It is being reported that FINRA recently filed an enforcement complaint against David Lerner individually for allegedly misleading investors about risk and valuation when marketing a $2 billion non-traded real estate investment, Apple REIT (the same investment for which FINRA began a similar proceeding against David Lerner’s brokerage firm, David Lerner & Associates Inc., this summer).
FINRA disclosed the allegations on Lerner’s personal BrokerCheck report, a public regulatory filing, on Jan 13.
As we have previously discussed, FINRA, in May, alleged that David Lerner & Associates did not perform “adequate due diligence” to determine whether Apple REIT investments were appropriate for its investors. FINRA also alleged that David Lerner & Associates management “inappropriately valued the REITs’ shares at a constant artificial price” despite years of real estate market fluctuations.
According to the reports, FINRA’s recent complaint against David Lerner individually stems from statements he made to investors in the wake of the regulator’s action against his firm..
David Lerner sent letters to more than 50,000 customers in July to “counter negative press” about the action and to attempt to quell people’s concerns about their Apple REIT investments. The letter also discussed a possible opportunity for Apple REIT shareholders to participate in a sale or listing on a national exchange to dispose of their shares at a reasonable price.
FINRA has also alleged that David Lerner made misleading, exaggerated statements to investors at a seminar his brokerage firm hosted, including that closed REITs are a potential “gold mine.”
The recent allegations raised by FINRA continue to shine a light on the issues raised by FINRA’s complaint in May. At this point, this much is known:
(1) In May 2011, FINRA launched its investigation into David Lerner’s sales practices with respect to Apple REITs;
(2) In June 2011, multiple class actions were filed against David Lerner and Apple REIT raising similar allegations as those raised by FINRA;
(3) David Lerner recently changed the way Apple REITs are valued on their account statements – stating only that the REITs are “unpriced,” and acknowledging for the first time that the value may not be what the investor paid for the shares;
(4) Those individuals that have requested redemptions since the announcement of the FINRA investigation have been told that only a partial redemption would be possible;
(5) The only known offer to purchase Apple REIT shares is at $3/share and the alleged book value is approximately $7/share (depending on which Apple REIT the investor owns).
Based on the foregoing, The White Law Group continues to investigate claims against David Lerner for fraud, negligence, negligent supervision, and breach of fiduciary duty. These claims are based on (1) David Lerner’s failure to perform the necessary due diligence on the Apple REITs prior to offering them for sale to investors, (2) its failure to adequately disclose the relationship between the firm and Apple REIT; (3) its failure to disclose the decline in value of the previous Apple REITs sold to investors when offering Apple REIT 9 and Apple REIT 10 to investors; and (4) the unsuitability of a non-traded REIT for certain investors (retirees, investors interested in liquidity and/or investors adverse to risk).
It is our belief that as additional information comes out regarding the Apple REIT investments (like FINRA’s investigation of David Lerner individually) that more and more people will realize that they have claims against David Lerner. This will not only likely depress the value of the Apple REIT shares further but may also impact the ultimate collectability of David Lerner & Associates. Accordingly, we are encouraging investors that would like to pursue their claims against David Lerner to contact us as soon as possible to discuss their legal rights.
To speak with a securities attorney, please call The White Law Group’s Chicago office at 312/238-9650.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.