Four top executives of a Grapevine-based residential development lender United Development Funding return to federal court in Fort Worth today after being convicted Friday on 10 counts, including securities fraud, wire fraud affecting a financial institution and conspiracy to commit securities fraud.
Hollis Greenlaw, co-founder, CEO and chairman of UDF’s board of trustees, was found guilty on the white-collar charges, as were Cara Delin Obert, UDF chief financial officer; Jeffrey Brandon Jester, UDF director of asset management; and Benjamin Lee Wissink, UDF partnership president and committee member.
The verdict was a clean sweep for federal prosecutors after five days of trial testimony and over 12 hours of deliberation.
All four executives were convicted on all 10 counts they faced. Each executive faces up to 25 years in federal prison, and they’re expected to appeal their convictions. They were taken into custody immediately following the verdict.
A sentencing hearing is scheduled for May 20 before U.S. District Judge Reed O’Connor, who presided over the trial. In today’s hearing, O’Connor will decide whether the executives will remain incarcerated or be allowed bail while they await sentencing.
Mountain of evidence
More than 2,000 items of evidence were admitted for jurors’ viewing pleasure, counting submissions by both the prosecution and the defense. That included a large number of bank records, emails and SEC filings, to cite a few on the exhibit list.
The defense made a last-minute plea to include evidence of connections between hedge fund manager Kyle Bass’ possible role in the government investigation that the defense claims led to the convictions of UDF executives. O’Connor, at the prosecution’s request, had previously ordered that evidence and testimony on that front be excluded because he ruled it essentially a sideshow.
O’Connor stuck to that ruling:
“The Court finds Defendants have failed to show the Court’s prior ruling on this issue should be changed,” O’Connor’s most recent order stated. “First, a review of the trial transcript does not show the Government has opened the door to this evidence. Second, and more importantly, Defendants have not shown that the decision to delist UDF was a result of the Kyle Bass information.”
The relationship between UDF’s executives and Bass, chief investment officer of Dallas-based Hayman Capital Management LP, goes way back.
Bass’ hedge fund in 2015 began short-selling stock of a fund operated by UDF and accused the lender of operating like a Ponzi scheme.
The UDF fund’s stock price plummeted on Bass’ negative claims, which he initially made anonymously, and the shares fell further after the FBI raided UDF’s headquarters in Grapevine following Bass’ accusations.
A civil suit followed, with UDF claiming that Bass’ and Hayman Capital’s allegations are false and designed to sink their stock price.
Bass and Hayman deny those claims, countering in civil court documents that his firm’s commentary about UDF is protected by the First Amendment and was intended to caution potential investors against sinking money into a disreputable company.
Bass offered his thoughts on the guilty verdicts in this tweet:
“7 years ago, we alerted the SEC, the FBI, and the US Attorney to Hollis Greenlaw and United Development Funding’s enormous financial fraud. After the jury’s verdict was read yesterday evening, Hollis and his criminal team were immediately handcuffed and thrown in JAIL.”
Who are the banks?
The names of more than a dozen banks that lent to UDF came up in the trial and court documents.
They include Dallas-based Texas Capital Bank, Plano-based LegacyTexas Bank, Dallas-based Veritex Bank, Arlington-based Affiliated Bank (bought in 2018 by Susser Banc Holdings Corp. and renamed Susser Bank), and Dallas-based United Texas Bank. Others include Houston-based Prosperity Bank, Independent Bank of Dallas, Ruston, La.-based Origin Bank, Capital Bank of El Paso, UMB Bank, Bank of America, BB&T (formerly based in Winston-Salem, N.C., and now merged with SunTrust to form Charlotte-based Truist), and City National Bank.
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