A more than five-year FBI analysis of over 60 bank accounts used by United Development Funding found multiple cases of transfers that the agent conducting the investigation considered suspicious.
UDF would routinely transfer millions of dollars for distributions to investors into an account a day or two before the distributions were paid, said Scott Martinez, a fraud examiner on the FBI’s complex financial crime squad. Martinez reviewed cash flow statements from 2007 through 2015 and testified in the major white-collar trial in federal court Tuesday.
“I generally found when it was time to make a distribution payment, there were insufficient funds in the UDF III fund to make those payments,” Martinez said.
The transfer came from another UDF fund, Martinez said.
“Absent this transfer, the distribution would not have been able to be made by UDF III,” he said.
Hollis Greenlaw, co-founder, CEO and chairman of UDF’s board of trustees, along with three other controlling executives of the REIT, are charged in an alleged plot to cheat investors and banks using funds that provided hundreds of millions of dollars in loans to residential housing developers.
A 10-count indictment made public Oct. 15 claims that from 2011 through 2015, Greenlaw, UDF partnership president and committee member Benjamin Lee Wissink, UDF chief financial officer Cara Delin Obert, and UDF director of asset management Jeffrey Brandon Jester schemed to defraud the investing public and shareholders.
Out of 60 transfers examined, 53 times there was a shortfall of money to pay distributions to UDF III investors when he checked the status of the account on the day before the distributions, Martinez said.
“$83 million was used by entities other than UDF III in order to pay UDF III distributions,” Martinez said.
The bulk of that was transferred from UDF IV, he said.
On cross-examination, defense attorneys for the executives said millions of dollars flowed in the other direction, too, from UDF III to UDF IV. Martinez said he didn’t analyze that.
Lawyers for the executives noted that companies often use a certain account for a special purpose, such as a distribution or payroll.
Many companies use one account to channel payroll through, for example, and that account sits virtually empty until a day or two before employees get paid, defense lawyer Paul Pelletier said.
The prosecution rested its case against UDF and the executives Tuesday afternoon, and the defense called its first witness.
The witness, Richard Murphy, is an independent broker/dealer who conducted an analysis of UDF funds II, III, IV and V to determine whether to recommend them to clients. He took two years to conduct the review.
“We have to understand how a business works before we can say, ‘Yes, you should invest in it,’” Murphy said.
Murphy said he learned in the process that the residential development process can be a slow one, from land acquisition to entitlement, installing roads and sewer systems and other infrastructure, and carving out lots.
“From acquiring the land to the time you can actually build a house on it, it doesn’t happen overnight. It goes in phases,” he said. “It is piece by piece by piece, and each piece has to be funded.”
One potential witness the defense may call Wednesday is Mehrdad Moayedi, CEO of Farmers Branch-based Centurion American Development Group, one of Dallas-Fort Worth’s largest developers of residential and mixed-use communities, as well as other projects. Centurion American has been UDF’s biggest borrower.
Moayedi is named on the witness list as “possible” to testify about his and Centurion’s relationship with UDF and transactions with the company.