Long Island brokerage <"https://www.yourlawyer.com/topics/overview/Apple-REIT-Tens-10-Securities-Investment-Fraud-Lawsuit-Finra-David-Lerner-Associates">David Lerner Associates has been named in a class action lawsuit by investors who claim it misstated the business model of more than $6.8 billion worth of investments known as Apple Real Estate Investment Trusts (REITs). The complaint, filed in federal court in Newark, New Jersey, claims Apple REIT investors â€œhave incurred substantial unrealized losses because their interests are worth far less than the price paid by investors to acquire them.”
As we reported previously, David Lerner Associates is already facing a disciplinary action by the Financial Industry Regulatory Authority (Finra) over the sale of Apple REITs. Finra alleges that the brokerage sold the investments to unsophisticated and elderly investors without considering whether or not they were suitable for these clients.
Since 1996, sales of Apple REITs, which invested in extended stay hotels, garnered more than $600 million in fees and commissions for David Lerner Associates, accounting for 60 percent to 70 percent of the firmâ€™s business. David Lerner Associates served as the exclusive broker of these investments.
Both Finra and the New Jersey class action lawsuit allege that the REITs were sold to retail investors and retirees at $11 per share and paid returns of 7 percent to 8 percent. But investors were never told that the hotels werenâ€™t generating enough income to cover those returns. “Each of the Apple REITs has borrowed money and used the borrowed money, along with capital raised from investors, to pay investors back their own money” as dividends, the lawsuit said.
The class action lawsuit claims that a total of $6.8 billion worth of REIT shares were sold into more than 120,000 Lerner accounts. The firm marketed the REITs as appropriate for conservative investors, stating they had never lost money by investing in hotels, the complaint alleges.
The lawsuit also names as a defendant Glade M. Knight, principal of the Apple REITs.
This is the second class action lawsuit filed over the sale of Apple REITs since Finra moved against David Lerner Associates earlier this month. Previously, a lawsuit had been filed by disgruntled investors in federal court in Brooklyn, New York. Both lawsuits seek to represent all investors who incurred losses due to investments in the Apple REITs.
The firm also faces number of individual investor arbitration lawsuits filed through Finra.