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October 22, 2012 at 06:08 AM
The Financial Industry Regulatory Authority (FINRA) said Monday that it had suspended David Lerner, founder of David Lerner Associates, and ordered the firm to pay approximately $12 million in restitution to customers who purchased shares in Apple REIT Ten and those who were charged excessive markups.
DLA, as the sole distributor of the Apple REITs, a nontraded $2 billion real estate investment trust (REIT), FINRA said that the Syosset, N.Y.-based DLA solicited “thousands of customers, targeting unsophisticated investors and the elderly, selling the illiquid REIT without performing adequate due diligence” to determine whether it was suitable for them. To sell Apple REIT Ten, DLA 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,” FINRA says.
FINRA says it also fined DLA more than $2.3 million for charging unfair prices on municipal bonds and collateralized mortgage obligations (CMOs) it sold over a 30-month period, and for related supervisory violations.
In addition, FINRA fined Lerner, also DLA’s president and CEO, $250,000, and suspended him for one year from the securities industry, followed by a two-year suspension from acting as a principal. “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,” FINRA states. “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.”
FINRA also sanctioned DLA’s head trader, William Mason, $200,000, and suspended him for six months from the securities industry for his role in charging excessive muni and CMO markups. The sanctions resolve a May 2011 complaint (amended in December 2011) as well as an earlier action in which a FINRA hearing panel found that the firm and Mason charged excessive muni and CMO markups.
