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David Lerner Associates Says itís a Scapegoat

Jun 1, 2011 | Parker Waichman LLP

After being hit with a complaint claiming it misled investors about  illiquid real estate investment trusts, or REITs, Syosset, New York-based David Lerner Associates says it’s being made a scapegoat by the Financial Industry Regulatory Authority (Finra).  In a prepared statement, the firm said it “vehemently denies Finra's allegations.

Yesterday, David Lerner Associates was hit with a Finra disciplinary action accusing it of marketing unsuitable REITs to elderly and unsophisticated investors.  The investment in question is the Apple REIT Ten, which invests in extended-stay hotels.  According to a report from, the REIT pooled investors' funds to purchase the real estate, and investors collected regular dividends that were purportedly based on rents collected.

quantitative time period   The  valuations did not change despite the real estate crash, and David Lerner Associates "failed to sufficiently investigate the valuation and distribution irregularities” of the products, Finra said. The firm also did not disclose that  distributions paid to investors exceeded the income of the properties, and were financed by loans.

In a statement issued by its  public relations agency, David Lerner Associates denied the charges.  "What is obvious is that DLA and other small firms have become the scapegoats for Finra's utter failure to address Madoff's fraudulent scheme," the statement charged.

According to the Finra complaint, David Lerner Associates was  the sole underwriter for Apple REITs since 1992, selling nearly $6.8 billion of the securities. The firm collected 10 percent of all offerings of Apple REIT securities as well as other fees. Apple REIT sales have generated $600 million in revenue for the firm, the regulator said.

The Finra complaint is the first step in a formal proceeding.  Under Finra rules, a firm or individual named in a complaint can file a response and request a hearing before a Finra disciplinary panel.

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