TAG | David Lerner Syosset NY
David Kelly of InvestmentNews.com, June 15, 2011, writes that the price of one in a series of 10 nontraded REITs sold exclusively through David Lerner Associates Inc. took a hit yesterday when management from Apple REIT Eight Inc. said that its book value was $7.57 per share at the end of March, according to a filing with the Securities and Exchange Commission. That’s in contrast to the $11-per-share price that Apple REIT Eight posted last week in a separate SEC filing and had consistently listed as an estimated share price on client account statements.
With about 370 registered reps, David Lerner Associates, has been on the hot seat over pricing of the Apple REITs since the end of May, when the Financial Industry Regulatory Authority Inc. filed a complaint against the firm in which it voiced concern over the fact that it had marketed shares in Apple REITS that hadn’t been re-priced in years. Finra said in the complaint that it was misleading to investors not to reflect the updated value of the REITs on the David Lerner Associates website, especially in those cases where the REITs were paying dividends with principal and borrowed funds instead of operating income. David Lerner Associates allegedly violated Finra suitability rules selling the Apple REITs, according to the complaint, and could face Finra fines and potentially pay restitution to clients.
David Lerner Associates has been the sole underwriter and distributor of the 10 REITs since 1992, most of them dubbed Apple REITs, that have issued $6.8 billion in securities, according to the Finra complaint. Investors have been attracted to the REITs’ steady dividends of 7% to 8%.
Apple REIT Eight took the step to restate its value in order to recommend to the owners of the REIT not to sell shares in response to a $3 tender offer by a series of pooled investment funds managed by Mackenzie Patterson Fuller LP, which buys illiquid real estate investments at deep discounts according to yesterday’s filing with the SEC.
“The board of directors believes that the offer price represents an opportunistic attempt by the bidders to purchase units at an unreasonably low price and as a result, deprive the stockholders who tender the units of the potential opportunity to realize the long-term value of their investment in the company,” the company said in the filing.
Kelly writes, adding to the confusion over the value of Apple REIT shares, David Lerner client account statements report an estimated value of $11 per share, said a plaintiff’s lawyer in New York. He said that he had spoken with about two dozen David Lerner investors, but had so far not filed any complaints against the firm.
An SEC filing on Apple REIT Ten Inc. yesterday stated that a member of the board of directors, Ronald Rosenfeld, resigned earlier this month. The board plans to fill his seat at a later date.
The InvestmentNew.com article goes on to say that accurate pricing of shares of the illiquid, long-term nontraded REITs has been an issue for almost two years. Before 2009, the common practice in the brokerage industry was to list the share price on client account statements at par value, or the amount at which the broker-dealer sold it, with the product typically priced at $10 or $11 a share.
Finra told broker-dealers that they needed to adjust the prices on the investments more frequently in 2009. In a notice to members, Finra said that it was prohibiting broker-dealers from using information that was more than 18 months old to estimate the value of a nontraded REIT.
If you or a family member have become a victim of the sale of Apple REITs by David Lerner Associates, Inc., call a Securities Arbitration Lawyer for a free consultation on how you could potentially recover your 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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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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