by Brian Mahany
Just last week I spoke with a pleasant sounding woman who had invested heavily with a David Lerner Associates broker in an Apple REIT (real estate investment trust). She was calling for advice, although she claims she was promised that Lerner would buy back her securities. “At what price?” I asked. She said market value.
Just what is “market value”? To some, it may simply be what David Lerner decides to pay.
David Lerner Associates is facing regulatory enforcement action from the Financial Industry Regulatory Authority (FINRA). Regulators say that Lerner’s stockbrokers failed to tell clients that their investment was very illiquid, meaning it is hard to sell. Apple REIT severely limits the amount of its securities that can be redeemed each year. This means an investor needing to redeem in a hurry might just be out-of-luck. (Many REITs limit redemption and even allow them to declare a moratorium on redemptions.) That’s all well and good IF clients were told of the restrictions.
Judging from the calls I have received, the age of many of their investors and the FINRA investigation, Lerner didn’t do a good job. Many Apple REIT investors are older and more dependent on their investments in their retirement years. These are the people usually not well suited for illiquid investments and non-traded securities.
Add to these problems yet another wrinkle. Lerner has apparently now decided to not value the security on monthly statements. It’s like getting a bank statement that acknowledges you have money on deposit but doesn’t tell you how much. Are these REIT shares still worth the $11.00 per share issue price? Who knows?
The combination of limited redemptions, no ready secondary market and now, no values means that investors are completely in the dark.
Is this legal? Making unsuitable investment recommendations to clients and failing to disclose some of the salient risk factors certainly isn’t legal. Listing the security’s value on customer statements as “not priced” may be legal, however.
Lerner, of course, claims that it has not misled investors and is complying with the law. For historical reference, David Lerner brokers sold almost $7 billion worth of Apple REITs in recent years.
David Lerner isn’t the only brokerage firm with problems caused by illiquid or non-traded REITs.
According to Investment News, several other REITs are trouble meaning the stockbrokers who sold them could also be in trouble if proper due diligence or disclosures was not done. Desert Capital REIT recently filed for bankruptcy, according to the publication.
If someone sold you an illiquid investment or failed to explain the risks of investing in non traded REITs, you may have a claim. Stockbrokers and the broker dealers have a duty to fully explain the risks of investments they recommend to you and must insure that their recommendations are suitable for you. If they fail, they could be liable for your losses. They also need to perform due diligence on the investments they recommend.
If you feel like you have a claim, call us. Our stockbroker fraud and securities lawyers can help you get your money back, often with no out-of-pocket fees from you. Contact attorney Brian Mahany at (414)704-6731 (direct) or by email at Our offices are in Milwaukee, Wisconsin; Detroit, Michigan, Portland, Maine (and coming soon, San Francisco, California). Services are provided anywhere in the U.S.