Investing can be incredibly lucrative, but it’s coupled with a plethora of risks concerning loss and unexpected mishaps. For numerous reasons, David Lerner Associates (DL) has been spotlighted with various investigations and some serious allegations. But why have they gained such negative attention in recent times?
Our firm currently represents investors that have filed FINRA claims against David Lerner alleging the negligent sale of Spirit of America Energy Funds, Energy 11, and Energy Resource 12 LPs. Customers alleged that misstated recommendations and customer screening failure caused significant losses.
If you or someone you know invested with David Lerner Associates, please contact us for a free consultation at 1-800-856-3352.
According to reports, join us as we discuss the firm and unravel the intricate details of various cases.
David Lerner Associates Reviews, FINRA Complaints, and Fines
Table of Contents
According to investors, the REITs were sold at $11, paying 7% – 8% returns, and were predominantly bought by retirees and retail investors.
However, the REIT did not disclose that they would be unable to generate sufficient income from its company operations and would be paying investors through loan proceeds and capital (which was raised from investors). Essentially, the investors were being paid back with their own money.
In 2004, the Financial Industry Regulatory Authority Inc. (FINRA) accused DL of overcharging its customers on the sale of mortgage securities and municipal bonds. FINRA‘s predecessor, NASD, fined DL for sales contests, which marketed proprietary mutual funds, variable life insurance products, and variable annuities.
The broker-dealer was then fined for airing exaggerated advertisements, which gave false perceptions of the company’s investment record. Shortly after this fine was charged, they were fined $400,000 in 2006 for violating disclosure rules concerning the sale of variable annuities and life insurance products.
The firm faces numerous lawsuits and customer complaints that have similar allegations and cases. They also face a handful of individual investor arbitration lawsuits filed through FINRA. FINRA also sought disciplinary action concerning how DL sold the Apple REITs.
FINRA accused the firm of intentionally targeting seniors and unknowledgeable investors, who would be none the wiser concerning their profits and return on investment. This approach implies that there was little to no regard for the investors’ well-being or financial longevity, focusing on the enticing commissions that awaited successful investments.
The shares were allegedly sold with the promise of zero losses, as they were marketed as safe and secure. Of course, anyone who knows a fair amount concerning the ins and outs of REITS or any investment method would understand that ‘zero loss’ is almost impossible, irrespective of the company, the REIT, or the amount being invested.
From 1996, the firm earned over $600 million, and the sale of Apple REITs accounted for 60% – 70% of the firm’s business during that time frame. Despite numerous fines, lawsuits, and allegations, the firm did not admit or deny any wrongdoing on its part.
David Lerner Associates Complaints Timeline
Here are some of the final regulatory events and arbitration events involving David Lerner Associates, Inc.:
Final Regulatory Events:
- The firm consented to the sanctions and to the entry of findings that it failed to timely file the amendments to Form U4 and Form U5. (Page 15)
- The firm failed to take adequate steps to ensure that its employees, including those responsible for filing Regulation T extension requests, reviewed and understood the procedures. The firm lacked adequate procedures for compliance with the requirement that each customer is limited to five Regulation T extension requests per year. The firm’s procedures for conducting supervisory reviews for compliance with Regulation T were also deficient. (Page 17)
- The Florida Office of Financial Regulation entered a final order against David Lerner Associates, Inc., adopting the Stipulation and Consent Agreement in the matter of David Lerner Associates, Inc. David Lerner Associates, Inc., neither admits nor denies the Bureau’s allegations. (Page 23)
Arbitration Events:
- Case Number 09-00067: Allegations of account activity manipulation and misrepresentation, breach of contract, and failure to supervise. The disputed product type was Ginnie Maes and Real Estate Investment Trust. The sum of all relief awarded was $21,500. (Page 72)
- Case Number 12-01806: Allegations of breach of fiduciary duty, misrepresentation, omission of facts, suitability, breach of contract, failure to supervise, and negligence. The disputed product type was Real Estate Investment Trust. The sum of all relief awarded was $260,000. (Page 77)
- Case Number 15-02855: Allegations of breach of fiduciary duty, misrepresentation, omission of facts, suitability, failure to supervise, and negligence. The disputed product type was Municipal Bond Funds. The case was awarded against the party. (Page 77)
- Case Number 03-04200: Allegations of breach of fiduciary duty, unauthorized trading, errors-charges, and no other controversy involved. The disputed product type was Common Stock. The sum of all relief awarded was $3,692.13. (Page 75)
- Case Number 05-00359: Allegations of breach of fiduciary duty, breach of contract, failure to supervise, and negligence. The disputed product type was Municipal Bonds. The sum of all relief awarded was $10,000. (Page 75)
Please note that this is a summary of the information found in the report. You may view the full report directly for more detailed information. The information was found on pages 15, 17, 23, 72, 75, and 77 of the official BrokerCheck record.
| 1992 | Began underwriting Apple REITs and earning around 10% commission on the sale of Apple REIT shares to investors. |
| 1996 | Over $600 million was acquired by David Lerner Associates through fees and commissions, of which 60% – 70% concerned the sale of Apple REITs. |
| 2004 | NASD fined David Lerner Associates for sales contests that marketed proprietary mutual funds, variable life insurance products, and variable annuity. |
| 2005 | David Lerner Associates was fined for airing exaggerated advertisements, which gave false perceptions of the company’s investment record. |
| 2006 | David Lerner Associates was fined $400,000 for violating disclosure rules concerning the sale of variable annuities and life insurance products. |
| 2012 | FINRA ordered David Lerner Associates to approximately $12 million to REIT investors, according to the New York Times. They were also ordered to pay around $2.3 million for charging unfair prices for collateralized mortgage obligations and municipal bonds. |
| 2017 | David Lerner Associates entered into a consent with the New Jersey Department of Securities. They agreed to pay $650,000 for the previous allegations concerning violated securities laws and negligence for Non-Traded REITs. |
| 2020 | Drastic devaluation of assets within the Energy Sector. The Energy Sector was reported to be the second smallest sector on the S & P 500 Index, according to CNBC.
SOAEX, Energy 11, and Energy Resource 12 investors suffer huge losses on their investments, as their portfolios were over-concentrated with oil, gas, and energy investments. |
David Lerner’s Response to Allegations
In response, David Lerner Associates’ counsel stated the following: “The allegations are baseless and rife with falsehoods, distortions, and misleading statements, and we look forward to the opportunity to be vindicated in a court of law.”
In a press release, the company also implied that the claims made by FINRA related to the Ponzi scheme created by Bernard Madoff, a convicted investment advisor, stating: “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.” However, they did not clearly respond to the claims or validate the implied connection in any way.
DL claimed that the allegations were “frivolous,” had no solid legal grounds, and were only filed by numerous lawyers or attorneys seeking some quick and easy cash. As time would tell, their defense would not sit as strongly in a court of law as they might have expected.
David Lerner Held Accountable for Apple REIT Losses
After plenty of debate and struggle, DL entered a consent order with the New Jersey Department of Securities. They agreed to pay $650,000 to finally resolve the conflict encountered by selling the Apple REIT shares. The New Jersey Attorney General’s office made the announcement and was further publicized by a post in the New York Times.
The risks involved were not made clear to investors, particularly concerning the illiquid nature of Non-Traded REITs, which have no public market and may involve higher fees. Broker-dealers have a solid duty to ensure that their customers or potential investors are strategically and thoroughly screened to ensure that the recommendations coincide with the individual’s investment objectives.
David Lerner Investments and Company Description
David Lerner Associates (DLA), a securities broker-dealer based in Syosset, has been around for around 35 years. They have gained a wide portfolio, as the brokerage firm has over $4.5 billion in client assets.
Employee reviews give DL a 3.1 rating on Glassdoor.com. Only 43% approve of the CEO. One former employee stated that Multi-level marketing company will lie to employees the same way it lies to its customers. “Pretty lousy business ripping off senior citizens and the financially illiterate to profit one seedy family.”
Unfortunately, they have made numerous investment recommendations to mismatched or ignorant customers and potential investors, leading to an array of misinterpretations and unrealized losses.
Of course, the company failed to fulfill their duty in this regard, which left them at least partially accountable for the investors’ losses. According to the Attorney General’s Investigation, they sold Apple REIT Seven, Apple REIT Eight, and Apple REIT Nine from 2006 – 2010, raising $4 billion. They sold the REITs to at least 282 individual investors who didn’t meet the suitability requirements.
David Lerner Energy 11 and Energy 12 Complaints and Fines
David Lerner Associates, a brokerage firm, has recently faced a series of complaints and legal actions due to alleged misconduct and unsuitable investments in their proprietary products, Energy 11 LP and Energy Resource 12 LP. This article will delve into the details of these complaints and fines.
Energy 11 Complaints and Unpaid Distributions
Energy 11, L.P., the in-house energy fund by David Lerner Associates, has reported $45 million in unpaid distributions to investors[2]. This has raised concerns and led to investor disputes against the firm’s representatives.
Pending Investor Disputes
There are multiple pending investor disputes against representatives of David Lerner Associates. For example, Martin Lerner has two pending disputes filed in 2020 and 2021 related to his activities as a firm representative. The complaints allege misrepresentations and omissions concerning allegedly unsuitable investments in SOAEX and Energy 12.
Similarly, Daniel Lerner has a complaint filed against him in March 2021, alleging that he recommended an unsuitable private placement investment in Energy 11, misrepresented and/or omitted material facts regarding an investment, and committed a breach of fiduciary duty. The pending complaint alleges damages of $100,000.
Energy 11 Decline in Unit Value
Energy 11 disclosed an estimated value of $7.23 per common unit as of December 31, 2020, a significant decline from the previous year when the value was estimated at $13.82 per common unit. This decline in unit value further fueled the concerns of investors.
Energy 12 Complaints
The national investor law firm, Haselkorn & Thibaut, P.A., is currently investigating David Lerner Associates for the sales of several proprietary products, including Energy 11 LP, Energy Resource 12 LP, and Spirit of America Fund (NASDAQ: SOAEX). The complaints allege that Energy 11 and Energy 12 were unsuitable investments and that David Lerner Associates failed to supervise the sales and marketing of the investments. The complaints also include allegations that the firm and its financial advisors misrepresented material facts related to the risks associated with these investments[7].
Investor Options and Consultations
David Lerner Associates has been facing a series of complaints and legal actions due to their alleged misconduct and unsuitable investments in Energy 11 and Energy 12. Investors who are concerned about their investments in these proprietary products should seek legal advice to understand their options and potentially recover any losses they may have incurred.
Investors with Energy 11 or Energy 12 in their portfolio and are concerned about their options can seek assistance from experienced broker fraud attorneys. One of the top national investor law firms, Haselkorn & Thibaut, offers a toll-free line for investors to get a free consultation by calling 1-888-628-5590.
Spirit of America Energy (SOAEX) Lawsuits
Only a few years have passed since the REIT debacle. David Lerner Associates is now being investigated for recommendations and sales of Spirit of America Energy (SOAEX) Funds, Energy 11, and Energy Resources 12 limited partnerships (LPs). The firm distributed the mutual SOAEX fund and these limited partnerships, which were already volatile before the turbulence encountered in 2020.
The energy sector is incredibly risky, especially when investing disproportionate sums of money into assets like gas, oil, and energy investments. Investors claim that DL financial advisors recommended the investments to unsophisticated investors. This brings plenty of questions concerning negligence and accountability for losses incurred by investors.
All three of the recommendations invest in oil, gas, and energy arenas. Following the massive turmoil encountered by the outbreak in 2020, the industry is succumbing to major turbulence. This has caused investors to lose money, but the primary issue is that the investors who were advised by brokers were predominantly unaware of the related risks.
Why Have the Energy Sector Investors Suffered Losses?
Oil prices have been very volatile in the last couple of years. Financial professionals recommending investments must disclose all the risks of the investments to the customer.
Simultaneously, banks have begun preparing for a massive influx of bankruptcies for oil companies. It is alleged that David Lerner brokers are responsible for investors being completely ignorant concerning the risks of such investments and being entirely mismatched with their investment objectives.
The primary concern is that David Lerner investment counselors recommended and sold Spirit of America Energy, Energy 11, and Energy Resource 12 investments to individuals that they should not have marketed to. It is possible that the firm even over-concentrated investors’ portfolios, primarily investing in gas, oil, and energy investments.
News sources have reported that FINRA is looking into Daniel Lerner, David Lerner’s son, sales of internal funds and investment portfolios.
Both the firm and Daniel Lerner can be responsible for devaluation; investors are now dealing with significant losses they should not face. These investment options were never suitable, safe, profitable, or stable for them and never met their investment objectives or intended purposes for investing in the first place.
The recommendations did not consider the degree of risk these individuals were willing to handle or their unique investment goals. Since every broker-dealer is responsible for ensuring that each customer is appropriately matched to investment opportunities according to these specifics, David Lerner is accountable for failure to perform these duties.
Since the sudden drop in the energy sector’s value has been more prevalent recently, numerous investigations are still underway concerning the incurred losses for investors due to David Lerner Associates’ negligent financial and investment advice.
Only time will tell whether David Lerner will be held accountable, as they were for the previous debacle concerning their negligent selling of REITs.
Those who have suffered losses from investing in Energy 11, Energy Resources 12, or the Spirit of America Energy mutual fund with David Lerner Associates may be entitled to recover losses or benefit from financial compensation. This can be arranged through a FINRA arbitration claim, which professional attorneys and law firms will greatly aid.
Investment Counselor Apple REIT Claims and Complaints
Before we dig into the recent claims, it may help to gain some insight into the company’s past. The firm marketed the Apple REITs, which predominantly invested in extended-stay hotels. They have gathered approximately $600 million in commissions and fees over the past few years. According to complaints, five REITs simultaneously accumulated over $6 billion in proceeds alone.
They have underwritten Apple Real Estate Investment Trusts since 1992. As a result, the broker dealer receives a commission of around 10% for the sale of all Apple REIT shares, in addition to other fees. According to the allegations, the firm claimed that the REITs were suitable or conservative investors, and they also claimed that they never lost money.
Of course, this was not the case, as investors who acquired interests in the Apple REITs suffered significant losses without being aware of it at the time. This occurrence was because their interests were worth much less than the price investors initially paid to acquire the REITs.
Who is to Blame for Losses?
Most professionals have stated that the recommended investments got David Lerner in trouble. But, there is an undeniable number of questions and suspicions regarding the firm’s intentions. While there has been plenty of debate surrounding the accountability of David Lerner Associates, it can be agreed that they were negligent, at the very least.
Even throughout economic struggle and turmoil, the firm failed to question why the Apple REIT value was so high, lacking expected fluctuations. Even without backing from successful operations and timely payouts to investors, they still recommended the REIT to vulnerable individuals. Similarly, they recommended SOAEX, a high-risk investment, to vulnerable individuals unprepared for such risks.
It is uncertain whether they were unaware of the potential damage or were not concerned with lucrative commissions. Although, the time has unveiled some repetitive and concerning behaviors. Depending on the outcome of numerous hearings and cases, David Lerner Associates may be legally obligated to pay back investors or face the risk of being suspended or barred from the entire securities industry.
