U.S. District Judge Kiyo Matsumoto's dismissal of a class action lawsuit against David Lerner Associates Inc. earlier this week was a major victory for the Long Island-based financial adviser.
“Plaintiffs' belabored Complaint appears only to confirm that the Apple REITs are currently functioning in exactly the manner that was anticipated and disclosed in the REITs' prospectuses and other offering documents,” wrote Judge Matsumoto.
The suit alleged that Lerner's sale of more than $6.8 billion in interests in five Apple REITs — nontraded property trusts — constituted a breach of fiduciary duty, unjust enrichment and negligence. The judge's ruling precludes the plaintiff attorneys from seeking to retry the case.
“David Lerner Associates Inc. is pleased that the federal court's decision completely dismisses all of the class action's federal securities law claims as well as the state law claims against David Lerner Associates, with prejudice … The court rejected each of [the] plaintiffs' arguments that there were misrepresentations in the offering materials for the Apple REITs,” Lerner spokesman David Chauvin said in a statement.
The firm still faces Finra arbitration claims from dozens of investors in the trusts who allege that the REITs were unsuitable investments for them.
“The good news for investors is that this ruling has zero impact on the Lerner arbitration cases with Finra, and that's where most of the victims will get their money back,” said attorney Andrew Stoltmann, who represents nearly 20 investors with claims against the firm. “That said, it's certainly a good decision for David Lerner Associates.”
Mr. Stoltmann argues that the Apple
REIT investments were unsuitable for his clients, not that Lerner made misrepresentations about the investments. “They are two completely different animals.” said Mr. Stoltmann. “Even if all the risks of an investment are properly disclosed, it can still be unsuitable for some investors.”
The class action was brought in U.S. District Court for the Eastern District of New York shortly after Finra filed a complaint against the firm in May 2011 over its marketing practices of the Apple Reits. Last October, the regulator ordered the company to pay $12 million to investors in the trusts and another $2.3 million to clients who were allegedly overcharged for other securities transactions. David Lerner, the founder and chief executive of the firm, was fined $250,000 and barred from the securities industry for one year.
Mr. Chauvin said that that approximately 20 arbitration claims have been filed against the company over the Apple REITs, while Mr. Stoltmann pegged the number between 50 to 100. Finra does not disclose information on arbitration claims made against firms.
