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Monthly Archives: October 2012

FINRA Ordered David Lerner Associates To Pay Approximately $12 Million in Restitution to Customers

FINRA ordered David Lerner Associates, Inc. to pay approximately $12 million in restitution to customers who purchased shares in Apple REIT Ten and to customers who were charged excessive markups.  David Lerner Associates, Inc. (“DLA”) is a privately-held broker dealer that operates six branches in the New York tri-state area and Florida.  FINRA found that DLA solicited thousands of customers, targeting unsophisticated investors and the elderly, selling the illiquid REIT investment without performing adequate due diligence to determine that there was a reasonable basis to recommend the investment.  In addition to paying restitution to affected customers, DLA was fined $2.3 million for charging unfair prices on municipal bonds and collateralized mortgage obligations (CMOs) and for related supervisory violations.

According to FINRA’s investigation, between January 2011 and at least December 2011, DLA recommended and sold over $442 million of a $2 billion non-traded real estate investment trust (REIT) without performing adequate due diligence in violation of its suitability obligations.  In addition, DLA used misleading marketing materials that presented performance results for the REIT without disclosing to customers that the income portrayed was insufficient to support the distributions to unit owners.  FINRA found that many of DLA’s customers were senior and/or unsophisticated investors and a substantial number of them owned two or more of the Apple REITs.  DLA solicited customers by general means such as the internet, radio, cold calling, mailings, and open-invitation seminars at senior centers, restaurants and country clubs.  According to FINRA’s investigation, between 60% to 70% of DLA’s business came from Apple REIT sales.  DLA earned over $42 million in commissions and marketing allowances related to sales of Apple REIT Ten shares.

FINRA also fined David Lerner, DLA’s founder, President & CEO, and DLA’s Head Trader, William Mason.  David Lerner was fined $250,000 and suspended for one year from the securities industry, and for 2 years from acting as a principal.  The fine was imposed in connection with the false, misleading statements regarding the REIT.  David Lerner personally made false claims regarding the investment returns, market values and performance in at least four DLA seminars, held in New York and Florida, and in letters to customers.  William Mason was fined $200,000 and suspended for six months from the securities industry for his role in charging excessive muni and CMO markups.

In concluding this settlement, DLA and David Lerner neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  Any investor interested in speaking with a securities attorney may contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.


FINRA Department of Enforcement v. Wade H. Bradley

Disciplinary Proceeding No. 2011025780101, October 19, 2012, Los Angeles, California

The FINRA Department of Enforcement filed a complaint against Wade H. Bradley related to the financing of the film, “Knights of Badassdom.”  Bradley, who was the President and Chief Compliance Officer of IndieVest Securities, sold membership units in Knights of Badassdom Production, LLC (KOB), and its successor, Knights of Badassdom Production 1, LLC (KOB1), which produced the film.  These offerings were made pursuant to Rule 506 and Regulation D.  The funds that were collected were supposed to be kept in escrow until a minimum of $4.5 million was raised, or if the minimum was not reached by a certain date, the funds would be returned to investors.  On July 2, 2010 Bradley signed a letter that purported to confirm that IndieVest had agreed to lend KOB1 $1.6 million.  However, there was no evidence of such a loan having been made.  The complaint alleged that Bradley knew that IndieVest never deposited the funds into the escrow account, the escrow account had less than $4.5 million when the escrow broke, and Bradley continued to sell the securities after escrow broke.  FINRA’s Department of Enforcement filed this complaint, alleging violations of Exchange Act section 10(b), Rule10b-9, and FINRA Rules 3010 and 2010.