Lawsuit Referenced In Letter To UDF Auditor And Commentary H/T Harvest
Buffington Lawsuit Overview: United Development Funding (UDF)
Attached is the lawsuit filed in Travis County, Texas (Hanna/Magee L.P. #1 v. BHM Highpointe Ltd., et al. Cause No. D?1?GN?15?004985), related to UDF III and UDF IV’s, second largest “non?affiliated” borrower, a private realestate developer based in Austin, Texas, whose principal executive is Thomas Buffington (“Buffington”).
Buffington affiliates account for approximately 11% of the outstanding loan balance of UDF IV according to financial disclosures in the Form 10?Q for the quarter ended September 30, 2015. UDF III’s Form 10?Q for the quarter ended September 30, 2015 states that “Buffington Land, Ltd., an unaffiliated Texas limited partnership, which comprises approximately 25% of the outstanding balance of our portfolio, including additional loans to its affiliated entities”, and accordingly Buffington is material to both UDF III and UDF IV. (emphasis added) The plaintiff, a third?party development partner of Buffington, was retained by Buffington to “manage the development.” While there are numerous troublesome allegations included in the attached lawsuit, there are two allegations that are particularly troublesome for UDF III and specifically UDF IV, which has filed financial statements with the SEC stating that “full collectability of loans […] is considered probable” with regard to 100% of their loans.
Michele Ragazzi's Giano Capital returned 1.9% for March, taking the fund's year-to-date performance to 1.7%. Since its inception, Ragazzi's flagship fund has produced a compound annual return of 7.8%. According to a copy of the €10 million fund's March update, a copy of which ValueWalk has been able to review, Giano's most significant investment at Read More
First, the lawsuit alleges that “[i]n at least one instance, such distribution took the form of BHM Highpointe making a distribution of approximately $1,800,000 to Buffington Land characterized as a ‘loan.’ At the time of such ‘loan,’ Buffington Land had no ability to repay any loan from BHM Highpointe and failed to do so.” Second, the lawsuit alleges that “BHM Highpointe transferred to Buffington Land certain valuable property and/or property rights, either with the actual intent to hinder, delay or defraud Plaintiff, and/or in return for less than reasonably equivalent value at a time during which BHM Highpointe was insolvent or was rendered insolvent by the transfer.”
It is noteworthy that the plaintiff is a development partner of Buffington and, as such, has no apparent economic incentive to claim that BHM Highpointe is insolvent. The payment owed to the plaintiff would likely be dependent on the solvency of BHM Highpointe and Buffington.
UDF IV is owed loans by (i) Buffington Land, LTD (which allegedly has “no ability to repay any loan from BHM Highpointe”), (ii) BHM Highpointe, LTD (which allegedly “was insolvent or rendered insolvent by the transfer [to Buffington Land]”), and (iii) BHM HP 5.3, LLC, an entity to which BHM High Pointe is a member and BHM Highpointe MGMT is the manager.
Management filed a Form 8?K on December 14, 2015 confirming that “UDF IV has been named in an action involving a contract developer (plaintiff) and a UDF borrower (defendant) relating to their development agreement.” It goes on to claim that, “UDF IV does not have any contractual or other relationship with the plaintiff. UDF IV was served with the petition on November 10, 2015. UDF IV is not a party to the development agreement and believes the claims against it are without merit and baseless.”
Setting aside the plaintiff’s allegations of impropriety against UDF management, management failed to address the allegations of the insolvency of entities affiliated with Buffington, its second largest “non?affiliated” borrower. These entities have outstanding past due balances owed to UDF IV. Further, management does not explain how this reconciles with the misleading statements in UDF IV’s SEC filings that, for 100% of loans, “full collectability of loans […] is considered probable.”
To submit a tip to the SEC’s Office of the Whistleblower: https://www.sec.gov/about/offices/owb/owbtips.shtml.
SEC Office of the Whistleblower
100 F Street NE
Mail Stop 5553
Washington, DC 20549
Fax: (703) 813?9322
Plaintiff’s Original Petition
COMES NOW, Hanna/Magee LP. #1 (“Plaintiff”), and files this its Original Petition complaining of BHM Highpointe Ltd., BHM Highpointe Management, LLC, Buffington Land, Group Ltd., United Development Funding IV, Thomas Buffington and Patrick Starley (“Defendants”) and in support of their complaint would respectfully show the Court the following:
1. Plaintiff intends to conduct discovery in this case under Level 2 of TEXAS RULE OF CIVIL PROCEDURE 190.4.
2. The Plaintiff is a limited partnership registered to do business in the State of Texas.
3. Defendant BHM Highpointe Ltd. (“BHM Highpointe” or “BHM”) is a limited partnership registered to do business in the State of Texas, and may be served with a citation through CT Corporation, 1999 Bryan St., Suite 900, Dallas, TX 75201-3136.
4. Defendant BHM Highpointe Management LLC (the “BHM General Partner”) is a limited liability company registered to do business in the State of Texas, and is the general partner of Defendant BHM Highpointe) and may be served with a citation through CT Corporation, 1999 Bryan St., Suite 900, Dallas, TX 75201-3136.
5. Defendant Buflington Land Group, Ltd. (“Buffington Land”) is a limited partnership registered to do business in the State of Texas. Defendant Buffington Land may be served with citation through CT Corporation, 1999 Bryan St., Suite 900, Dallas, TX 75201-3136.
6. United Development Funding IV (“UDF”) is a Maryland investment trust doing business in Texas. It may be served with process by serving its registered agent, Corporation Service Company d/b/a CSC – Lawyers Incorporating Service Company, at 211 East 7th Street, Suite 620, Austin, Texas 78701.
7. Thomas Buffington (“Buffington”) is an individual resident of Travis County, Texas, who may be served at 3600 N. Capital of Texas Hwy, B-170, Austin, TX 78746-3314.
8. Patrick Starley (“Starlcy”) is an individual resident of Travis County, Texas, who maybe served at 4720 Rockcliff Rd, Unit 5, Austin, TX 78746-1254.
III. Jurisdiction and Venue
9. This Court has jurisdiction over the subject matter complained of in this Petition because the amounts at issue exceed the minimal jurisdictional limits of this Court. Venue is proper in this Court pursuant to §15.001, et. seq. of the TEXAS CIVIL PRACTICE AND REMEDIES CODE, inasmuch as all of the events and property giving rise to the claims alleged occurred in Travis County, Texas and because one of the Defendants has its principal office and place of business or residence in Travis County, Texas. Plaintiff claims monetary damages in excess of $1,000,000.
See full PDF below.