Published on:

FINRA Bars Broker Anthony “Tony” Warren Thompson and Thompson Securities, LLC for Material Misrepresentations in Connection with the Sale of Private Note Offerings

On March 30, 2015, the Financial Industry Regulatory Authority (“FINRA”) barred broker Anthony “Tony” Warren Thompson (“Thompson”) and expelled his firm, TNP Securities LLC (“TNP Securities”), for making material misrepresentations and omissions in connection with the sale of private placement securities in violation of various FINRA Rules and securities laws. The securities in question were a series of promissory notes sponsored by three Thompson National Properties, LLC (“TNP”) subsidiaries known as the: TNP 12% Notes Program, LLC (“12% Notes LLC”); TNP 2008 Participating Notes Program, LLC (“PNotes LLC”); and the TNP Profit Participation Notes Program, LLC (“PPP Notes LLC”) (collectively, the entities are referred to as the “Guaranteed Notes LLCs” and the notes they issued are collectively referred to as the “Guaranteed Notes”).

Thompson first became registered with FINRA in 1972 and except for two brief periods in 2008 and 2009, he remained registered until 2013. Previously, Thompson, through TNP, was known for selling private real estate investments know as tenants-in-common exchanges. TNP Securities is a wholly owned subsidiary of TNP that served as a wholesale broker-dealer for the Guaranteed Notes.

On September 18, 2013, FINRA filed its initial complaint (“Complaint”) against Thompson and TNP Securities. Originally, the complaint alleged seven counts against Thompson and TNP. However, pursuant to a stipulation, FINRA agreed to dismiss three of those counts, leaving the remaining four counts as follows: (1) FINRA allged that in connection with the sale of the Guaranteed Notes, Thompson and TNP, intentionally or with reckless disregard to the truth, made material misrepresentations and omissions in violation of Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, NASD Rules 2120 and 2110, and FINRA Rules 2020 and 2010; (2) FINRA alleged that those misrepresentations and omissions of material fact were made negligently in violation of Sections 17(a)(2) and (3) of the Securities Act of 1933, NASD Rule 2110, and FINRA Rule 2010; (3) FINRA alleged that Thompson violated FINRA Rule 2010 by sending misleading communications to investors when he circulated a solicitation seeking their consent to increase the level of PNotes LLC proceeds that could be used for investing in TNP; and (4) FINRA alleged that TNP Securities failed to supervise the offering of the PPP Notes in violation of NASD Rule 3010 and FINRA Rule 2010.

Specifically, FINRA alleged that from 2009 through 2012 (the “relevant period”), Thompson, through TNP, organized a national network for marketing and selling the Guaranteed Notes to retail broker-dealers, raising approximately $50 million. FINRA further alleged that in the offering materials to some of the Guaranteed Notes, TNP Securities represented that TNP had approximately $8.5 million in equity. However, TNP Securities did not accurately correct that number as its equity continually declined from 2008. By the third quarter of 2012, TNP’s total equity was approximately negative $47.8 million. Additionally, in October 2010, PNotes LLC issued a solicitation (“Solicitation”) to noteholders seeking consent to allow the PNotes LLC to increase the amount of proceeds that it could invest in TNP and TNP affiliates. The Solicitation asked for approval to boost the limit PNotes, LLC could invest customer funds from ten-percent (10%), to fifty-percent (50%). However, according to FINRA, the Solicitation failed to disclose PNote LLC’s net operating losses as well as TNP’s poor financial condition. Finally, FINRA alleged that each of the notes made interest payments to investors directly from investor capital, in a Ponzi-like manner, which was not permitted through the note offering documents.

Prior to the start of the FINRA hearing, FINRA Enforcement filed a motion requesting summary disposition, with respect to liability for the first three causes of action. Thompson and TNP opposed the motion. The FINRA Office of Hearing Officers (“OHO”) Panel issued an order granting the motion with respect to the second count, alleging negligent misrepresentations in violation of Sections 17(a)(2) and (3) of the Securities Act of 1933, NASD Rule 2110, and FINRA Rule 2010, and denying it with respect to two issues: (i) the element of scienter (or the mental state embracing intent to deceive, manipulate, or defraud) needed in the first cause of action and; (ii) whether Thompson’s used misleading terminology in the Solicitation to PNotes LLC investors. At the hearing, Thompson argued that his good faith reliance on the legal advice provided by outside counsel negated the element of scienter, which was necessary in finding Thompson and TPN Securities liable under Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. However, the OHO Panel found that the evidence and testimony showed that Thompson, and not his outside counsel, was the driving force in drafting the offering materials. Furthermore, the OHO Panel found Thompson’s argument that he merely relied on numbers he was given by his accounting department unpersuasive in light of his hands-on, micromanaging executive style. Ultimately, the OHO Panel found TNP Securities and Thompson liable for making misrepresentations and omissions in relation to the sale of the Guaranteed Notes and for making further misrepresentations and omissions through the Solicitation (see Counts 1-3 above); and found TNP Securities liable for failing to supervise offerings in private placement securities (see Count 4 above).

FINRA Enforcement asked the OHO Panel to order over $36 million in restitution to defrauded investors. However, the panel declined to do so, finding that FINRA failed to show the required element of loss causation, which was attenuated due to the fact that TNP Securities did not market to individual investors. Instead, the OHO Panel issued an Order barring Thompson from the industry, expelling his firm, TNP Securities, and awarding costs against TNP Securities and Thompson in the amount of $6,832.04. The FINRA order may be found here.

Lax & Neville LLP has extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses due to investments in promissory notes. Please contact our team of attorneys for a consultation at (212) 696-1999.