demand”). NexPoint made this Demand in a letter to the UDF IV Board of Trustees (the “Board”) dated August 11, 2020.
In its response, the Trust outlined several objections to the Demand.
- The Demand seeks materials that are beyond the scope of Section 2-512 of the Maryland General Corporation Law, which is limited to bylaws, minutes of stockholder meetings, annual statements of affairs and voting trust agreements.
- The Demand also invokes Section 2-513, which only permits requests to be made by “stockholders of record” of at least 5% of a company’s stock “for at least six months.” NexPoint provides no evidence that they have been shareholders of record for at least six months.
- The Demand seeks materials outside the scope of Section 2-513, which states qualifying stockholders of record may only seek a corporation’s “books of account,” “stock ledger,” “list of stockholders,” and a “statement of affairs” that “sets forth in reasonable detail the corporation’s assets and liabilities as of a reasonably current date.” Unlike Delaware law, Maryland law does not grant stockholders a broad right to inspect a corporation’s “other books and records.” The Demand improperly seeks broad categories of material that are far beyond the scope of Section 2-513, including communications with auditors and the Securities and Exchange Commission.
- Maryland courts have long made clear that shareholder demands may be properly denied when they are “made for some evil, improper, or unlawful purpose.” Here, the Demand is nothing more than a self-serving effort to use the legitimate mechanisms of Maryland law to advance a covert and fraudulent scheme that is being carried out by NexPoint in coordination with Highland Capital Management L.P. with the goals of enriching themselves at the expense of destroying the equity value of the Trust.
As UDF has extensively documented, the Trust has been the target of an illegal “short and distort” market manipulation scheme perpetrated by Kyle Bass and Hayman Capital (collectively “Bass/Hayman”) whereby Bass/Hayman anonymously published false and misleading information about the Trust to drive down the price of the Trust’s shares. In addition to making illegal profits from trading activities, the perpetrators’ ultimate goal was to acquire the Trust’s well-positioned assets after putting the company in a distress situation.
The Bass/Hayman scheme precipitated four shareholder class action lawsuits, five derivative lawsuits, numerous other civil lawsuits, and proceedings by governmental and self-regulatory agencies, causing severe damages and losses to the Trust and its equity holders.
In civil litigation brought by the Trust against some of the perpetrators of the Bass/Hayman Capital schemes (the “Bass Litigation”), the Court of Appeals for the Fifth District of Texas ruled that the Trust has set forth a prima facie case of intentional business disparagement and tortious interference and that “Hayman’s false and disparaging statements proximately caused UDF damages and losses.”
Discovery in the Bass Litigation has revealed that NexPoint has been working covertly with Bass and Hayman Capital, possibly from the outset of their illegal campaign. Examples include:
- Contemporaneous written records show that NexPoint’s long-time controller, Highland Capital, its founder James Dondero, and other affiliates were aware of and involved in the short and distort scheme, which they specifically discussed with Bass and Hayman Capital.
- Emails obtained in discovery in the Bass Litigation indicate Hayman Capital contacted Highland Capital “about being an agent if Hayman tried to purchase senior, non-UDF bank loans if the senior loans became distressed” and that Highland Capital was “looking at UDF equity and thinks there is legal and clawback value,” and “10-20% of book value is where they will buy some.” Finally, NexPoint’s General Counsel attempted to contact the former General Counsel of Hayman Capital as recently as June 7, 2020 to discuss UDF. Both Hayman Capital and Highland Capital made substantial investments in Harvest Exchange Corp., the company that owns the website on which Bass, Hayman Capital and their associates maliciously posted anonymous false statements disparaging the Trust. In fact, Highland Capital led Harvest Exchange’s $5 million Series B financing round in June 2015. NexPoint’s ties to Harvest are further evidenced by the following facts:- Highland Capital hired one of the co-founders of Harvest as Highland Capital’s Chief Strategy Officer.- NexPoint’s media contact is Lucy Bannon, the same person that was Highland’s designee on the Board of Directors of Harvest.
- The Board is aware that a co-founder of Harvest recently was asked to provide information to the SEC regarding the Bass/Hayman “short and distort” scheme against the Trust.
In light of NexPoint’s involvement and connections with Bass and Hayman Capital in their illegal scheme to destroy the equity value of the Trust, it is disingenuous, at best, for NexPoint to now invoke the mantra of corporate governance and shareholder rights to advance its self-serving agenda.
Moreover, NexPoint has a record of deceiving Trust equity holders:
- We believe that NexPoint and its affiliates purchased, or caused the purchase of, shares of the Trust soon after the conclusion of the “short and distort” scheme to manipulate the Trust share price.
- Last year, at a meeting with Hollis Greenlaw, Mr. Dondero expressed his interest in taking over management of the Trust. But NexPoint’s Schedule 13G filed on February 14, 2019 certifies that it did not acquire or hold Trust securities for the purpose of changing or influencing the control of the Trust, or in connection with or as a participant in, any transaction having that purpose or effect.
As the foregoing demonstrates, NexPoint’s Demand fails to meet the requirements of the Maryland General Corporation Law. Nonetheless, in a good faith effort to move this matter forward, the Trust has endeavored, in its response to NexPoint’s Demand, to outline its preliminary concerns about the Demand.
Notwithstanding the myriad deficiencies in NexPoint’s Demand, and without waiving any defenses or conceding that NexPoint’s Demand meets any of the prerequisites, the Trust is willing to consider the Demand further, provided that NexPoint:
|(i)||submits documentary evidence from the record holder showing that NexPoint Strategic FBO BOA, NexPoint Stratgc Oppt FBO Jefferies, Highland Global Allocation Fund, and NexPoint Real Estate Strategies Fund have held more than 5% of the Trust’s outstanding shares of beneficial interest for more than six months;|
|(ii)||withdraws its demands for materials that go beyond the scope of Sections 2-512 and 2-513 of the Maryland General Corporation Law; and|
|(iii)||provides responses to the conflict-of-interest-related questions which were originally included with the Trust’s July 22, 2020 letter to NexPoint. and were included again with the Trust’s August 31, 2020 response. The Trust will review NexPoint’s responses to determine whether it is comfortable proceeding.|
For further information and updates on the Bass/Hayman Civil Litigation please visit the Trust’s website at http://www.udfonline.com/litigation/. Email discovery associated with the Bass/Hayman civil litigation may be found at http://www.udfonline.com/discovery/.
CONFLICT OF INTEREST RELATED QUESTIONS
The following conflict of interest questions were included with the Trust’s July 22, 2020 and August 31, 2020 letters to NexPoint.
1. Describe the affiliations, arrangements, agreements and relationships that exist today or that existed at any time since January 1, 2014, between James Dondero, NexPoint Advisors, L.P. and any of their respective current or former affiliates, including, without limitation, NexBank Capital, Inc., with:
|A. Kyle Bass;|
|B. Christopher Kirkpatrick;|
|C. Andrew Jent;|
|D. Parker Lewis;|
|E. Peter Hans;|
|F. Hayman Capital, including without limitation, Hayman Capital Offshore Partners, L.P., Hayman Capital Partners, L.P., and Hayman Capital Master Fund, L.P.;|
|G. Highland Capital Management, L.P.; and|
|H. Harvest Exchange Corp.|
2. Describe NexPoint Advisors, L.P.’s plans to address any potential conflicts of interest resulting from the response to question 1 above and:
|A. NexPoint Advisors L.P.’s proposed engagement with the UDF IV Board of Trustees; and|
|B. The transaction involving UDF IV in which NexPoint Advisors, L.P. is interested.|
About United Development Funding IV
United Development Funding IV is a Maryland real estate investment trust. UDF IV was formed primarily to generate current interest income by investing in secured loans and producing profits from investments in residential real estate. Additional information about UDF IV can be found on its website at www.udfiv.com. UDF IV may disseminate important information regarding its operations, including financial information, through social media platforms such as Twitter, Facebook and LinkedIn.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements regarding the Trust’s future review of NexPoint’s responses to the Trust’s requests. All statements included in this press release that address activities, events or developments that we expect, believe or anticipate will exist or may occur in the future, are forward-looking statements. These forward-looking statements are based on management’s current intents, beliefs, expectations and assumptions and on information currently available to management that are subject to risks and uncertainties, many of which are outside of our control, and could cause future events or results to be materially different from those stated or implied in these forward-looking statements. Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.