FINRA Orders David Lerner Associates to Pay $14M for Unfair Practices in
Sale of Apple REIT
Investors in David Lerner Associates’
Apple REIT Ten will receive approximately $12 million in restitution under a FINRA order
announced this week. Customers who were charged excessive markups by the
firm will also receive restitution.
Apple REIT Ten is one of a number of non-listed, public Real Estate Investment
Trusts (REITs) that have been sold by David Lerner Associates, the sole
underwriter, founder, and manager. The Apple REIT Ten came under regulatory
scrutiny in June 2011, when FINRA filed aComplaint against David Lerner Associates, which alleged that DLA made
misrepresentations about the products in its marketing materials and targeted “unsophisticated
and elderly” investors when looking to sell shares.
Now, after more than a year, the charges against DLA have finally been settled.
According to FINRA, DLA, as the sole distributor of the Apple REITs, sold
the illiquid Apple REIT Ten to thousands of investors, many of whom were
elderly and “unsophisticated,” without performing adequate
due diligence to determine whether the REIT was suitable for the investors.
The company also used “misleading marketing materials that presented
performance results for the closed Apple REITs without disclosing to customers
that income from those REITs was insufficient to support the distributions
to unit owners.”
In addition to millions of dollars in restitution, DLA has been ordered
to pay $2.3 million in fines. David Lerner, the firm’s founder,
President, and CEO, has been suspended from the industry for one year,
barred from acting as a principal for two, and fined $250,000.
“David Lerner personally made false claims regarding the investment
returns, market values, and performance and prospects of the Apple REITs
at numerous DLA investment seminars and in letters to customers,”
wrote FINRA in the announcement. “To encourage sales of Apple REIT
Ten and discourage redemptions of shares of the closed REITs, he characterized
the Apple REITs as, for example, a ‘fabulous cash cow’ or
a ‘gold mine,’ and he made unfounded predictions regarding
a merger and public listing of the closed Apple REITs, which he inappropriately
claimed would result in a ‘windfall’ to investors.”
Neither DLA nor David Lerner either admitted to or denied the charges.
For more information, read the
full FINRA news release on David Lerner here.