Hedge Fund Attacks Texas REIT as ‘Ponzi-Like Scheme’

According to Bass, United Development is using money raised for UDF IV to provide liquidity for UDF I and UDF III, while UDF V is supporting UDF IV's funding.

But United Development insists it has been working "since April 2014 with a nonpublic fact-finding investigation being conducted by the SEC … [T]he SEC has not identified to us any specific issues that are the subject of its investigation [and] … has informed the companies that this investigation is not an indication that any violations of law have occurred …"

Bass has a reputation for making the right calls on the market. For instance, he bet against subprime mortgages before the housing crisis and shorted biotech stocks before they weakened last year.

In his letter to investors, the hedge-fund manager argues that the situation is rapidly deteriorating.

"After years of mismanagement, the UDF structure has begun to implode. Evidence of UDF's dire situation includes a series of defaults, bankruptcy petitions, lawsuits, key resignations — including that of UDF's audit firm, a key UDF director, and the CFO of UDF's largest borrower — followed by UDF's own overdue admission that it has been the subject of an SEC investigation since April 2014," he explained.

UDF, he adds, "faces significant bankruptcy risk."

— Check out As Cetera Splits From RCAP, Will Its Advisors Split, Too? on ThinkAdvisor.