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Kyle Bass’s Texas Feud Spotlights Short-Selling Tactics

Anonymous blog posts, a call to the FBI and a bold bet against a real estate investment trust led to lawsuits.

Corrected
The Mercer Crossing development in Farmers Branch, Texas, in June. 

The Mercer Crossing development in Farmers Branch, Texas, in June. 

Photographer: Laura Buckman

Ernest Poole had been dead for more than 60 years when someone opened an account in his name at an online platform called Harvest Exchange. Poole, a Pulitzer Prize-winning reporter, was best known for his sympathetic pieces about the Russian Revolution. The platform was strictly for capitalists.

Poole was a pseudonym for Kyle Bass, a Dallas hedge fund manager who had taken out what amounts to a Wall Street bounty on a Texas real estate investment trust called United Development Funding. Best known for shorting subprime mortgages ahead of the financial crisis, a Powerball-type win that brought him fame and fortune, Bass had come to believe that UDF was a crooked company hiding losses amid fraudulent transactions with developers. His fund, Hayman Capital Management, had spent months building a short position that would pay off if UDF’s shares tanked.