David Lerner Associates, a Syosset, N.Y. based brokerage firm, is facing a disciplinary action by the Financial Industry Regulatory Authority (Finra). According to a report from Bloomberg News, Finra alleges that David Lerner Associates sold non-tradable real estate investment trusts, or REITs, to unsophisticated and elderly investors without considering whether or not they were suitable for these clients.
At issue is an investment vehicle known as the <"https://www.yourlawyer.com/topics/overview/Apple-REIT-Tens-10-Securities-Investment-Fraud-Lawsuit-Finra-David-Lerner-Associates">Apple REIT Ten. Investors bought more than $300 million of shares in the $2 billion Apple REIT Ten offering this year through David Lerner Associates, according to Finra. Those sales have generated more than $600 million, accounting for 60 percent to 70 percent of the firm’s business since 1996. David Lawrence Associates earned 10 percent fees on those investments.
Apple REIT Ten invested in extended-stay hotels. The REIT pooled investors funds to purchase the real estate, and investors collected regular dividends that were purportedly based on rents collected.
However, according to Finra, the distributions paid to investors exceed the income of the properties, and were financed by loans, something David Lawrence Associates failed to disclose. Also, the Apple REIT’s valuations did not change despite the real estate crash, and the firm “failed to sufficiently investigate the valuation and distribution irregularities†of the products, Finra 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. Possible remedies include a fine, censure, suspension or bar from the securities industry, disgorgement of gains associated with the violations and payment of restitution.
Prior to the filing of this complaint, David Lerner Associates had been accused by Finra of overcharging customers on sales of municipal bonds and mortgage securities. That complaint is still pending, according to Bloomberg.
