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Written by 8:54 pm Blog, Securities Fraud Articles

Investigation: David Lerner and Apple REIT investment losses

The White Law Group is continuing to investigate and analyze how investors have been sold the Apple series of REITs by David Lerner Associates, Inc.

The firm has spent the last few months reviewing documents and information regarding the Apple REIT investments sold by David Lerner and determining how best to assist investors in recovering losses incurred as a result of their investing in Apple REIT.

Here is a recap of the major points that our investigation has uncovered:

(1) In May 2011, FINRA launched an investigation into David Lerner’s sales practices with respect to Apple REITs;
(2) In June 2011, multiple class actions were filed against David Lerner and Apple REIT raising similar allegations as those raised by FINRA;
(3) David Lerner recently changed the way Apple REITs are valued on their account statements – stating only that the REITs are “unpriced,” and acknowledging for the first time that the value may not be what the investor paid for the shares;
(4) Apple REIT investors have received offers of $3/share and the alleged book value of certain Apple REITs is approximately $7/share.

FINRA has paid particularly close attention to its regulations with regards to non-traded REITs since they initially launched their investigation into David Lerner’s sales practices in May. They have recently discussed and proposed changes in regulations revolving around the valuation of non-traded REITs and also how the price of the shares are to be listed on customer account statements.

Additionally, Bruce Kelly of the investmentnews.com in a recent article states, “An eye-opening analysis of the “distributions” of nontraded REITs sold exclusively by David Lerner Associates Inc. shows the REIT’s property investments largely underperformed the level required to pay promised dividends to investors. Indeed, the analysis claims that the REITs consistently borrowed from a line of credit and used distributions investors were recycling back into the real estate investment trust to meet the targeted dividend payout.”

The analysis mentioned above by the investmentnews.com is based on an amended class action complaint filed by investors recently in New Jersey federal court. The original class complaint was filed in June. The complaint alleges that “…the distribution paid to investors did not match the level of income generated from the various Apple REITs…” and that “Brokers at David Lerner allegedly told clients that the Apple REITs were safe conservative investments that would protect their savings from the volatility of the stock market.”

The complaint reportedly further alleges that David Lerner Associates and the other named defendants, “paid distributions without regard to profitability, even as they acquired properties at prices they knew could not conceivably justify the level of distributions they were paying.”

Based on the foregoing, The White Law Group is reviewing claims against David Lerner on behalf of investors in Apple REIT for fraud, negligence, negligent supervision, and breach of fiduciary duty. These claims are based on (1) David Lerner’s alleged failure to perform the necessary due diligence on the Apple REITs prior to offering them for sale to investors, (2) its alleged failure to adequately disclose the relationship between the firm and Apple REIT; (3) its alleged failure to disclose the decline in value of the previous Apple REITs sold to investors when offering Apple REIT 9 and Apple REIT 10 to investors; and (4) the alleged unsuitability of a non-traded REIT for certain investors (including retirees, investors interested in liquidity, and investors adverse to risk).

To determine whether you may be able to recover investment losses incurred as a result of your purchase of an Apple REIT, please contact The White Law Group at 312-238-9650.

The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.

For more information on The White Law Group, please visit our website at http://www.whitesecuritieslaw.com.

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