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.