by Brian Mahany
David Lerner Associates, Inc is the latest stockbroker to come under scrutiny by the Financial Industry Regulatory Authority (FINRA). Regulators say the company targeted elderly and unsophisticated investors and improperly recommended investment in real estate investment trusts (REIT’s) shares without informing their customers of the difficulty in later cashing in these investments.
Specifically, FINRA says that many of the customers placed in the Apple REIT 10 offering were older investors who often have the need for liquidity. REITs can often take a long time to liquidate and are more suitable for longer term investors, not folks in their golden years.
How many people did David Lerner put into Apple REITs? According to FINRA, 122,000 people representing more than $6.8 billion in investments.
David Lerner Associates is a small brokerage firm with 6 offices in Connecticut, New York and Florida. Many of their customers are retirees. That a small firm could sell that many investments is a credit to its sales staff. Whether or not those investments were proper, however, remains to be seen.
The David Lerner website comes out swinging at regulators, “In our opinion FINRA’s complaint is baseless and so rife with falsehoods, distortions, and misleading statements that if it were judged by the securities industry’s standard of SEC Rule 10b-5, FINRA itself would be in violation. It is apparent to us that DLA and other small firms have become the scapegoats for FINRA’s utter failure to address Madoff’s fraudulent scheme.”
That David Lerner should blame FINRA for the Madoff mess is a pretty bold accusation. Because so many of David Lerner’s clients are invested in Apple, the case could easily bankrupt the company. For that reason alone, the company is probably fighting for its life. As of this writing, the investigation is in its early stages.
Stockbrokers have a legal duty to recommend suitable investments to their clients. For example, someone who is not planning on retiring for many years or does not have immediate need for their money may be a better candidate for an illiquid investment such as REITs. If a broker does recommend a security, he or she must know about the customer (age, income, risk tolerance, etc) AND must only recommend suitable investments.
While no stockbroker can guarantee results, brokers and their employers do have strict “know your customer” and “suitability” rules they must follow. If you are stock in an illiquid investment (one you can’t sell) or otherwise received bad advice from a stockbroker or investment advisor, call us. We may be able to get back your hard earned money.