INVESTOR ALERT - DAVID LERNER AND ASSOCIATES ON THE HOT SEAT FOR APPLE REIT 8!

Once again, David Lerner and Associates (DLA) is on the hot seat for sales of Apple real estate investment trusts (REITs). This time around, investors who purchased Apple REIT 8 from DLA are beginning to doubt whether they are going to continue to receive distributions and be able to cash out their principal. Apple REIT 8 consists of 51 hotels, and DLA investors have invested $1 billion. For the past two years, Apple REIT 8 has been strapped for cash and is in default on 4 of its hotel properties. The REIT needed a $20 million loan to sustain its operations, which was provided when Glade Knight, the founder of the REIT, agreed to personally guarantee the loan if the REIT cannot pay it back. The Financial Industry Regulatory Authority (FINRA) is also inquiring into the REITs operations. FINRA recently filed a complaint describing how Apple REIT 8 is paying monthly distributions nearly 4 times over the net income its hotels are earning. Some secondary market makers have offered to pay investors only $3 per share - a more accurate value as opposed to the $11 share value that appears on monthly statements. This means that investors have lost more than 70% of their investment, and their distributions could very well be a return of their own investment or principal.
REITs invest in a diversified set of income producing real estate properties and mortgages, and they must distribute 90 percent of net earnings to investors. REITs allow investors to partake in real estate investing without directly owning property, which may lock up large amounts of money for long periods of time. The most popular REITs are publicly traded on a stock exchange such as the New York Stock Exchange (NYSE) - they are relatively transparent in their finances and operations and are covered extensively by investment analysts. Non-traded REITs are not listed or registered with securities regulators and are supposed to be available only to accredited investors - $1 million or more in assets or $200,000.00 in annual income. Non-traded REITs disclose their finances publicly and offer shares to the public, but they do not list their shares on an exchange, which is one of many risk factors associated with them.
To date, FINRA has not taken any formal action for restitution on behalf of investors in Apple REIT 8. This does not mean that Apple REIT 8 investors cannot make personal claims for their losses. Investors who have suffered losses in Apple REIT 8 are encouraged and are certainly entitled to file arbitration claims for damages against DLA in order to recover their lost principal.
Have you suffered losses in Apple REIT 8 sold by David Lerner Associates? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

WAS THE DAVID LERNER/APPLE REAL ESTATE INVESTMENT TRUST AN UNSUITABLE INVESTMENT?

Many investors have been calling my office and asking whether the David Lerner/Apple Real Estate Investment Trust was an unsuitable investment for them. The David Lerner/Apple Real Estate Investment Trust is a non-traded Real Estate Investment Trust (REIT). For most investors, liquidity, income and risk tolerance are a concern but if you are elderly and retired they are paramount! If you have limited resources and no ability to generate income from other sources to meet your liquidity and income needs then a non-traded REIT is an unsuitable investment. Likewise, if you cannot afford a total risk of loss, then speculative non-traded REITs are unsuitable investments. The suitability problem is compounded when any investors' portfolio is concentrated in non-traded REIT investments. A rule of thumb is that no more than 10% of anyone's investment portfolio should be concentrated in real estate investments, including REIT investments, and that percentage should be far less as a person reaches retirement and advances in age, perhaps zero!

Every brokerage firm has the responsibility of "knowing the customer" and making a customer specific "suitability" determination for every investment recommendation. The "Suitability Rule," Financial Industry Regulatory Authority (FINRA) Rule 2111, requires that a firm or associated person "have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile." This is a new rule but it contains the core features of the previous National Association of Securities Dealers ("NASD") and New York Stock Exchange ("NYSE") suitability rules and codifies well-settled interpretations of those rules. Brokerage firms and their associated persons have always had the responsibility to make suitable recommendations in light of individuals in stating investment objectives and financial condition, tax status, and other relevant factors. According to FINRA, some non-traded Real Estate Investment Trust investments ("REITs") aren't suitable for anyone based on the offering terms, misrepresentations and unreasonable projections by the promoters (see FINRA News Release "FINRA Issues Investor Alert on Public Non-Traded REITs").

The primary cause of the increased number of telephone calls to our office over the last five years is many elderly and retired investors have been steered into non-traded REIT investments as the yields on other income producing investments have steadily declined. According to many investors, the REITS were recommended as safe, secure, and steady income producing investments which sounded to be exactly what many seniors wanted and needed. But these products offer little liquidity for investors who at this stage of their life are likely to need to dip into their investment savings to support their lifestyle or for medical and other emergencies. There is no public market, early redemption of shares in REITs is often very limited, and the fees associated with the sales of these products can be high and erode the total return, if they can be sold at all. Further, many of these investments do not truly generate income but make distributions with borrowed money, with newly raised capital, or by a return of principal rather than a return on investment which can stop at any time. Although non-traded REITs may offer some diversification benefits as part of a balanced portfolio, they all have underlying risk characteristics that make them unsuitable for certain investors, particularly the elderly retired investor with limited financial resources.

When any David Lerner/Apple Real Estate Investment Trust investor calls our office, we will make a customer specific suitability determination after we learn the "essential facts" concerning that investor. We will ask, just as their stockbroker should have asked, about their age, investment experience, time horizon liquidity needs (length of time they could hold the investment without need for the principal), risk tolerance, other holdings, and financial situation in terms of liquid total net worth, tax status and investment objectives. All of these factors are relevant to suitability and determination and most weigh against the ownership of REIT investments by elderly retired investors. If we believe a brokerage firm or its representatives made an unsuitable recommendation that any person invest in a non-traded REIT, we recommend that they file a FINRA arbitration claim and attempt to recover their losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

CAN I RECOVER MY DAVID LERNER/APPLE REAL ESTATE INVESTMENT TRUST LOSSES?

Many investors in the non-traded Apple REITs Six, Seven, Eight, Nine, and Ten have inquired about their ability to recover their losses after learning that their fund is no longer valued as much as they were previously led to believe. As a result, many claims are being filed by Apple REIT and other REIT investors for misrepresentation, unsuitable recommendations and/or overconcentrations of their investment funds in Apple REIT and other REIT investments to recover their REIT losses.

At first blush, one may think that the best claim is against the Apple REIT itself and its management but one needs to remember why they first invested. Undoubtedly, the Apple REIT and other REIT investments were recommended by the David Lerner & Associates brokerage firm and financial advisors who have a fiduciary duty to not misrepresent or omit to state important facts, perform due diligence on any REIT and first make sure that the investment is suitable at all for any investor and then specifically ensure that the investment is appropriate in light of the investor's actual age, investment experience, investment objectives, tax and financial condition. If the brokerage firm and its advisor fail in fulfilling any one of these duties under common law and under the FINRA Code of Conduct, investors will have the right to recover their investment losses against them through a FINRA arbitration proceeding and/or court if no arbitration agreement has been executed.

The most common misrepresentation and misleading statement claims that the Apple REIT and other REIT investors have been making relate to the risk associated with the non-traded REITs. Many investors have complained that Apple REIT and other REITs were not adequately represented before purchase and that they did not know the real truth about the valuations, performance, prospects, liquidity, or distribution and redemption practices of management relating to their investment. Many elderly investors seeking income were overconcentrated in Apple REITs and other REITs because they needed income. Sadly they learned too late that there were no guarantees that distributions would be made. Some REIT investors have just learned that they would no longer be receiving distributions or that the distributions they actually received were derived from loans and not the true cash flow of the REIT. Brokerage firms and their financial advisors were eager to push REIT investments on their clients for the high commissions compared to other products. Unfortunately, many investors are locked in and unable to sell their REIT investments without suffering without selling into deeply discounted secondary market for some other REIT investments. If you are an Apple REIT investor with the same complaints, we believe we can help you recover your REIT losses!

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.

DAVID LERNER ASSOCIATES AND SLOPPY "POPPY" GET NAILED BY FINRA FOR $12 MILLION FOR SALES OF APPLE REITS TO INVESTORS IN FLORIDA AND NATIONWIDE

Over the past 20 years, David Lerner Associates (DLA) has sold $20 billion worth of non-traded Real Estate Investment Trusts (REIT) such as Apple REITs 7, 8, 9, and 10. Although FINRA has taken no formal action on behalf of investors for losses stemming from REITs 7, 8, and 9, it recently ordered DLA to pay $12 million in restitution to customers who purchased Apple REIT 10, a $2 billion non-traded REIT. As the sole distributor of the APPLE REIT, DLA targeted thousands of unsophisticated and elderly customers to sell the illiquid REIT without performing adequate due diligence to determine whether the REIT was suitable for its investors. In its sales campaign, DLA used deceptive marketing materials that did not disclose to customers that the income from the REIT was insufficient to support distributions to investors. FINRA spokeswoman Michelle Ong said that the action is the largest single restitution payment for investors involving REIT sales.

FINRA also fined David "Poppy" Lerner, DLA's founder, President and CEO, $250,000.00 and suspended him from the securities industry for one year, followed by a two-year suspension from acting as a principal. Mr. Lerner made false claims about the investment's return, value, and prospects of the REIT at various DLA investment seminars and letters to clients. FINRA also fined William Mason, the firm's head trader, $200,000.00 and suspended him from the industry for six months for charging excessive municipal bond and CMO markups. Mr. Lerner and DLA consented to the entry of FINRA's findings against them. The fines and restitution put closure on two long-running FINRA investigations into the firm, which has 190 registered representatives and six branches in New York and Florida.

FINRA's first action against DLA started with a FINRA complaint, which alleged that DLA engaged in improper sales practices of Apple REIT 10. DLA sold more than $442 million of Apple REIT between January and December 2011 without performing adequate due diligence in violation of its suitability obligations. Earlier Apple REITs under the same management wrongfully valued the REITs shares notwithstanding years of market fluctuations, performance declines, increased leverage, and excessive return of capital to investors. FINRA has required DLA to hire independent consultants to review and propose changes to its supervisory systems and training of non-trade REITs, and DLA has agreed to changes its advertising procedures and pre-file all advertisements and sales literature with FINRA at least 10 days prior to use.

To date, FINRA has not taken any formal action for restitution on behalf of investors in Apple REITs 7, 8, and 9. This does not mean that Apple REIT investors cannot make personal claims for their losses. Investors who have suffered losses in Apple REITs 7, 8, and/or 9 are encouraged to, and are certainly entitled to, file arbitration claims for damages against DLA in order to recover their lost principal.

Have you suffered losses in Apple REITs 7, 8, and/or 9 sold by David Lerner Associates? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.