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The Financial Industry Regulatory Authority (FINRA) has filed a complaint against well-known real estate investor Tony Thompson alleging that he deceived and defrauded investors who bought $50 million in high-yield promissory notes sponsored by Thompson National Properties LLC, Mr. Thompson's main business enterprise. The three note programs at the heart of FINRA's complaint are the TNP 12% Notes Program LLC, the TNP 2008 Participating Notes Program LLC and the TNP Profit Participation Program LLC. Thompson National Properties had provided a purported guarantee of principal and interest for the notes when they were sold. However, neither the private placement memorandums (PPMs) for the three offerings nor their supplements disclosed the likelihood that Thompson National Properties would not be able to meet the guarantees of principal and interest. According to the complaint, one of those series of private notes is in default, while two others have stopped making payments to clients.

Mr. Thompson started Thompson National Properties in 2008, eventually raising $250 million from investors through a series of real-estate-related offerings. One of those is a struggling nontraded real estate investment trust, TNP Strategic Retail Trust Inc., which eliminated its dividend to investors this year. FINRA has had Mr. Thompson and his captive broker-dealer, TNP Securities, LLC, under investigation since last year for allegedly failing to cooperate in a FINRA investigation, but the subject complaint is the first formal action by FINRA against Mr. Thompson. Mr. Thompson and TNP Securities are allegedly in violation of Securities and Exchange Act of 1934 as well as FINRA Rule 2020, which prohibits the use of manipulative, deceptive or other fraudulent devices by registered representatives and broker-dealers. They are also allegedly in violation of FINRA Rule 2010, which requires registered reps and broker-dealers to adhere to a high standard of commercial honor and trade.

Thompson National Properties sold their note programs through a network of independent broker-dealers. Prior to marketing and selling an investment, broker-dealers are required to conduct due diligence, which requires an analysis of the legitimacy, nature, and risks associated with the investment. It is a measure taken to prevent unnecessary harm to a customer. If broker-dealers do not conduct adequate due diligence, they may be liable to investors for damages flowing from the investment. Independent broker-dealers are notorious for their lax supervisory practices and procedures, which oftentimes leaves investors vulnerable to sales of securities that have not been reviewed or authorized by anyone other than the sales representative earning a commission.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. Please see our Instablog profile (left column) for ways to contact us and get answers to any of your questions about this blog post and/or any related matter.