Calling Something A Ponzi Scheme May Or May Not Enjoy First Amendment Protection In Texas

Much to his chagrin, Kyle Bass is going to find out the hard way.
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A couple of years ago, an anonymous report hit the interwebs stating that a frequently-sued Texas REIT, United Development Funding, was perhaps being sued because it was running a Ponzi scheme. In the months after, UDF got raided by the FBI and received a Wells notice, the broker-dealers that sold its REITs were sued themselves, and the anonymous writer was revealed to be none other than Kyle Bass. This did not make UDF happy, so—in spite of the raiding and the getting sued and all the rest of it—it decided to do some suing of its own, specifically of Kyle Bass, for wrongly accusing the firm of misappropriating funds and claiming phony real-estate developments and running worthless funds and, of course, being a Ponzi scheme. Bass and his hedge fund, Hayman Capital, shot back that it was all just, like, their opinion, man, and opinions count as free speech, so back the hell off. The Texas courts are not so sure.

billofrights

The Defendants… argued that the Defendants were exercising rights of free speech in publishing negative material concerning UDF’s business—first anonymously and then on a proprietary website—and that the speech was made without actual malice…. After an extended evidentiary hearing, the Court ruled in favor of UDF, and has allowed the lawsuit to proceed to trial….

“The limited discovery granted by the Court allowed us to see this coordinated plan documented in the emails and texts of Bass and Hayman. We intend to pursue the lawsuit to trial as expeditiously as possible, and we look forward to our day in court.”

Ellen Cirangle, counsel for UDF, stated, “In all the cases that I have done, I have never seen such extensive dissemination of negative information about a company, including through anonymous postings.”

UDF Lawsuit Against Kyle Bass and Hayman Capital Will Proceed [press release]

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