First REIT case goes against Lerner

The first of potentially hundreds of arbitration cases related to the sale of Apple REITs by David Lerner Associates Inc. has been decided in favor of claimants Joseph Graziose and Florence Hechtel. Two weeks ago, Financial Industry Regulatory Authority Inc. arbitrator Alvin Green ordered the firm to pay the two individuals $24,450 after they returned their shares of Apple REIT Nine, the 14th-largest nontraded real estate investment trust in the United States, to the firm. Lerner Associates also will have to reimburse the two claimants for the $425 filing fee for the Finra claim. Mr. Green didn't award punitive damages, nor did he award attorney's fees, costs or interest to the claimants. Finra itself has filed an enforcement action against Lerner Associates over its sales of Apple REITs. There has certainly been no shortage of such sales. Mr. Lerner's firm has sold nearly $7 billion worth of the Apple real estate trusts since 1992, according to Finra. The firm gets 10% in fees and commissions, and has generated about $600 million in total revenue from the sales, which accounted for 60% to 70% of the firm's business since 1996, Finra claims. The 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 Pickard, general counsel for Lerner Associates. “Beyond that, we don't comment on pending arbitrations.” Attorney Keith Griffin, who represented the two claimants, wasn't available to 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 estimated that there are about 100 other such claims pending before Finra, and he thinks more will be filed. “It has no precedential value, but this decision will likely be attached to every exhibit book for every case that follows,” Mr. Stoltmann said. [email protected]