The first in what may be a slew of similar decisions to follow in cases involving sales of non-traded Apple REITs by David Lerner Associates has been decided in favor of the claimants. As reported May 23 by Investment News, an arbitrator of the Financial Industry Regulatory Authority (FINRA) ordered Lerner to pay the claimants – Joseph Graziose and Florence Hechtel – $24,450 after they return their shares of Apple REIT Nine to the firm.
The claimants in the case alleged that David Lerner misrepresented the product in question when it was marketed, and that the broker was in breach of contract and fiduciary duty, among other charges. Apple REIT Nine is the 14th-largest non-traded REIT in the United States.
In addition, FINRA ordered Lerner Associates to reimburse the claimants for the $425 filing fee associated with their claim.
In May 2011, FINRA filed an enforcement action against David Lerner Associates over sales of Apple REITs. In February 2012, FINRA amended that filing with new allegations against Lerner’s firm. Specifically, the February amendment focused on statements that Lerner allegedly made to investors following the regulator’s actions against his company in May. According to FINRA, Lerner made misleading and exaggerated statements to investors during a seminar that his brokerage firm hosted, including statements suggesting that the closed Apple REITs were a potential “gold mine.”
As reported in a May 23 story in the Wall Street Journal, Lerner Associates is run by former municipal bond trader David Lerner. Known as “Poppy” in commercials featuring the Apple REITs, Lerner has sold around $6.8 billion of the products since 1992. The firm gets 10% in fees and commissions from the sales, which have generated approximately $600 million in total revenue for Lerner. In total, Apple REIT sales account for 60% to 70% of Lerner’s business since 1996.
The latest decision by FINRA could be a potentially worrisome sign for Lerner in the future. Hundreds of similar arbitration claims have been filed by investors in connection to sales of Apple REITs.