Sometimes it takes awhile to learn a lesson. Just ask David Lerner. With his firm, David Lerner Associates, already facing a disciplinary complaint by the Financial Industry Regulatory Authority (FINRA) for misleading investors and selling shares in illiquid real estate investment trusts (REITs) to unsophisticated and elderly customers, owner David Lerner apparently continued to improperly pitch the products.
FINRA is now taking aim at Lerner personally. In an amended filing, the regulator added new allegations to the complaint it previously filed in May 2011 against Lerner’s firm. As reported on Jan. 30 by Reuters, FINRA’s latest complaint focuses on statements Lerner allegedly made to investors following the regulator’s actions against his company this past summer.
In the amended complaint, FINRA states that Lerner sent letters to more than 50,000 customers in July 2011 to “counter negative press” regarding FINRA’s action. That action concerned sales of Lerner’s Apple REITs and, specifically, the fact that Lerner’s firm reportedly mislead investors with information that failed to show distributions of the REITs exceeded income and were financed by debt.
In the letter that Lerner later issued to customers, FINRA says he also discussed a possible opportunity for Apple REIT shareholders to participate in a sale or listing on a national exchange as a way to dispose of their shares at a reasonable price.
FINRA says Lerner further made misleading, exaggerated statements to investors during a seminar that his brokerage firm hosted, including statements suggesting that closed REITs were a potential “gold mine.”
The case against Lerner and his Apple REITs has put non-traded REITs in general on shaky ground with broker/dealers throughout the country. In October 2011, FINRA issued an investor alert about non-traded REIT investments, calling attention to the inconsistent dividends, illiquidity and inaccurate valuations associated with the products.