Broker Misrepresentations 2

In our previous post, we started a discussion about a common form of securities fraud known as broker misrepresentation. We defined broker misrepresentation as false representation of facts and/or the omission of facts to a client, in order to influence the client to act. Continuing with this theme let’s look at another example that was in the news recently.

In May, The Financial Industry Regulatory Authority (FINRA), issued a complaint against David Lerner and Associates (DLA), a privately owned investment firm located in New York.[1] The FINRA complaint was associated with a series of Real Estate Investment Trust funds called Apple REIT. Two charges were alleged against the investment firm:

  • Soliciting investors to purchase an investment without properly determining if the investment was suitable.
  • Providing misleading information on distributions associated with the investment.

Basically, the firm was selling shares for $11.00 per share when the actual value was much less. They also marketed the shares as safe alternatives to market volatility and promised annual distributions of 7%.[2] Disclosures revealed that the prices of Apple REIT 10 funds were not adjusted to reflect the deteriorating commercial real estate market. Furthermore, distributions were paid to investors from other leveraged sources, not from returns generated from the REIT’s performance.  From 2004-2011, investors purchased $5.7 billion in Apple REITs while David Lerner and Associates and its brokers have received $341.5 million in commissions and expenses.[3] A class action lawsuit on behalf of FINRA is pending.

If it sounds as though this type of scheme is a “rob Peter to pay Paul” model, than you’re correct. It doesn’t take a genius to figure out that if your funds aren’t generating enough returns to cover your distributions and expenses, you will eventually be filing bankruptcy. Of course, that would come long after salaries and commissions were paid, lines of credit have been exhausted, and investors were left with nothing. Unfortunately, this type of broker misrepresentation may be the most difficult to identify.

If you think you may have been victimized by this type of broker misrepresentation please call the Anton Legal Group for a consultation. You will need the knowledge of a Certified Securities Arbitrator and the experience of a seasoned Securities Litigation attorney to represent you against the large corporate entities you will face.

S. David Anton is a member of Public Investors Arbitration Bar Association (PIABA) the preeminent national wide organization of attorneys who represent brokerage firm customers in disputes with the industry.  He is also a Certified Securities Arbitrator with the Financial Industry Regulatory Authority (FINRA), formerly NASD and resolves disputes between investors and stockbrokers, investment advisors and their firms. He has been practicing law since 1985 and representing brokerage firm customers since 1999.  He is a Tampa, Florida based attorney who can handle securities arbitrations anywhere in the U.S.