Multibillion-dollar investment firm NexPoint Advisors LP has sued three imprisoned top executives of an embattled North Texas residential real estate lender, claiming the lender’s now-former CEO and others in management positions have improperly used tens of millions of dollars in shareholder funds to pay their personal legal fees.
Dallas-based NexPoint’s lawsuit against Grapevine-based United Development Funding, investment fund UDF IV, and current or former officers of the firm and its network of funds and entities, further claims the executives tried to cover their alleged misuse of shareholder money by making it look like the funds came from payments from UDF’s largest borrower, Mehrdad Moayedi, owner and president/CEO of Centurion American Development Group.
Farmers Branch-based Centurion American is one of Dallas-Fort Worth’s largest developers of residential and mixed-use communities, as well as other projects, including high-profile jobs like the renovation of the Statler Hotel and adjacent development in downtown Dallas that includes The Dallas Morning News. Another notable project being handled by Centurion is the redevelopment of the Collin Creek Mall site underway in Plano.
The lawsuit, importantly, does not name Moayedi or Centurion American as a defendant. However, Moayedi is mentioned by name more than 50 times in the 42-page original complaint in NexPoint’s lawsuit, and Centurion is named five times.
Reached late Wednesday afternoon, Moayedi denied any wrongdoing and said he has been completely transparent with all inquiries.
“We have been totally cleared of any kind of wrongdoing we would have with anybody,” Moayedi said in a brief interview with the Dallas Business Journal. “We’ve looked at everything. Whatever it is we’ve had to do, we’ve done. We’ve gone through the proper channels with all the people that looked at it from the SEC to the DOJ.”
NexPoint sued UDF last month in Texas’ 192nd Judicial District, and in a motion filed Sept. 15 asked Judge Kristina Williams to stop the real estate investment trust’s officers from allegedly continuing to “improperly use” trust assets to pay legal fees.
NexPoint, which calls itself a “significant shareholder” in UDF IV, one of the trust’s funds, asked Williams to grant a temporary injunction barring the REIT’s executives from “requesting and/or otherwise using UDF IV’s assets to pay legal fees incurred in appeal of criminal convictions or any other matter to which they are a party.”
UDF executives Hollis Greenlaw, Benjamin Wissink and Cara Obert, who are now serving prison sentences, along with non-incarcerated fellow executive Theodore Etter, have already used shareholder assets to pay more than $65 million in legal fees and indemnification expenses, NexPoint’s lawsuit alleges.
A spokesperson for NexPoint told the Business Journal that the firm’s goal with the litigation is to protect its investment and that of thousands of other shareholders.
“NexPoint is continually seeking to engage with UDF’s board, management, and advisors that have the authority to do what’s right and act in a responsible manner,” Lucy Bannon, chief communications officer, said in an email to the Business Journal. “This is a formerly public company that hasn’t complied with the most basic filing requirements or held a shareholder meeting in years. It’s been seven months since the management team was convicted and we’ve seen no material change.”
Meanwhile, excessive legal fees and other expenses continue to erode UDF IV’s value, Bannon added. “It’s imperative that we reach a resolution that enables the company to move beyond the outrageous acts that have been carried out,” she said.
The alleged wrongdoing by UDF’s entities and its executives dates back to about 2014 and has spawned multiple civil suits and a criminal case earlier this year that resulted in combined sentences of 20 years in federal prison for UDF’s top four executives.
The Business Journal provided gavel-to-gavel coverage of the trial and its aftermath.
NexPoint’s latest litigation alleges that Greenlaw, Etter, Obert and Wissink used shareholder money to pay their own personal obligations under an SEC settlement, lied about using shareholder money to satisfy their financial obligations, improperly spent millions of dollars in shareholder money to fund their criminal defense, paid themselves lucrative management fees on overvalued assets, and tried to hide their actions by blocking audited financials of UDF.
For the DBJ’s full report, please click here.