Apple REIT Securities Investment Fraud Lawsuit. If you purchased non-traded Apple REITs (real-estate investment trusts) from David Lerner Associates Inc., you may be the victim of securities fraud. In May 2011, the Financial Industry Regulatory Authority (FINRA) filed a lawsuit against David Lerner Associates, accusing the firm of “targeting unsophisticated and elderly customers with unsuitable sales of the illiquid security.” According to FINRA, the firm solicited investors to purchase shares in Apple REIT Ten, a non-traded $2 billion REIT, without conducting a reasonable investigation as to whether it was suitable for investors. FINRA also accused David Lerner Associates of providing misleading information about those investments on its website.
If you invested in Apple REITs through David Lerner Associates, you may be entitled to compensation. Lawyers with Parker, Waichman, LLP who specialize in securities fraud lawsuits are offering free legal evaluations to any investor who believes they were defrauded by David Lerner Associates. To find out how our securities fraud lawyers can help you, please contact us today.
FINRA Lawsuit against David Lerner Associates
REITs pool cash from investors to buy property and pay a regular dividend from their rental income. The Apple REIT Ten investment sold by David Lerner Associates invests in extended stay hotels. According to FINRA, since January 2011, as sole underwriter for Apple REIT Ten, David Lerner Associates has sold over $300 million of an open $2 billion offering of the REIT’s shares. David Lerner Associates, based in Syosset, New York, made 10% in fees on every non-traded REIT share it sells. Apple REIT sales have generated $600 million for David Lerner Associates, accounting for 60 to 70 percent of the firm’s business annually since 1996.
According to the FINRA lawsuit, since 2004, Apple REITs have been “unreasonably” valued at $11 per share, regardless of market conditions, and have been paying returns of 7% to 8%. Finra alleges that David Lerner Associates failed to disclose in descriptions on its website that the income from real estate was insufficient to support these returns. Rather, the distributions were partially funded by “leveraging the REITs through borrowings and returning capital to investors,” the complaint states. The complaint also accuses David Lerner Associates of failing to conduct due diligence because the firm “failed to sufficiently investigate the valuation and distribution irregularities” of the product.
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