A United Development Funding lawyer at Weltz Law represents investors who lost money in UDF funds, including UDF III and UDF IV, sold by a broker. UDF executives were convicted of securities fraud in 2022 for moving money between funds to cover shortfalls. When a registered broker sold the investment, the dispute may belong in FINRA arbitration.
Our United Development Funding lawyers work inside the FINRA dispute resolution forum on behalf of investors nationwide. FINRA stands for the Financial Industry Regulatory Authority. It oversees brokerage firms and runs the arbitration system for most disputes between investors and their brokers.
This page is part of our alternative investment attorney section, within our broader securities lawyer practice.
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☎ Call NowUnited Development Funding was a Texas-based family of real estate investment funds founded in 2003. The funds lent money to residential land developers and homebuilders, mostly in Texas. UDF sold interests in several funds, including UDF III, a limited partnership, and UDF IV, a REIT, to retail investors through brokers.
The UDF family included UDF I through UDF V, along with related funds. UDF was based in Grapevine, Texas.
The pitch centered on steady income from secured real estate loans. According to the SEC, UDF advertised annualized returns of up to 9.75% and regular distributions.
Many investors bought through brokers who described the funds as stable, income-producing real estate investments. Learn more about similar products on our REIT lawyer page.
In 2018, the SEC charged UDF III, UDF IV, and several UDF executives with misleading investors. The SEC alleged that UDF moved money from UDF IV to developers who used it to pay down older UDF III loans. That helped UDF III keep paying distributions it could not otherwise cover.
The SEC said that for almost five years, UDF did not tell investors that UDF III sometimes lacked the cash flow to cover its distributions.
In many cases, the SEC alleged, the developers never actually received the money. UDF simply moved it between funds. The SEC also alleged accounting problems with how loans were valued.
The funds and executives resolved the SEC case without admitting or denying the allegations.
Yes. In January 2022, a federal jury in Texas convicted four UDF executives, including the CEO and CFO, of securities fraud and related charges. In May 2022, they were sentenced to a combined 20 years in federal prison.
According to the Justice Department, developers failed to repay loans and caused multimillion-dollar shortfalls. The executives then moved money from another fund to pay distributions to the first fund's investors.
The Justice Department also said the transfers were not disclosed to the SEC or the investing public. The executives misled investors about fund performance.
Moving money between related funds to keep distributions flowing works a lot like a Ponzi scheme. It makes struggling investments look healthier than they are.
UDF IV shares lost much of their value after the fraud came to light. In December 2024, Ready Capital agreed to acquire UDF IV, and UDF IV shareholders approved the merger in March 2025. The deal included a cash distribution, Ready Capital shares, and possible additional payments tied to certain loans.
At the time of the announcement, the deal was valued at up to about $5.89 per UDF IV share, depending on how certain loans performed. Many investors had paid far more for their shares years earlier.
For most UDF IV investors, the merger set a final value well below what they put in. What remains is the question of how the shares were sold in the first place.
Brokers often recommended UDF funds as safe, income-producing real estate investments. Non-traded REITs and real estate partnerships like UDF also paid brokers high commissions. That created a strong incentive to sell them, sometimes to investors they did not fit.
The story was appealing. Texas housing was growing. UDF made secured loans backed by land. Investors received regular distributions.
What many investors did not hear was how illiquid these funds were. Nor did they hear how concentrated the funds were in one region and one type of lending.
UDF investors may be able to bring a FINRA claim when a registered broker or brokerage firm recommended or sold the UDF investment. The claim focuses on the broker's conduct and the firm's due diligence. It does not depend on a claim against UDF itself.
Government actions against UDF and its executives help explain what went wrong. But they do not decide whether the broker who sold the fund owed the investor anything.
Claims tied to UDF losses may include:
Red flags included related-party lending between UDF funds and heavy concentration in Texas land loans. Distributions that depended on cash from other funds, and complex structures, were others. A careful due diligence review would have looked hard at each of these.
Related-party deals are a classic warning sign. When one fund lends to borrowers who owe money to a sister fund, a firm should ask why.
Distribution coverage is another. A fund paying more than its loans earn needs to get the cash from somewhere. A firm selling the product should know where. Our types of REIT fraud page covers similar warning signs.
Retirees and income-focused investors were hurt most. Many were told UDF offered steady income backed by real estate. Some put a large share of their savings into UDF funds they could not sell, then watched values fall after the fraud surfaced.
Picture a retired couple who put $150,000 into UDF IV for monthly income. They held on through the investigations and trials, unable to sell at a fair price. When the merger finally closed, they received a fraction of what they invested.
When older investors are involved, these sales may also raise concerns about financial elder abuse.
The FINRA eligibility rule generally bars claims filed more than six years after the event that caused the dispute. For UDF, that is often the purchase date. Most UDF sales took place years before the 2018 SEC action, so many purchases are now outside the window.
This is a real hurdle for many UDF investors. Some may have bought later, or added shares through distribution reinvestment.
State deadlines may also apply. Our United Development Funding lawyers review every purchase date early in a review.
A FINRA panel may consider the money an investor lost, what that money might have earned in suitable investments, interest, and costs. The panel decides which measures fit the facts. No one can say in advance what a panel will award.
Out-of-pocket damages compare what the investor paid with what came back, including distributions and merger proceeds. Well-managed account damages ask what the money would have earned in investments that matched the investor's goals.
The offering documents, the broker's statements, and the firm's review of UDF shape the arguments our FINRA arbitration attorneys can make.
Gather your subscription agreements, prospectus or offering documents, account statements, distribution records, any merger paperwork, and every communication with your broker. These records show what you paid, what you received, and how UDF was described to you.
The subscription agreement often lists the net worth, income, and goals the broker recorded for you. Those details may not match your real situation.
Emails, texts, and marketing pieces can show whether UDF was pitched as safe income. If something is missing, the brokerage firm keeps its own records, and many can be requested during discovery.
Our United Development Funding lawyers start with the purchase. When did you buy, which UDF fund did you own, who recommended it, and what were you told? Those answers shape whether a FINRA claim fits and which claims to bring.
Next, our team compares the investment with your age, goals, income needs, and other holdings.
If the facts support a claim, our FINRA arbitration attorneys draft and file the Statement of Claim. That is the written filing that starts a FINRA case.
Discovery follows. Our team asks for the firm's due diligence files on UDF, product approval records, and the broker's commission data.
If the case reaches a final hearing, our United Development Funding lawyers present the evidence and witnesses to the panel. No one can predict how a panel will rule. Our page on FINRA arbitration explains each stage.
Did a broker sell you UDF III, UDF IV, or another United Development Funding investment? It may be worth a closer look. A conversation with a United Development Funding lawyer can help you understand what options may exist in FINRA arbitration. That includes whether timing still allows a claim.
Our United Development Funding lawyers represent investors, retirees, families, and trusts nationwide. Bring your purchase records, statements, and merger paperwork if you have them. Contact Weltz Law today to talk through what happened.
Our seasonsed attorneys have over 30 years of collective experience, and our committed to protecting investors rights. Call today or contact us through our site.
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