Actions compromised independence of embattled broker-dealer, TNP Securities, Finra says.
A former chief financial officer of noted real estate investor Tony Thompson's nontraded real estate investment trust last week was suspended for five months from the securities industry for failing to conduct adequate and independent due diligence into an array of Mr. Thompson's real estate deals.
The Financial Industry Regulatory Authority Inc. last Wednesday temporarily suspended Wendy J. Worcester, who was also co-chief compliance officer of the broker-dealer controlled by Mr. Thompson, TNP Securities LLC, from working with a Finra broker-dealer and fined her $15,000, according to a Finra order.
Ms. Worcester “failed to conduct adequate and independent” due diligence regarding three separate private-placement offerings sponsored by Thompson National Properties LLC, according to Finra. She “thus compromised the independence” of the broker-dealer, TNP Securities, according to Finra.
In 2009, Thompson National Properties was hurting for cash, posting losses that year of almost $25.8 million, according to the Finra order. That resulted in negative net equity of $13.6 million for the firm, which was in the middle of launching its REIT, the TNP Strategic Retail Trust Inc.
Two of the Thompson private placements, both note programs, paid old investors with new investor money or money from elsewhere in the operation, according to Finra.
“During 2009 and 2010, the [TNP 12% Notes Program LLC and TNP Participating Notes Program LLC] were unable to pay certain investor distributions from operating cash flow,” according to the Finra order. Instead, they “relied on new investor proceeds or transfers of cash from [Thompson National Properties] or its affiliates in order to make distributions to investors.”
Both those note programs are in default.
Finra is conducting an investigation into Mr. Thompson and TNP Securities for failing to hand over a log of more than 300,000 e-mails to the firm's attorney. Earlier this year, the REIT suspended the payment of dividends to investors.
Mr. Thompson is widely known among independent broker-dealers for his role as a leading seller of tenant-in-common 1031 exchanges before the real estate crash of 2007-08.
“Wendy Worcester is a very professional and bright lady,” Talle Voorhies, president of Mr. Thompson's broker-dealer, wrote in an e-mail. She did not respond to the questions about whether Mr. Thompson was facing an imminent Finra action. Mr. Thompson did not respond to phone calls and e-mails.
According to the Finra order, Ms. Worcester consented to it without admitting or denying its allegations. She could not be reached for comment.
Ms. Worcester wore various hats at Mr. Thompson's enterprises, according to the Finra order. She worked in compliance at the broker-dealer from May 2009 until October 2010. That overlapped with her job from September 2008 to July 2010 as CFO of the TNP Strategic Retail Trust, a struggling nontraded REIT that Mr. Thompson created in September 2008 at the depths of the credit crisis. The REIT has just $273 million in assets.
Mr. Thompson's main entity is Thompson National Properties, which is the sponsor for a series of private placements, as well as the REIT. Between June 2008 and October 2010, Thompson National Properties raised close to $50 million through selling three separate private placements, and according to the Finra order, this is where Ms. Worcester's due diligence faltered.
She did not “examine and reasonably evaluate historical and current financial statements of the issuer, [Thompson National Properties] and its affiliates to identify and reasonably evaluate negative trends indicated by the financial statements and the requirements for significant capital infusions, increased revenues from operations or decreased expenses,” according to Finra.
The TNP Strategic Trust REIT has had several CFOs in its five-year lifespan. After Ms. Worcester left in 2010, James Wolford replaced her. He left in November 2012 and was replaced by Dee Balch.
