SEC Sanction Against David Lerner Associates Highlights Problems With Selling Illiquid REITs To Customers

In 2004, David Lerner Associates agreed to a Cease and Desist Order with the SEC involving the sale of unsuitable REITs to 4 customers of the firm. Regarding one of Lerner’s employees, the SEC Order reads that the employee made investment recommendations "that his customers purchase illiquid REIT securities on margin collateralized by the customers' bond holdings were contrary to the objectives of his customers who desired highly-liquid bond or tax-free bond issues. The margin purchases of illiquid REIT securities using the customers' liquid bonds as collateral effectively rendered the customers' holdings illiquid. The customers could not obtain cash by selling the REIT securities, which were illiquid, or by selling bonds, which collateralized the REIT securities." 

Ultimately, three customers "sustained losses arising from the illiquid REIT securities that Merl purchased for their accounts, as follows: (1) an 86-year old customer lost $103,281; (2) a 75-year old customer lost $37,778; and (3) a 55-year old customer lost $34,420".

Regarding another one of Lerner’s employees, the SEC Order states that the employee's "recommendation and offer of securities that were unsuitable for his customer violated Section 17(a) of the Securities Act. [The employee's] investment recommendations were contrary to the objectives of his customer, a married, middle-aged man with two children residing in his home. The customer wanted a diversified investment for the approximately $30,000 in his IRA account. This IRA account constituted nearly all of the customer's savings and was the customer's financial safety net. [The employee's] concentrated the customer's IRA account in an illiquid REIT security and did not provide the diversification that the customer desired. [The] customer sustained a loss of $6,518 arising from the illiquid REIT securities [the employee] purchased for his IRA account."

Fast forward to 2011, attorneys at Eccleston Law Offices are hearing from customers of David Lerner Associates that they believe that their investments in Apple REITs (and other Lerner investments) are unsuitable.  As part of Lerner’s agreement to the SEC sanctions, the firm promised that it would not recommend its investments in an unsuitable fashion in light of the customer’s investment objectives and financial situation.  The ongoing investigation calls into question whether Lerner has kept its promise to the SEC.

For further information, or to discuss your claims, distributions not made, redemption requests not honored, and investment losses suffered at the hands of David Lerner Associates, contact Eccleston Law Offices at 312-332-0000.