David Lerner Associates sued over sales of REITs

Complaint alleges misrepresentation of value of shares, returns

Jun 26, 2011 @ 12:01 am

By Bloomberg News

David Lerner Associates Inc. has been sued by investors who claim that it acted negligently in the sale and underwriting of more than $6.8 billion in shares of the Apple Real Estate Investment Trusts.

The brokerage firm, known for its founder's “Take a tip from Poppy” advertising slogan, misstated the business model of the REITs and misrepresented the value of shares and returns for investors, according to a complaint filed last week in U.S. District Court in Newark, N.J.

Over the past seven years, the firm has collected more than $600 million in fees and commissions, while five Apple REITs have made more than $6 billion in proceeds, according to the complaint. The firm marketed the REITs, which invested in hotels, as appropriate for conservative investors and claimed that they never lost money, the complaint said.

“In fact, investors who have acquired interests in the Apple REITs have incurred substantial unrealized losses because their interests are worth far less than the price paid by investors to acquire them,” according to the complaint, filed by Stanley and Debra Kronberg of Mahwah, N.J.

Joseph C. Pickard, David Lerner Associates' general counsel, wrote in an e-mailed statement that the claims are “frivolous” and were filed by “attorneys seeking a quick payday.”

“The allegations are baseless and rife with falsehoods, distortions and misleading statements, and we look forward to the opportunity to be vindicated in a court of law,” he wrote.


The 35-year-old firm, based in Syosset, N.Y., has underwritten Apple REITs for 19 years, Mr. Pickard said.

The investors, who are seeking class action status for the case, claim that the REITs were sold to retail investors and retirees at $11 a share and paid returns of 7% to 8%. The REITs never disclosed, however, that they were unable to generate enough income from successful operations and that they “were paying investors with their own money,” according to the complaint.

David Lerner Associates last month was accused by the Financial Industry Regulatory Authority Inc. of overcharging customers on sales of municipal bonds and mortgage securities.

The firm in 2004 was fined by Finra's predecessor, NASD, for sales contests that promoted proprietary mutual funds, and variable annuity and variable life insurance products. A year later, the brokerage firm was fined for airing advertisements that exaggerated the firm's investing record.

The firm was fined $400,000 in 2006 for violating disclosure rules in the sale of variable life insurance and annuities. David Lerner Associates didn't admit or deny wrongdoing.


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