The following story appeared on Reuters on January 30, 2012:
David Lerner, who owns a brokerage that regulators say misled investors in its marketing of real estate securities, is now charged with similar misdeeds for statements he made to quell anxious customers, according to a complaint.
The Financial Industry Regulatory Authority recently filed an enforcement complaint against Lerner for allegedly misleading investors about risk and valuation when marketing a $2 billion non-traded real estate investment, or REIT.
Eight months ago, FINRA began a similar proceeding against his brokerage, David Lerner Associates Inc, of Syosett, New York.
FINRA, the retail brokerage industry’s self-watchdog, disclosed the allegations on Lerner’s personal BrokerCheck report, a public regulatory filing, on Jan 13. The complaint was dated December 13.
The regulator’s allegations against Lerner and his firm relate to a non-traded REIT known as Apple REIT Ten. FINRA, in May, alleged the firm did not perform “adequate due diligence” to determine if the REIT was appropriate for its investors, according to the original complaint.
The regulator also alleged that Lerner management “inappropriately valued the REITs’ shares at a constant artificial price” despite years of real estate market fluctuations.
REITs invest in commercial real estate, such as hotels and strip malls, offering a way to profit from rises in property values. Non-traded REITs, however, do not trade on securities exchanges. They can be illiquid or difficult to sell in secondary markets. Non-traded REITs also often have higher fees for investors than publicly traded REITs.
FINRA’s recent complaint against Lerner as an individual stems from statements he made to investors in the wake of the regulator’s action against his firm, according to the complaint.
Lerner sent letters to more than 50,000 customers in July to “counter negative press” about the action, according to the amended complaint. 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, according to the complaint.
Lerner also made misleading, exaggerated statements to investors at a seminar his brokerage hosted, including that closed REITs are a potential “gold mine,” according to FINRA.
David Lerner Associates is the sole distributor of Apple REITs, according to regulatory documents. Lerner, whose firm markets its services through frequent seminars about investing, is well known for a radio advertising campaign in which he tells listeners to “take a tip from Poppy.”
The brokerage has six offices in the Northeast and Florida.
A spokesman for Lerner, David Chauvin, said FINRA’s allegations against Lerner “lack any focus.” The Apple REIT programs, including several offerings that are already closed, have returned about $3 billion to their investors, he said in a statement emailed to Reuters.
“For years, the Apple REIT products sold through David Lerner Associates have proven to be excellent investments backed by the bricks and mortar of properties run by nationally recognized hotel brands,” Chauvin said.
“Mr. Lerner and the firm deny all allegations of violations and expect to vindicate themselves when the facts are heard in an impartial forum,” he said.