Securities Arbitration is Your Best Chance to Recover
Your Apple REIT Losses
Klayman & Toskes' sole focus is the representation of investors in large and complex securities arbitration and litigation matters. The quality legal representation provide by Klayman & Toskes to its clients has resulted in the recovery of over $100 million in securities arbitration claims and over $250 million in other securities litigation matters. We have represented numerous investors who sustained losses in investment products like Real Estate Investment Trusts (“REITs”), hedge funds, arbitrage funds, bond funds, CDOs, and CMOs.
Klayman & Toskes has been contacted by investors who purchased Apple REITs from David Lerner Associates (“DLA”) and anticipates filing securities arbitration claims against DLA to recover the money invested in Apple REITs. In fact, our law firm has experience in dealing with David Lerner Associates on behalf investors in these products. Investors have complained that the Apple REITs that were sold to them were misrepresented, as they were advised by their DLA advisor that their money would be liquid and accessible while invested in the REITs. The reality is that the Apple REITs are illiquid investments and unsuitable for investors who were looking to access their money. As David Lerner statements now show that the Apple REITs are “not priced,” investors should act quickly to explore their legal options.
DLA, a full service brokerage firm registered with the Financial Industry Regulatory Authority (“FINRA”), was founded in 1975 by David Lerner, a former high school teacher. DLA has offices in Florida, New Jersey, New York and Connecticut. For many years, DLA marketed and solicited Apple REITs to retirees, fixed income investors and senior citizens. In fact, DLA was the principal underwriter of the SEC registered Apple REIT program which includes Apple REIT Six, Apple REIT Seven, Apple REIT Eight, Apple REIT Nine and Apple REIT Ten. Apple REITs are illiquid, non-listed investments which are not traded in a secondary market. In many cases, the risks associated with investing in REITs are not fully disclosed to investors. In addition to illiquidity risks, some investments allow only quarterly redemptions. And some non-listed REITs can deny redemption requests if too many investors want to redeem at once. For its role in underwriting and selling Apple REITs, DLA received an estimated $600 million in commissions and fees, which represented about 60%-70% of DLA's revenues.
In May of 2011, FINRA announced that it filed a complaint against David Lerner, charging the firm with soliciting investors to purchase shares in Apple REIT Ten without conducting a reasonable investigation to determine whether it was suitable for investors, and with providing misleading information on its website regarding Apple REIT Ten distributions. Under NASD n/k/a FINRA Rules, broker-dealers have an obligation to make suitable recommendations to their customers, disclose all material facts relevant to the investment, and to conduct adequate due diligence into the investment before approving it for sale to their clients.
FINRA's complaint further alleges that since at least 2004, the closed Apple REITs (Apple REITs Six through Nine) have unreasonably valued their shares at a constant price of $11 notwithstanding market fluctuations, performance declines and increased leverage, while maintaining outsized distributions of 7 to 8% by leveraging the REITs through borrowings and returning capital to investors. According to FINRA, DLA did not question the Apple REITs' unchanging valuations despite the economic downturn for commercial real estate.
After FINRA filed its complaint against DLA, Apple REIT Eight disclosed in an SEC filing that its book value was $7.57 per share at the end of March 2011. However, at that time, DLA client statements continued to show the value of Apple REIT Eight at $11 per share, and representatives of DLA had continued to advise clients that the Apple REITs have maintained their value. However, contrary to these assertions, Apple REIT Eight's SEC filing and revaluation tends to support FINRA's allegations in its complaint against DLA. Apple REIT Eight's SEC filing regarding the book value represented the first sign that the allegations that Apple REIT has been using improper valuation procedures may have merit.
Investors of the Apple REITs have alleged that the Offering documents related to Apple REITs Six, Seven, Eight, Nine and Ten “represented to potential investors that the Apple REITs paid a steady 7-8% return on investment, but did not clearly disclose that the Apple REITs paid those returns by borrowing money and paying back capital because income from operations was never sufficient to fund the distributions.” Further, it is alleged that the Apple REITs share price was “arbitrarily” set at $11 per share even though, “the value of the REITs fluctuated as a result of the substantial commissions and fees paid at the outset, declines in the value of the properties due to the economic downturn, borrowings and returns of capital to investors.” Moreover, investors have alleged that “DLA and the Individual DLA Defendants marketed and sold the Apple REITs to DLA's customers as conservative, safe low risk investments.”
Klayman & Toskes has successfully obtained recoveries for clients over the last several years in these same types of illiquid investment products. The danger of clients investing in illiquid products like these is that they are not freely tradable in the market place, but instead are dependant on valuation procedures which may not properly value the securities. Over the years, these valuation procedures have created conflicts of interest. This conduct appears to repeat itself as we have seen this many times before.
For more information on how to start a claim, or to find out if you have a claim, please contact our law firm for a free consultation. Be aware, there are strict time limitations, which in some cases are as short as one or two years. Don't lose your opportunity to get your money back!
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