Reuters: Regulatory News: UPDATE 1-David Lerner's firm ordered to pay $12 mln to customers

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UPDATE 1-David Lerner's firm ordered to pay $12 mln to customers Oct 22nd 2012, 14:35 Mon Oct 22, 2012 10:35am EDT By Greg Roumeliotis and Suzanne Barlyn Oct 22 (Reuters) - The Financial Industry Regulatory Authority said on Monday it had sanctioned David Lerner Associates Inc to pay about $12 million to customers that bought into a $2 billion real estate investment trust (REIT) and to those who were charged excessive markups. FINRA, the U.S. retail brokerage industry's self-watchdog, also said it had fined the Syosset, New York-based firm more than $2.3 million for charging unfair prices on municipal bonds and collateralized mortgage obligations. In addition, the firm's founder and chief executive David Lerner was fined $250,000 and suspended for one year from the securities industry, followed by a two-year suspension from acting as a principal, FINRA said. "David Lerner and his firm targeted unsophisticated and elderly customers, grossly failing to comply with basic standards of suitability in selling Apple REIT Ten to thousands of customers," Brad Bennett, FINRA's chief of enforcement, said in a statement. A lawyer for David Lerner Associates said it is "time to move the company past" the regulatory distractions that the firm has been "forced to deal with" during the past few years. The actions by FINRA "have been very costly to defend and very distracting to the firm's efforts for its clients," said Joseph Pickard, the firm's senior vice president and general counsel, in a statement. Lerner's firm will continue to do business during his absence under the leadership of John Dempsey, a 33-year veteran of the firm, he said. Apple REIT Ten is the $2 billion non-traded real estate investment trust that Lerner's firm marketed to investors without adequately establishing whether the securities were suitable for the investors and by misrepresenting performance results, according to FINRA. The securities are illiquid, making them difficult for investors to sell. Lerner himself called the REIT a "fabulous cash cow" or a "gold mine," and made unfounded predictions regarding a merger and public listing of other closed Apple REITs, which he inappropriately claimed would result in a "windfall" to investors, FINRA said. Lerner and his firm neither admitted nor denied the charges, but consented to the entry of FINRA's findings as part of a settlement, the regulator said. The firm has also agreed to revise its advertising procedures, including videotaping sales seminars attended by 50 or more people, and is required to pre-file all advertisements and sales literature with FINRA at least 10 days prior to use, FINRA added. The brokerage continues to deny publicly that investments it sold were inappropriate for its customers. "Contrary to FINRA's suggestion...there were no charges nor findings that any of the investments were not in fact suitable for any of the investors," said Pickard in a statement, In April, David Lerner Associates was also fined $2.3 million by a FINRA hearing panel for selling municipal bonds and collateralized mortgage obligation transactions to its retail customers at unfairly high prices, allegedly causing investors to receive lower yields than they would have otherwise received. David Lerner's head trader William Mason was also fined $200,000 and suspended from the securities industry for six months. Link this Share this Digg this Email Reprints

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