Investors in non-traded real estate investment trusts known as Apple REITs, which invest in hotels, have filed a class action suit against David Lerner Associates (“DLA”) to recover alleged losses of more than $6.8 billion, claiming the firm acted negligently in sales and underwriting of the REIT, according to an InvestmentNews article entitled “David Lerner Associates sued over $6.8B in REITs.”
According to the complaint, which seeks class-action status, DLA, which collected more than $600 million in fees and commissions, sold the Apple REITs to retail investors and retirees at $11 per share, and failed to adjust the price, even though the REITs failed to generate enough income to pay dividends and “were paying investors with their own money.”
DLA has a history of regulatory problems. According to the article: In 2004, DLA was fined by the National Association of Securities Dealers for conducting sales contests that incentivized the sale proprietary mutual funds and variable annuity and variable life insurance products regardless of their unsuitability. In 2005, DLA was fined for exaggerating its investment performance record in its public advertisements. In 2006, DLA was fined $400,000 for violating disclosure rules in the sale of variable life insurance and annuities. The Financial Industry Regulatory Authority (FINRA) recently charged DLA with overcharging customers on sales of municipal bonds and mortgage securities.
In a recent enforcement action against DLA, FINRA charged that Apple REITs had not been re-priced for several years, and that this was misleading to investors, especially where the REITs were paying dividends with principal and borrowed funds instead of operating income. ?”Earlier Apple REITs, under the same management, inappropriately valued the REIT shares at a constant artificial price of $11, notwithstanding years of market fluctuations, performance declines, increased leverage and excessive return of capital to investors,” FINRA was quoted as stating.
“Valuing these investments at cost or some illusory par value can be inherently misleading when the true value is much lower because of a deteriorating real estate market,” said investor attorney J. Boyd Page of Page Perry. “Many investors have a false sense that everything is okay when they see such numbers; they often don’t realize how much they’ve lost until it’s too late.”
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving private placement or Regulation D investments. For further information, please contact us.