Securities Fraud Blog | Find out if your broker is liable for your losses

TAG | Apple REIT ten

Jun/11

7

David Lerner & Associates Charged By FINRA With Soliciting Investors to Purchase REITs Without Fully Investigating Suitability

Comments off · Posted by admin in FINRA

WASHINGTON — On FINRA’s website, The Financial Industry Regulatory Authority (FINRA) announced May31,2011, that it has filed a complaint against David Lerner & Associates, Inc. (DLA), of Syosset, NY, charging the firm with soliciting investors to purchase shares in Apple REIT Ten, a non-traded $2 billion Real Estate Investment Trust (REIT), without conducting a reasonable investigation to determine whether it was suitable for investors, and with providing misleading information on its website regarding Apple REIT Ten distributions. DLA has sold and continues to sell Apple REIT Ten targeting unsophisticated and elderly customers with unsuitable sales of the illiquid security.

FINRA’s complaint goes on to say that since January 2011, as sole underwriter for Apple REIT Ten, DLA has sold over $300 million of an open $2 billion offering of the REIT’s shares. Apple REIT Ten invests in the same extended stay hotel properties as a series of other Apple REITs closed to investors. Apple REIT Ten and the closed Apple REITs were founded by the same individual, and are all under common management. DLA has been the sole underwriter for Apple REITs since 1992, selling nearly $6.8 billion of the securities into approximately 122,600 DLA customer accounts. DLA earns 10 percent of all offerings of Apple REIT securities as well as other fees. Apple REIT sales have generated $600 million for DLA, accounting for 60 to 70 percent of DLA’s business annually since 1996.

 This complaint against David Lerner & Associates (DLA) alleges that since at least 2004, the closed Apple REITs have unreasonably valued their shares at a constant price of $11 notwithstanding market fluctuations, performance declines and increased leverage, while maintaining outsized distributions of 7 to 8 percent by leveraging the REITs through borrowings and returning capital to investors. As sole distributor, DLA did not question the Apple REITs’ unchanging valuations despite the economic downturn for commercial real estate.

 The FINRA article goes on to say that in its solicitation of customers to purchase Apple REIT Ten, DLA’s website provided distribution rates for all of the previous Apple REITs. These distribution figures were misleading and omitted material information because they did not disclose recent distribution rate reductions or that distributions far exceeded income from operations and were funded by debt that further leveraged the REITs.

 FINRA alleges that DLA failed to sufficiently investigate the valuation and distribution irregularities of the closed Apple REITs prior to selling Apple REIT Ten. As the sole underwriter of all of the Apple REITs, DLA was aware of the Apple REITs’ valuation and distribution practices. Rather than conduct due diligence into those valuations and distribution irregularities to determine that they were reasonable and that the Apple REITs were suitable, DLA accepted the valuations and continued to record them on customer account statements.

 This issuance of a disciplinary complaint represents the initiation of a formal proceeding by FINRA in which findings as to the allegations in the complaint have not been made, and does not represent a decision as to any of the allegations contained in the complaint. Under FINRA rules, a firm or individual named in a complaint can file a response and request a hearing before a FINRA disciplinary panel. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.

This article was obtained on FINRA’s website.

If you or a family member have become a victim of the alleged fraudulent schemes of David Lerner Associates, Inc., call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Jun/11

5

Finra files complaint against David Lerner Associates For REIT Sales to Elderly

Comments off · Posted by admin in FINRA

In a June, 2011, article from Bloomberg News, it was written that David Lerner Associates Inc. has been accused of targeting unsophisticated and elderly customers while selling real estate investment trust (REITs) shares without considering whether the illiquid security was suitable for its clients.

David Lerner Associates is based in Syosset, New York, and known for its “Take a tip from Poppy” advertising slogan, misled investors who bought more than $300 million of shares in the $2 billion Apple REIT Ten offering this year, the Financial Industry Regulatory Authority(FINRA) said in a disciplinary complaint on its website. The firm denies the allegations, according to a statement.

It was reported in the Bloomberg News article that David Lerner Associates solicited customers for Apple REIT Ten, it provided misleading information about distribution rates for a series of predecessor securities that are now closed to investors, Finra said. The figures failed to show that distributions far exceeded income and were funded by debt that increased leverage in the REITs, which invest in extended-stay hotels, the regulator said.  David Lerner Associates has sold almost $6.8 billion of Apple REIT shares to more than 122,000 customers since 1992, according to the Finra complaint, the industry-funded regulator for U.S. brokerages. Those sales have generated more than $600 million, accounting for more than 60 percent of the firm’s business since 1996, Finra said.

This complaint is the first step in a formal proceeding, Finra said. It isn’t filed in court, and the firm can request a hearing before a disciplinary panel, the regulator said in its statement.

“The firm conducted thorough due diligence of Apple REIT Ten’s offering documents and audited financial statements,” DLA said in its statement. “DLA will vigorously defend these claims. It looks forward to the opportunity to set the record straight and expects to be completely vindicated.”

Also, in the Bloomberg News article it was stated that in September, DLA paid a $255,000 fine for failing to provide required information in connection with the replacement of variable life insurance policies and annuity contracts from November 1998 through February 2004, according to the New York State Insurance Department. A year ago this month, DLA was accused by Finra of overcharging customers on sales of municipal bonds and mortgage securities. That case is still pending, according to Finra’s brokerage records.

If you or a family member have become a victim of the alleged fraudulent schemes of David Lerner Associates, Inc., call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover you losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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