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June 8, 2011

David Lerner & Associates Ignored Suitability of REITs When Recommending to Investors, Claims FINRA

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

REITs

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

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Posted In: David Lerner & Associates , FINRA , Financial Firms , REITs

July 12, 2009

Ameriprise Must Pay $17 Million for REIT Fraud

The US Securities and Exchange Commission says Ameriprise Financial Services has consented to pay $17.3 million to settle allegations that it received millions of dollars in undisclosed compensation in exchange for selling certain REITs (real estate investment trusts) to its brokerage customers.

The SEC says Ameriprise demanded and got “revenue sharing” payments to sell the REITs but neglected to disclose it was receiving the payments. The SEC is also accusing Ameriprise of violating a number of federal securities laws when it sold over $100 million in unregistered shares involving one specific REIT.

SEC Enforcement Director Robert Khumazi says the broker-dealer’s clients were not told that brokers had incentives to sell the REITs. He stressed the importance of investors being able to rely on unbiased advice from financial advisers.

The SEC charges come from REITs sales that took place between 2000 and May 2004. CNL Holdings Group, Inc. and W.P. Carey & Co. LLC created, advised, and managed the REITs named in the proceedings.

By agreeing to settle, Ameriprise is not admitting to or denying wrongdoing.

Shepherd Smith Edwards & Kantas LTD LLP represents Ameriprise investors with securities fraud cases against the broker-dealer. Stockbroker fraud attorney and firm founder William Shepherd says “Our law firm handles claims of all types for investors nationwide who lost in accounts at Ameriprise and other financial firms. Over 90% of our clients recover all or part of their losses. It is sad that many investors choose not to seek recovery from investment firms that commit fraud or and other wrongdoing. We offer a free consultation and most of our clients advance no fees or costs but instead pay these out of their recovery.”

Related Web Resources:
Ameriprise Pays $17.3M To Settle SEC Charges, Wall Street Journal, July 10, 2009

REITs, Investopedia

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Posted In: Ameriprise - Securities America , Broker Fraud , Broker-Dealers , Financial Firms , REITs

March 25, 2008

W.P. Carey & Co Settles SEC Charges Over Payments of Undisclosed REIT Compensation

REIT Manager W.P. Carey & Co has reached a $30M settlement agreement with the SEC over antifraud charges.

According to the SEC, W.P. Carey, its ex-CFO John J. Park, and its former chief accounting officer Claude Fernandez paid $10 million in undisclosed compensation to a brokerage firm that sold real estate investment trusts (REITs). The three parties then misrepresented these moneys in periodic filings to keep the compensations secret.

These activities allegedly benefited the broker-dealer and W.P. Carey, which received larger fees as a result, including $6.4 million in reimbursements and illegal fees. Park and Fernandez are accused of using fake invoices to hide the payments and get around the regulatory limitations about compensation.

The SEC says W.P. Carey is supposed to disclose such payments and that investors are entitled to know whether a brokerage firm is being compensated when making a sale.

The commission is also accusing W.P. Carey of taking part in a $235 million illegal and uregistered offering of REIT shares and being responsible for a broker-dealer receiving $100,000 from two REIT’s for proxy solicitation services. The SEC Is also accusing W.P. Carey of failure to comply with other disclosure requirements.

W.P. Carey has agreed to pay $20 million in interest and disgorgement and $10 million in penalties, which will be given to REITs that were adversely affected by the scheme.

Park, who is now in charge of W.P. Carey’s strategic planning, will pay a $240,000 penalty and serve a five-year ban from that prevents him from working as a director or officer of a public company. Claude Fernandez, now W.P. Carey’s managing director, is suspended for two years and will pay a $75,000 fine. All three defendants are permanently enjoyed from violating federal securities laws.

Shepherd Smith and Edwards represents victims of investor fraud in arbitration and in court. Our stockbroker fraud lawyers have helped thousands of people across the United States get their money back.

Related Web Resources:

SEC Closes $30M Case against REIT Manager, CCHWallstreet.com, March 24, 2008

Read the Complaint (PDF)

What Are REITs?, Investopedia.com

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Posted In: REITs , Securities Fraud

December 12, 2006

For Investors, REIT’s Go Global

REIT Investors around the world can now take advantage of a global property boom in commercial real estate. Whereas several years ago, only six other nations, including the United States, allowed investors to invest in real estate investment trusts, there are now nearly 24 countries that either have established REITs or are structuring them.

REIT’s allow investors to become exposed to real estate without having to involve themselves in private investment outfits or direct ownership. Typically, real estate investment trusts own offices, apartments, and other kinds of commercial real estate, including warehouses, shopping malls, and hotels. Shareholders receive dividends based on 90% of all taxable income.

Examples of two countries that are developing REIT laws for investors:

· Germany is finalizing certain REIT-related rules that will be made into laws in 2007.
· The United Kingdom’s REIT law will go into effect on January 1, 2007.

Also, from 2003 and 2006, the market cap of non-US real estate securities increased to approximately $400 billion—a 300% growth.

Types of REITS:

Equity REITs are in charge of the value/equity of their real estate assets. They invest in/own properties.

Mortgage REITs buy mortgage-backed securities or existing mortgages or lend money to real estate owners for their mortgages. These type of REITs are involved in investing and owning property mortgages, and revenues mainly come from interests earned on mortgage loans.

Hybrid REITs invest in mortgages and properties while using the investment strategies of both equity REITs and mortgage REITs.

Currently, the majority of institutional-quality properties are securitized in Europe, so American retail investors could have an opportunity to invest in markets abroad. Germany could be the largest site for property investment in Europe since it is that continent’s largest economy. Open-ended retail funds in Germany currently own $101 million in commercial real estate. Due to a decrease in real estate value between 2004 and 2005, bribery scandals related to REIT funds in Germany, and a growing interest by the international community to invest in the country, the REIT law was more quickly established there. Although residential properties are not allowed to be owned by REIT’s at this time, experts say that more than $150 million in German real estate could enter the international market.

In the United Kingdom, analysts believe the new law will lead to a slew of acquisitions and mergers and that large companies such as British Land and Land Securities Group will end up buying the smaller public companies.

Potential Negatives of Jumping into the Global REIT Market:
· REIT investors must deal with the potential risks that come with any type of real estate investment.
· There are also the added possibilities of decreased liquidity, political instability, currency market fluctuations, and economic uncertainties.

Investors wishing to invest in REIT’s can either:
· Buy their shares directly on an open exchange.
· Invest in a mutual fund specializing in public real estate.

Shepherd Smith Edwards & Kantas LTD LLP is committed to helping American investors recover losses caused by inappropriate actions of stockbrokers and their firms. If you have suffered a loss due to an investment you have made, and you would like to speak with an attorney, contact Shepherd Smith Edwards & Kantas LTD LLP today. With our offices in New York, San Francisco, Houston, Dallas, Chicago, Phoenix, New Orleans, and Mexico City, we are able to represent clients throughout the United States and abroad.

REITs Spreading Around The Globe, Investors.com, December 6, 2006

REIT, Investopedia.com

Related Web Resource:

Invest In REITs

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