First Apple REIT case goes against Lerner

The first of potentially hundreds of arbitration cases relating to the sale of Apple REITS by David Lerner Associates Inc. has been decided in favor of claimants Joseph Graziose and Florence Hechtel. Last week, Financial Industry Regulatory Authority Inc. arbitrator Alvin Green ordered the firm to pay the two individuals $24,450 after they return their shares of Apple REIT Nine to the firm. Apple REIT nine is the fourteenth largest nontraded REIT in the U.S. Lerner Associates also will have to reimburse the two claimants for the $425 filing fee for the Finra claim. Mr. Green did not award punitive damages, nor did he award attorney's fees, costs or interest to the claimants. Finra itself has filed an enforcement action against David Lerner Associates over its sales of Apple REITs. There's certainly been no shortage of such sales. According to Finra, Mr. Lerner's firm has sold nearly $7 billion worth of the Apple real estate trusts since 1992. The firm gets 10% in fees and commissions, and has generated approximately $600 million in total revenue from the sales, which accounted for 60% to 70% of the firm's business since 1996, Finra claims. The Finra arbitrator's decision could be an ominous sign given potentially hundreds of other claims already filed or likely to be filed against the firm over the investments. "We're evaluating the decision," said Joe Picard, general counsel for David Lerner Associates. "Beyond that, we don't comment on pending arbitrations." Attorney Keith Griffin, who represented the two claimants, was not immediately available for comment. “It's not a huge amount of money but the arbitrator bought the clients' case, understood the fraud and was willing to whack David Lerner,” said Andrew Stoltmann, a plaintiff's attorney who represents about 20 other Apple REIT investors with claims against the firm. He estimates there are about 100 other such claims pending before Finra and believes more to be filed. “It has no precedential value, but this decision will likely be attached to every exhibit book for every case that follows.”