FINRA suspended former TNP Securities, LLC Co-Chief Compliance Officer Wendy Janeen Worcester of Newport Beach, California and fined her $15,000 for allegedly failing to conduct adequate due diligence, including a failure to establish, maintain and enforce written supervisory procedures ("WSPs") as well as a failure to ensure TNP was in compliance with FINRA rules and federal securities laws such as anti-fraud provisions.
According to the investigation, Worcester served as TNP's Chief Administrative Officer and Secretary beginning in June 2008 before being named Co-Chief Compliance Officer in May 2009.
Prior to Worcester's June 2008 appointment, the firm opened a real estate-oriented private placement offering in the Bruin Fund, LP. In June 2008, the firm released a private placement memorandum in regards to the fund and began a private placement offering of promissory notes, which raised nearly $21.6 million from public investors.
In December 2008, the firm commenced a second promissory notes private placement offering ("PNotes"), raising another $26.2 million, before commencing an August 2009 registered offering of equity shares in its TNP Strategic Retail Trust, Inc. ("SRT REIT"), of which Worcester served as Chief Financial Officer.
While serving as TNP's Co-Chief Compliance Officer, Worcester allegedly failed to observe and/or act upon multiple red flags that indicated TNP's financial condition was deteriorating significantly. For instance, TNP incurred operating losses of $25.8 million resulting in negative net equity of $13.5 for the 2009 calendar year.
Further investigation uncovered that on four occasions in 2009, funds were transferred from PNotes to the Bruin Fund while TNP or an affiliate including the Bruin Fund defaulted on mortgages for its properties in 2010, resulting in foreclosure later that year.
In determining the causes and contributing factors for this collapse, FINRA found that from July 9 through 2010, in regards to both PNotes, SRT REIT and the Bruin Fund, Worcester failed to establish, maintain, and enforce an adequate supervisory system meant to achieve compliance with laws, rules and regulations.
Accordingly, FINRA charged Worcester with failing to ensure that TNP had a reasonable basis to assume that its offerings were suitable for certain investors and that as a result, the firm's supervisory system did not safeguard against violations of the anti-fraud provisions of federal securities laws.
Investigators allegedd that Worcester additionally neglected to examine and evaluate the historical and current financial statements of issuers, TNP and its affiliates, inquire about TNP and its affiliates' business prospects, objectively evaluate affiliates' financial experiences dealing with TNP and inquire about past securities offerings and patterns of success.
FINRA believes that because Worcester did not conduct adequate due diligence, she did not see that the representations in the SRT REIT prospectus were materially misleading because they did not adequately reflect the performance of the Bruin Fund and PNotes.
For this reason, FINRA believes Worcester was unable to gauge the true dismal financial condition of TNP and as a result, allowed potentially unsuitable recommendations to occur and prospectus material to become inaccurate.
If you have invested with any broker or firm whose failure to establish, maintain and enforce procedures, conduct due diligence or other omissions or oversights have led to unsuitable recommendations, materially misleading memoranda or poor investment strategy, and such misconduct has proven harmful to your investments or interests, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.