Radio pitchman’s investment empire under siege by financial regulators

By Dan Christensen, 

David Lerner

David Lerner has made a fortune peddling controversial real estate investments for 20 years, but has left a trail of complaints, litigation and regulatory sanctions.

Now his investment empire is threatened by charges that he and his company deceived customers – including thousands of unsophisticated, elderly South Florida investors.

The folksy Lerner, who is 75 and pitches his services on the radio and in seminars, specializes in selling customers shares of a Virginia-based Real Estate Investment Trust company that pays high dividends, but can’t be easily sold.

Apple REITs, in turn, invest in extended-stay hotels like Marriott Residence Inns and Homewood Suites by Hilton.

Industry regulators say David Lerner Associates, with an office in Boca Raton, has sold nearly $7 billion worth of Apple REIT shares since 1992.

The fees generated from that sales bonanza: $600 million.

Lerner is well known in South Florida and New York, where’s he’s headquartered, for his AM radio spots in which he tells investors to “Take a tip from Poppy.”

Lerner’s 350-plus brokers use cold calls, mailings and seminars at senior centers, hotels, restaurants and country clubs to rope customers.

The strategy has been highly effective. According to financial industry regulators, David Lerner Associates has sold illiquid Apple REIT securities into more than 120,000 customer accounts.

Along the way, however, Lerner and his firm have been repeatedly censured and fined by regulators – including $2.3 million in April – for violations that include over-charging customers and making misleading claims in advertising and sales pitches.


Today, real estate investment trusts that are not traded on exchanges, including Apple REITs, are under heightened scrutiny from both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission. Lawsuits by unhappy investors have also turned up the heat.

Non-traded REITs have raised more than $73 million, mostly from small investors, according to a Wall Street Journal report.

FINRA has focused on Lerner and his firm, the exclusive selling agent for Apple REIT Companies. Lerner’s web site states that he borrowed $2,500 from a credit union to start the firm in 1976.  His everyman’s motto: “You don’t gamble with your rent or grocery money.”

But in December, FINRA filed a 58-page enforcement action that suggests Lerner clients may be doing just that. It alleges numerous securities rule violations by Lerner and his firm.

Should FINRA win, Lerner and his company could be ordered to pay fines, disgorge profits and be barred from the securities business.

Lerner is charged with soliciting investors to buy Apple REIT shares without properly investigating their suitability, making negligent misrepresentations or omissions of material fact, and artificially valuing shares at a constant $11.

Lerner is also accused of making “false, exaggerated, unwarranted and misleading” claims when pitching Apple REITs. FINRA says his firm continued to improperly pitch Apple REIT shares to thousands of customers after it filed an initial complaint against it in May 2011.

Hearings before a FINRA disciplinary panel are scheduled for September.


Joseph Pickard, David Lerner Associates’ general counsel, characterized FINRA’s complaint as “a misguided and misdirected action” that his firm is vigorously defending.

“We are vehemently at odds with them. They are questioning a business model that goes back some 19 odd years,” Pickard said.

He said that FINRA regulators, “spooked” by Bernard Madoff’s multi-billion dollar Ponzi scheme and concerned that investors may have been misled, have taken unfair aim at Lerner.

“No one has taken a look at the real story, and that is Apple’s performance compared to their peers. They have performed quite admirably. The track record has been good,” Pickard said.

He added that David Lerner Associates has been scrupulous about disclosing to its customers the inherent risks associated with non-traded REITs.


FINRA tells a different story in its complaint, which notes that David Lerner Associates earns 10 percent from its Apple REIT offerings – fees that every year since 1996 have accounted for 60-70 percent of the firm’s business.

The complaint says Lerner and his firm used false claims and omissions about investment returns, market values, performance and the prospects of Apple REIT shares while “targeting unsophisticated and elderly customers.”

One such omission: not disclosing at seminars that the Apple REITs had to borrow money to pay dividends.

It recounts statements FINRA says Lerner made at investment seminars at the Boca Raton Marriott. At an April 28, 2011 gathering before about 100 potential customers, for example, Lerner boasted that prospects for one of the Apple REITs were so “incredible” that “attendees will name their children after” him.

At the end of the session, the song “We’re in the Money” was piped in over the sound system, the complaint says.

More than 200 mostly elderly attendees were on hand last Nov. 17 when Lerner referred to Apple REITs as a “cash cow” and Apple REIT investors as “the luckiest people in the world,” according to the complaint.

A proposed federal class action lawsuit says Lerner offers door prizes “like umbrellas and flat-screen TVs” to those who attend its seminars.


FINRA has gone after Lerner for other investment offerings.

William Mason

In April, a FINRA hearing panel fined David Lerner Associates $2.3 million and suspended its head trader, William Mason, for six months for charging excessive markups on thousands of municipal bond and collateralized mortgage obligation transactions from 2005 until 2007.

FINRA also ordered Lerner’s firm to pay $1.4 million in restitution, plus interest, to customers. Mason was fined $200,000 and suspended from the securities industry for six months.

The company is appealing.

“We have always felt that the prices charged to our customers were fair and reasonable,” said Pickard. “We firmly believe we will be vindicated.”

Individual investors are also litigating claims against Lerner.

In May, Investment News reported that the first of potentially hundreds of arbitration cases before FINRA related to Lerner’s sale of Apple REITs were decided in favor of two claimants.

About 100 claims were pending then, the newspaper said, but others have been filed since.

On June 14, the Boca Raton law firm of Klayman & Toskes filed a due diligence claim against Lerner on behalf of a widow who invested $425,000 in four Apple REITs, according to attorney Jahan K. Manasseh.

“In early 2011, my client was sold the Apple REIT Ten, and the Lerner representative didn’t disclose that this FINRA investigation was going on,” said Manasseh. “She was told she would ultimately have access to her money, and she can’t get out. So she came to us because she has no other options.”

David Lerner Associates also is the target of a proposed class action suit in federal court in Brooklyn, New York regarding the sale of Apple REIT shares. The allegations mirror some of FINRA’s charges.

Court papers identify Palm Beach Gardens resident William Murray as seeking to represent a proposed subclass of Florida investors in Apple REIT securities. His investment: $388,000.


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