Saying disparaging things about the companies one is shorting is sort of the job description of the short-seller. Saying allegedly false things “in order to destroy” a business and profit “from the resulting damage” invites litigation. The line is fine, and according to one alleged Ponzi scheme, Kyle Bass has found the wrong side of that line.
A troubled real estate development company in Texas, United Development Funding, on Tuesday filed a lawsuit against hedge fund boss Kyle Bass for making allegedly "false and disparaging statements" in 2015 conveying that various UDF real estate investment trusts were working as a Ponzi scheme….
The alleged false assertions made by Mr. Bass against UDF included: the UDF Funds had no ability to carry on their business; the shares were basically worthless; real estate developments were not genuine; investor money was misappropriated; and the funds' largest borrower was not independent or operating at "arm's length" from UDF.
Kyle Bass, however, didn’t get to put investment genius clauses into his investor agreements for nothing. So he’s responding to the lawsuit with a series of further disparaging statements.
"It is our strong belief that this lawsuit is without merit, and is intended to distract and deflect from UDF's other problems, including significant investor litigation and law enforcement issues.”
Texas REIT sues hedge fund boss Kyle Bass [InvestmentNews]