On May 31, 2011, FINRA filed a complaint against David Lerner Associates of Syosset, New York with soliciting investors to purchase shares in Apple REIT Ten without conducting a reasonable investigation to determine whether it was suitable for investors. FINRA also charged David Lerner Associates with providing misleading information on its website regarding the Apple REIT Ten distributions.
To read a copy of the FINRA complaint, click here.
FINRA alleged that starting in at least 2004, the Apple REITs have unreasonably valued their shares at a constant price of $11 per share, notwithstanding market fluctuations and the decline of the commercial real estate market, while maintaining distributions of 7 to 8 percent by leveraging the REITs through borrowings and returning capital to investors.
As the sole distributor of the Apple REITs, FINRA alleged that David Lerner Associates did not question the Apple REITs unchanging valuations despite the downturn in the commercial real estate market.
Rather than conduct due diligence into those valuations and distribution irreguities to determine that these securities were suitable for investors, FINRA alleged that David Lerner accepted the valuations and continued to record them on customer account statements.
In its solicitation of customers to purchase Apple REIT Ten, FINRA alleged that David Lerner Associate’s website displayed distribution rates for all of the previous Apple REITs. FINRA alleged that these figures were misleading and omitted material information because they did not disclose the recent distribution rate reductions or that distributions far exceeded income from operations and were funded by debt or a return of investor’s capital.
To many investors, this development may come as a surprise. Many investors were not fully informed of the risks involved in purchasing an Apple REIT and believed that this investment was suitable for their investment objectives, age, and risk tolerance.
If you have invested in any of the Apple REITs upon the recommendation of David Lerner Associates, please contact one of our attorneys at 312-332-0000. Our attorneys are representing investors who have suffered losses investing in the Apple REITs along with those who are seeking to rescind (get out of) their investment in these products.
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