A former chief financial officer of noted real estate investor Tony Thompson's nontraded real estate investment
trust has been 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. has 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.
She “failed to conduct adequate and independent” due diligence regarding three separate private-placement offerings sponsored by Thompson National Properties LLC, according to Finra.
Ms. Worcester “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 real estate investment
trust, 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,” according to the order.
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.
This year, the
REIT suspended the payment of dividends to investors.
1031 EXCHANGES
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.
Mr. Thompson didn't respond to phone calls and e-mails seeking comment.
According to the Finra order, Ms. Worcester consented to it without admitting or denying its allegations.
She couldn't be reached for comment.
Ms. Worcester wore various hats at Mr. Thompson's enterprises, according to the Finra order.
A VARIED CAREER
She worked in compliance at the broker-dealer between May 2009 and 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 by selling three separate private placements, and according to the Finra order, this is where Ms. Worcester's due diligence faltered.
She didn't “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 last November and was replaced by Dee Balch.
