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

TAG | REIT

Jun/11

7

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

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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

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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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Apr/11

12

Have You Experienced Losses with Behringer Harvard (Unlisted) REIT?

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Attorney Lars Soreide has recently been contacted by investors who have placed their money in unlisted REITs (Real Estate Investment Trusts), particularly, but not limited to, Behringer Harvard REIT. An unlisted REIT is a real estate investment trust that is not traded on the national stock exchanges. Unlisted, or non-traded, REITS differ from listed REITs in that they are not traded in an open market. Non-traded REITs are sold to investors who hold the product until the end of an investment term.

Behringer Harvard REIT, and other non-traded REITs, have their value set by the  companies which sell them. A listed, or public, REIT is valued daily on the market in which it is traded. A non-traded REIT’s value is determined by the staff of the REIT, or a consultant paid for by the REIT.  This can be seen as a conflict of interest in the standard valuation procedure of a non-traded REIT.

 Allegedly, many customers were not made aware of the restrictions of these products and financial advisors failed to make the true risks of these investments known to retail investors who suffered the losses. Also, the broker’s fees make it very advantageous to the broker at roughly a 15% commission.

If you feel you have been an alleged victim of  Behringer Harvard REIT, or have become of victim of a similar situation with an unlisted REIT, please call a Securities Arbitration Lawyer for a free consultation on how to 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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Apr/11

7

FINRA Preparing to Sanction Wells for Failing to Meet Advertising Standards and Keeping Information Safe

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In an April 6, 2011, article for InvestmentNews.com, Bruce Kelly writes that the Financial Industry Regulatory Authority, or FINRA, is prepared to sanction the broker-dealer arm of one of the largest sponsors of non-traded real estate investment trusts for allegedly failing to meet standards for advertising and keeping client information safe.

The Securities and Exchange Commission (SEC) in a filing last Friday, Wells Timberland REIT Inc. said that Finra in March notified its broker-dealer manager, Wells Investment Securities Inc., about its preliminary decision to recommend a disciplinary action against the broker-dealer.

Leo Wells, its founder and chairman, is well known in the independent broker-dealer industry. Wells Real Estate Funds Inc. is one of the largest sponsors of investments in the non-traded REIT industry, with $11 billion in assets and 250,000 investors.

Finra notified Wells Investment Securities in August and said that it had made a preliminary decision to discipline the firm, according to the filing.

According to the InvestmentNews.com article, in its SEC filing, Wells Investment Securities said it “intends to vigorously defend these charges.”

The Wells Timberland REIT had $360 million in assets at the end of last year.

Industry lawyers said there was no way to determine the amount of a likely fine without knowing more details about the matter.

In Kelly’s article, he states that Wells’ REITs are extremely popular with independent broker-dealers, and it has as many as 200 selling agreements with such firms. The Wells Core Office Income REIT Inc. is another product sold by independent broker-dealers.

Nancy Condon, a Finra spokeswoman, had no comment about the matter, and a spokesman for Wells, Terrell McCollum, said he could not comment beyond the contents of the SEC filing.

Kelly goes on to say that Wells has been down this path before. In October 2003, Finra’s precursor, NASD, sanctioned Wells Investment Securities for improperly rewarding broker-dealer reps who sold the company’s REITs. Those rewards included lavish entertainment and travel perquisites. At the time, the regulator also censured Mr. Wells and suspended him from acting in a principal capacity for one year.

If you feel you have been a victim of these alleged fraudulent schemes of  Leo Wells and the Wells’ REITs, call a Securities Arbitration Lawyer for a free consultation on how to 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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Apr/11

1

Are you Invested in REITs?

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Soreide Law Group, PLLC,  is currently investigating alleged claims against a number of the following REITs.  If you feel you have lost money with any of the following REITs, please call us, without cost to you, and set up a consultation with a lawyer to pursue your claims.

In an article for eHow.com, Money division, they list the definition for REIT as:

REIT stands for Real Estate Investment Trust. A REIT is a company that, according to the National Association of Real Estate Investment Trusts (NAREIT), invests at least 75 percent of its assets in real estate. You can purchase shares of REITs on stock exchanges just as you do shares of stocks and other securities.

  1. Function

    • REITs are companies that own and, in some cases, provide financing for real estate. In order to qualify as a REIT, the company must invest at least 75 percent of its capital in real estate, and must pay out at least 90 percent of its taxable income to investors each year as dividends. By doing this, shareholders effectively pay the tax on this income, freeing the REIT from the obligation of paying corporate income tax, notes NAREIT.

    History

    • Congress, explains NAREIT, created REITs in 1960 to make real estate investments available to everyday investors without the need to purchase physical property. Before REITs, the only way to dabble in real estate was through direct investments, which, generally, left smaller investors on the sidelines. REITs have grown significantly. NAREIT reports that the total market capitalization for all REITs rose from $90 billion to $200 billion between 2000 and 2010.

    Types

    • Typically, REITs are split into three categories: equity REITs, mortgage REITs and hybrid REITs. Equity REITs, according to NAREIT, own a wide array of income-producing real estate assets. To qualify as an equity REIT, a company must commit to holding and developing its properties as opposed to selling them for profit, making rent its main source of income. Mortgage REITs, for the most part, engage in the business of providing loans to real estate owners, deriving their income from interest on these loans. Hybrid REITs, as the name implies, take part in the activities of both equity and mortgage REITs.

  • Despite the strong historical performance of REITs, according to the eHow.com, Money section, including a 90 percent gain between March 2009 and April 2010, Jeffrey R. Kosnett, a senior editor at Kiplinger’s Personal Finance, sounds a word of caution. Kosnett points to REIT losses of 18 percent and 37 percent in 2007 and 2008, respectively, as evidence that REITs are riskier than conventional wisdom and past gains imply.

- REITS -

American Realty Capital New York Recovery REIT (Reg. D)

Behringer Harvard Multifamily REIT I

Behringer Harvard – Opportunity REIT I, LLC

Behringer Harvard – REIT I, LLC

Cornerstone Growth & Income REIT

Desert Capital REIT

Inland American REIT

Lightstone Value Plus REIT

NETREIT $200 Stock Offering

NNN Apartment REIT, Inc.

NNN – G REIT

Strategic Storage Trust, Inc.

Wells REIT II

Wells Real Estate Funds Timberland REIT

Wells Timberland REIT Updated Review

Western America Blue Jacket REIT

Have you been an alleged victim of  any of these or other REITs? Call a Securities Arbitration Lawyer for a free consultation on how to 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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