Category Archives: Strategic Realty Trust

Thompson National Properties, Strategic Realty Trust Update

Legal troubles continue to mount for Tony Thompson, the former director of Thompson National Properties.  On October 29, 2013, an investor filed a putative class action lawsuit against Thompson and his companies.  Thompson also faces a contentious proxy battle in a real estate trust he once controlled and continued disciplinary actions from the Financial Industry Regulatory Authority (FINRA).

The lawsuit was filed in the U.S. District Court of Northern California.  Plaintiffs contend that Thompson misrepresented his company’s true financial condition to investors through the offering of Strategic Realty Trust (SRT), then known as TNP Strategic Realty Trust.

SRT is a non-traded real estate investment trust (REIT) meaning: (1) that it is public because it is registered with the Securities and Exchange Commission (“SEC”), can sell to the investing public rather than only to qualified investors and is required to file reports with the SEC; and (2) that it is non-traded because its securities are not listed on any national stock exchange.  There has never been a public market for the shares of SRT’s stock.

In other SRT news, Thompson continues to battle to regain control of SRT.  Andrew Batinovich, CEO of Glenbourgh LLC, purchased a controlling interest in SRT earlier this summer and helped set up a special committee of SRT’s executive board to reform the company.

In response, Thompson has organized a group of SRT investors calling for a shareholders meeting and vote to replace Batinovich and his special committee.  Batinovich contends in a letter to investors that Thompson is trying to regain control of SRT to reinstate a 20 year $10 million management contract that SRT made with TNP.  SRT’s new board suspended the contract calling it unreasonable and against the trust’s charter.

There are fundamental problems inherent to non-traded REITs.  Perhaps most significantly, investors typically pay up-front commissions of between 10-15% on their purchase of the securities.  These commissions are taken from the sales proceeds of the securities and do not appear on the purchasers’ brokerage statements.  The brokerage firms that place these securities typically receive approximately half of the up-front commissions and the REIT’s sponsor receives the balance.  The forfeiture of 10-15% of the initial investment results in a substantial impairment to the REIT.

Broker-dealer firms have an obligation to make suitable investment recommendations to their customers.  It appears that this investment was unsuitable for many investors.  It also appears that many brokerage firms failed to conduct adequate due diligence before recommending this investment to their customers.

It is possible for many investors to recoup losses suffered in SRT by pursuing claims against the broker-dealer firms that sold the investment in arbitration at FINRA.

Investors in SRT are encouraged to contact the law firm of Blau & Malmfeldt at 312-443-1600 for a free initial consultation to discuss recovery options.  Blau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.

Recovery Options for Thompson National Properties Investors

In July 2013, the Financial Industry Regulatory Authority (FINRA) initiated a disciplinary proceeding against Tony Thompson and TNP Securities, LLC (TNP Securities).  FINRA has alleged that Mr. Thompson and TNP Securities committed fraud in connection with the sale of securities in various affiliates of Thompson National Properties (TNP).  TNP was the entity through which Mr. Thompson intended to conduct business as a large scale commercial real-estate investor.

Beginning in June 2008, TNP set up a series of guaranty notes programs, including TNP 12% Notes Program, TNP 2008 Participating Notes Program, and TNP Profit Participation Program to raise money for TNP’s real estate investments.  These notes promised high interest payments – between 9% and 13% – as well as an explicit guaranty from TNP to make interest and principal payments to investors.

According to FINRA, TNP and Mr. Thompson went to considerable lengths to conceal TNP’s financial condition from investors.  For example, TNP continued to use financial statements from April 2008 (i.e., before the financial crisis) to sell TNP through 2010, despite the fact that TNP began to suffer massive losses in late 2008.

In October 2010, TNP asked investors in the TNP 12% Notes Program for authorization to use investor funds to cover operating costs of TNP and associated programs.  As TNP’s network of real estate investment funds continued to collapse, TNP used funds from the 12% Notes Program and the 2008 Participating Notes Program to make loans to a completely separate entity which would eventually declare bankruptcy.  These programs also began to use new investor funds to make interest and principal payments to older investors without the knowledge or consent of investors.

TNP also sponsored various limited liability companies and trusts in which equity interests were sold to retail investors.  SEC reports show that TNP Vulture Fund VIII, LLC was incorporated around July 2008 and would sell over $9 million of its planned $48 million offering.  TNP Irving Square, DST (a business trust) was incorporated around July 2010 and sold $4.6 million of its planned $5 million offering.  Both of these funds fared poorly.

It appears that many brokerage firms continued to sell private securities in TNP related entities despite the existence of many obvious red flags surrounding these investments. Regardless of these problems, TNP investments did not make any sense for many investors because of their inherent risk.

A class action lawsuit was recently filed against Berthal Fischer & Company Financial Services (Berthal Fischer), a securities brokerage firm that sold TNP investments.  The class action complaint alleges that Berthal Fischer misrepresented TNP’s financial condition in connection with its sale of TNP investments and that it failed to conduct adequate due diligence before recommending and selling these investments.

While class action lawsuits make sense for certain investors – particularly those who made very small investments – they generally result in settlements of pennies on the dollar.  Many investors will fare much better by pursuing claims against their brokers in arbitration.

If you have suffered losses in a TNP investment and would like to learn more about your recovery options, please call Blau & Malmfeldt at 312-443-1600 or email Paul Malmfeldt at pmalmfeldt@blau-malmfeldt.comBlau & Malmfeldt is a law firm that represents investors across the United States in securities, commodity futures, partnership, and shareholder rights disputes.