According to the New York Post, in May 2010, FINRA accused Long Island brokerage firm David Lerner Associates and its head trader, William Mason, of charging customers “excessive” markups on normally safe municipal bonds and high-grade mortgage-backed securities.
According to the FINRA complaint, David Lerner & Associates between 2005 and 2007 charged brokerage customers, many of whom were individual investors, markups of up to 5.78 percent on more than 1,500 muni-bond transactions and up to 12.81 percent on more than 1,800 high-grade mortgage securities.
By jacking up the price it charged customers to buy those securities, David Lerner & Associates was able to collect a higher commission.
But because bond prices and yields move inversely of each other, the higher prices that David Lerner & Associates charged resulted in its customers being paid a lower yield by the bond issuers.
In one example outlined in the complaint, David Lerner & Associates is said to have bought in May 2006 250 muni bonds tied to New York City’s Municipal Water Finance Authority at a price of $97.625 each.
The day after buying them, David Lerner & Associates unloaded the bonds to three customers at a price of $101.875 — a premium of 4.35 percent and resulting in a yield of 4.268 percent.
Other broker-dealers were selling the same bonds for between $99.916 and $100 each, resulting in yields of 4.5 percent and higher, according to the complaint.
FINRA is seeking from the Syosset-based firm a fine, disgorgement of ill-gotten gains and full restitution to customers.
This isn’t David Lerner & Associates’ first time in FINRA’s crosshairs.
In 2005, the watchdog fined David Lerner & Associates $115,000 for misleading radio spots, including some advertising “returns of 10 percent and more,” and other misleading communications with investors.
In 2006, David Lerner & Associates was fined $400,000 for problems relating to sales of complex insurance vehicles known as variable annuities (variable annuities are traditionally one of the highest commission products sold by a financial advisor).
If you have questions about investments you made with David Lerner & Associates, the securities attorneys of The White Law Group may be able to help. For a free consultation, call the firm’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. With over 30 years of securities law experience, including experience working at FINRA (f/k/a the NASD) and the SEC, The White Law Group has the expertise to help investors defrauded in securities, investment and financial business transactions.
For more information on The White Law Group, please visit our website at https://www.whitesecuritieslaw.com.