FINRA fined David Lerner Associates, the New York based brokerage firm recently in the headlines for the sale of the Apple REITs, $2.3 million. FINRA's ruling, which can be accessed here, resolves charges brought in May 2010 on claims that from 2005-2007, Lerner sold municipal bonds and collateralized mortgage obligations (CMO's) at "unfairly high prices", thereby reducing yields to investors.
Lerner was ordered to pay restitution of $1.4 million, plus interest, to affected customers.In addition, Lerner's head trader William Mason was fined $200,000 and suspended from the industry for six months.
FINRA found that Lerner's supervisory system for municipal bonds and CMO's was inadequate and did not have adequate procedures for monitoring the fair pricing and time receipt of orders. The ruling took into consideration Lerner's disciplinary history. After receiving a Letter of Caution from FINRA about the firm's markup practices after a 2004 exam, and a Wells Notice on the same topic in 2009, Lerner continued its unfair pricing practice.
David Lerner & Associates as well as their namesake founder, David Lerner are both dealing with FINRA actions filed against them in 2011 in connection with the Apple REITs they sold about $6.8 billion worth to over 122,000 investors. For more information on those proceedings, see my prior post.
REITs, including Behringer Harvard, Inland Western, KBS, Wells, Hines, Cole Credit Property Trust & Cornerstone Core Properties have been in the headlines on nearly a daily basis recently. Many investors were sold non traded REITs with the promise of steady distributions of income and the ability to liquidate. Many REITs have ceased distributions, while values have plummeted and there is no market in which to liquidate, leaving investors hanging.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.