The four-year dust-up between hedge fund investor Kyle Bass and the real estate investment trust UDF IV and its management team took another twist over the weekend when it was reported that Bass’s firm, Hayman Capital Management, which made millions selling short the shares of the REIT in 2016, is under investigation by U.S. securities regulators.
UDF IV was a listed company at the time but eventually stopped trading after Bass in December 2015 and January 2016 used websites to publicize his full-throated critique that the REIT was operating like a Ponzi scheme.
On Sunday, the Wall Street Journal, citing “people familiar with the matter,” reported that the Securities and Exchange Commission is looking at whether Bass’s sharp criticism of UDF — including his allegations of widespread undisclosed problems in its loan portfolio — included false or misleading statements that amounted to market manipulation.
If the SEC finds Hayman’s claims about UDF were wrong and the hedge fund knew or should have known that they were inaccurate, the regulator could have a basis for a market manipulation case, according to the report.
The SEC investigation is in its early stages and may not result in any formal claims, according to the report, which said Hayman Capital made $34 million from shorting UDF shares.
Bass did not return a phone call on Tuesday to comment. Nor did the CEO of UDF, Hollis Greenlaw, return a call to comment.
The past four years have seen plenty of conflict between Bass and UDF. In 2017, UDF sued Bass and Hayman Capital, alleging that they distorted the real estate lender’s record, as the Journal report noted. Bass and Hayman deny that clam.
The SEC has already put UDF’s feet to the fire. In 2019, the agency reached a settlement with two UDF REITs to pay $8.2 million in fines and payments to investors for failing to disclose that they could not meet their distribution payments. The companies also told developers to use loaned money from one, UDF IV, to pay down loans for the other REIT, UDF III.
Brokers typically sell such REITs to client and promise an attractive yield.