Noted real estate investor Tony Thompson, enmeshed in a proxy fight for control over a nontraded real estate investment trust he launched in 2009, is fighting back.
Mr. Thompson has long been a fixture in the independent-broker-dealer industry for his sale of real estate deals, including 1031, or “tenant in common,” exchanges before the 2007 and 2008 real estate crisis.
Mr. Thompson lost control of the small, $270 million REIT, which was formerly called the TNP Strategic Realty Trust Inc., in August when the board removed him as co-CEO and president. While he retained a seat on the REIT's board, Mr. Thompson was replaced as CEO and president by Andrew Batinovich, a real estate investor who had purchased a stake in the REIT earlier in the summer. The name was changed to Strategic Realty Trust Inc.
The proxy battle, which has been brewing for several weeks, is between Mr. Thompson's supporters and Mr. Batinovich.
Mr. Thompson's management company, TNP Property Manager, in September sued the Strategic Realty Trust. Then, earlier this month, a group called the SRT Shareholders Coalition that included Mr. Thompson's wife, Sharon, a smattering of brokerage executives and other investors, launched a proxy fight calling for a shareholders' meeting to elect a new board.
In proxy filings with the Securities and Exchange Commission, the SRT Shareholders Coalition called for Mr. Batinovich and the current board of the REIT to step down.
“We believe this investment can still perform for investors, but not with the current board in place, with their track record of questionable decisions and low level of transparency,” said Ron King, chief executive of Centaurus Financial Inc., a broker-dealer that sold the REIT. He controls 1,000 shares.
According to a filing from the shareholders' group this month, a cadre of independent directors for the REIT have jacked up expenses by tripling their compensation in less than two years, doubled the cost of general and administrative overhead by $2 million, hired an inexperienced chief financial officer who was fired months later, and suspended the dividend to investors.
In a letter to the REIT's investors filed on Monday with the SEC, Mr. Batinovich urged shareholders to ignore the group's proposal, saying it was an attempt to replace the board with people friendly to Mr. Thompson and rehire him as the REIT's adviser and property manager.
Mr. Thompson was fired in August for a number of reasons, Mr. Batinovich wrote.
“Mr. Thompson paid fees to himself before they were earned,” he wrote. Mr. Thompson also took another $775,000 fee “by recommending and effecting a risky investment that violated loan covenants,” which forced the REIT to suspend its dividend earlier this year.
In an email to InvestmentNews, Mr. Thompson encouraged REIT shareholders to become informed of the shareholders coalition's position.
"The special committee [of the board] and Mr. Batinovich made it clear in their letter that they oppose shareholder participation by opposing the coalition's call for a special meeting,” Mr. Thompson wrote. “We've heard from shareholders that they are relieved to see a group of SRT shareholders pushing back and fighting to protect their investment.”
Mr. Thompson's legal problems came to the fore this summer. In July, the Financial Industry Regulatory Authority Inc. filed a complaint against Mr. Thompson and his real estate company, Thompson National Properties, alleging that he deceived and defrauded investors who bought $50 million in high-yield promissory notes sponsored by the company.
But in a positive development for Mr. Thompson, earlier this month Finra amended its complaint and dropped the fraud allegations against Thompson National Properties, which is not a registered broker-dealer.
Still, H. Thomas Fehn, Mr. Thompson's attorney, took exception to how Finra handled the matter.
“They tarnish you up but don't polish you off when they're done,” he said. “That's unsportsmanlike conduct.”
Nancy Condon, a spokeswoman for Finra, said that the charge against Thompson National Properties alleging violations of Finra's just and equitable principles of trade rules was dropped due to “jurisdictional reasons,” but that similar charges remain in effect against Mr. Thompson.
“All charges against Thompson are the same, including the fraud charge,” she wrote in an e-mail.
Adding to Mr. Thompson's potential legal woes, plaintiffs have recently begun filing investor complaints against him and other REIT executives seeking class action status. At least one of those complaints reiterates many of the allegations in the Finra complaint.
Mr. Thompson is perhaps best known for a merger of one of his former holdings, NNN Realty Advisors Inc., in 2007, with Grubb & Ellis Co. That deal failed to prosper. Burdened by debt, that once-iconic commercial real estate company filed for bankruptcy protection last February and then sold its remaining assets for $30 million.