Articles Posted in David Lerner & Associates

Financial Industry Regulatory Authority Inc. arbitrator Alvin Green is ordering David Lerner Associates Inc. to pay claimants Florence Hechtel and Joseph Graziose $24,450 for the Apple REITs that they bought from the firm. They will get the money after returning the Apple REIT 9 shares to the company. The Apple REIT is the 14th largest nontraded real estate investment trust in the US. David Lerner & Associates also will have to reimburse them their $425 FINRA claim filing fee.

According to Graziose and Hechtel, the financial firm misrepresented the Apple REIT 9, as well as breached its fiduciary duty and contract to them. Other Apple REIT investors have made similar claims. However, of the hundreds of arbitration claims (there are also securities lawsuits) that have been pending, this is the first one to go to hearing.

Per FINRA, since 1992 David Lerner & Associates has sold close to $7 billion in Apple REITs, making about $600 million in revenue from the sales (60-70% of the firm’s business since 1996). It is the only distributor of Apple REITs.

Last year, the SRO charged the financial firm with soliciting investors to buy Apple REIT Ten shares (a $2 billion non-traded REIT) without performing a reasonable investigation to make sure the REITs were suitable for these clients. Many of its Apple REIT investors are not only unsophisticated investors but also they are elderly. David Lerner & Associates also allegedly offered misleading information about the distribution online.

Several months ago, FINRA also sued firm owner David Lerner for similar alleged misconduct, including misleading clients about the valuation and risk involved in their Apple REIT Tens. The complaint against Lerner follows statements he is accused of making to investors after FINRA made its charges against the financial firm.

Per the amended complaint, Lerner wrote to over 50,000 clients to “counter negative press.” This letter also talked about a potential opportunity for Apple REIT shareholders to take part in a listing or a sale on a national exchange to get rid of their shares at a reasonable price. Also, at a seminar he hosted Lerner allegedly made statements to investors that were misleading.

For the last nine months, our REIT lawyers at Shepherd Smith Edwards and Kantas, LTD, LPP has been investigating claims on behalf of investors who sustained losses in Apple Real Estate Investment Trusts that they bought from David Lerner Associates. For many investors, these non-traded REITs were unsuitable for them.

First Apple REIT case goes against Lerner, Investment News, May 23, 2012

FINRA Charges David Lerner & Associates With Soliciting Investors to Purchase REITs Without Fully Investigating Suitability; Lerner Marketed REITs on its Website With Misleading Returns, FINRA, May 31, 2011

More Blog Posts:

David Lerner & Associates Ignored Suitability of REITs When Recommending to Investors, Claims FINRA, Stockbroker Fraud Blog, June 8, 2011

REIT Retail Properties of America’s $8 Public Offering Results in Major Losses for Fund Investors, Institutional Investor Securities Blog, April 17, 2012

Shepherd Smith Edwards and Kantas LLP Pursue Securities Fraud Cases Against Merrill Lynch, Pierce, Fenner, & Smith, Purshe Kaplan Sterling Investments, and First Allied Securities, Inc., Stockbroker Fraud Blog, May 10, 2012 Continue reading

FINRA has filed securities charges against David Lerner & Associates, Inc. accusing the broker-dealer of not taking into account suitability when soliciting vulnerable investors-in particular, elderly clients, to buy shares in the non-traded, $2B Apple REIT Ten offering. The SRO is also accusing the broker-dealer of posting misleading information online about distributions.

DLA has been Apple REITs only underwriters for nearly two decades. The broker-dealer has sold almost $6.8B of the securities into about 122,600 customer accounts. The series has made $600M in fees and other earnings for the broker-dealer, making up 60 to 70% of the firm’s yearly business. Since January, DLA also has been sole underwriter for Apple REIT Ten, which has sold over $300M of a $2B offering of shares. DLA associates earn numerous fees, including 10% of all offerings.

The SRO says that for at least seven years, the closed Apple REITs have “unreasonably valued” their shares at $11 (notwithstanding performance declines, market fluctuations, and increased leverage). The REITs, which were launched from 2004 and 2008 and were used mainly used to buy extended hotel stays, have managed to keep up “outsized” distributions of 7-8% through leveraged borrowing and returning of capital to investors. The SRO contends, however, that DLA did not disclose on its website that the income from real estate was not enough to support these. FINRA also claims that DLA provides “misleading” distribution rates on its website for all past Apple REITs.

DLA is denying the allegations.

Finra Sues David Lerner Firm, Wall Street Journal, June 1, 2011
FINRA Charges Firm With Ignoring Suitability, Providing Bad Data on REITs, BNA, June 1, 2011

More Blog Posts:

Ameriprise Must Pay $17 Million for REIT Fraud, Stockbroker Fraud Blog, July 12, 2009
W.P. Carey & Co Settles SEC Charges Over Payments of Undisclosed REIT Compensation, Stockbroker Fraud Blog, March 25, 2008
UBS Financial Services Fined $2.5M and Ordered to Pay $8.25M Over Lehman Brothers-Issued 100% Principal-Protection Notes, Institutional Investors Securities Blog, April 12, 2011 Continue reading