NexPoint: UDF IV Board's Millions in Management Fees Enrich Imprisoned Executives

NexPoint, a significant shareholder of United Development Funding IV (UDF IV), has raised serious concerns about the current Board of Trustees' approval of millions in management fees for former UDF executives who are now imprisoned for fraud. The Board, which includes members who oversaw the fraudulent activities, authorized the payments despite knowing the executives' criminal convictions. These fees, totaling tens of millions of dollars, were used to fund the legal defense of the convicted executives, further enriching them at the expense of UDF IV shareholders. NexPoint has urged shareholders to vote for change by supporting its nominees for the Board, who would work to recoup these funds and restore value for all shareholders.


The UDF IV Board's decision to approve millions in management fees for imprisoned executives highlights a significant issue affecting the Company's financial performance and shareholder value. These fees, paid to entities controlled by convicted executives, have diverted funds that could otherwise be used to improve the Company's financial health and increase shareholder value.

As of June 30, 2024, UDF IV had paid over $100 million in management fees to the convicted executives' entities since 2015, with the majority of these payments occurring after the executives' imprisonment. This represents a substantial drain on the Company's resources, particularly given that the convicted executives are no longer involved in the Company's day-to-day operations.

The impact of these management fees on UDF IV's financial performance is evident in its declining share price and net asset value (NAV). As of August 16, 2024, UDF IV's share price had declined by 69.02% over the past two years, while the S&P 500 benchmark index increased by 29.01% during the same period. This performance gap can be partially attributed to the millions in management fees paid to the convicted executives' entities, which have eroded shareholder value.


The long-term recovery and growth of UDF IV will be hindered by these management fees, as they limit the Company's ability to reinvest in its portfolio and improve its financial position. NexPoint's nominees, if elected, would prioritize the Company's financial health and shareholder value by addressing this issue and ensuring that management fees are used to benefit the Company and its shareholders.

Shareholders have several legal and regulatory recourse options to hold the UDF IV Board accountable for management fees paid to imprisoned executives. Firstly, they can file a derivative lawsuit on behalf of the company, alleging breach of fiduciary duty by the Board. This would require a majority vote of disinterested shareholders. Secondly, shareholders can file an individual lawsuit against the Board for breach of trust. Lastly, shareholders can request the SEC to investigate the Board's actions, as the SEC has the authority to enforce securities laws and regulations. Shareholders can also vote against the Board's nominees at the next Annual Meeting, expressing their dissatisfaction with the Board's actions.

In conclusion, NexPoint's concerns about the UDF IV Board's approval of millions in management fees to enrich former executives imprisoned for fraud highlight a significant issue affecting the Company's financial performance and shareholder value. Shareholders must take action to hold the Board accountable and ensure that the Company's resources are used to benefit all shareholders. By voting for NexPoint's nominees, shareholders can help restore value and promote the long-term success of UDF IV.