FINRA Sanctions Adviser, Founder and Head Trader

David Lerner Associates, a private investment company which claims to have $9 billion in assets under management, David Lerner, its founder, and William Mason, its head trader, were sanctioned by FINRA. The charges and sanctions relate to unfair sales practices in connection with the sale of shares in Apple REIT Ten, a non-traded $2 billion Real Estate Investment Trust or REIT and excessive markups charged over a 30 month period on the sale of municipal bonds and collateralized mortgage obligations or CMOs.

DLA was the sole distributor of shares in Apple REIT Ten. The firm solicited thousands of customers, targeting unsophisticated investors and the elderly. The firm failed, according to FINRA, to conduct adequate due diligence prior to selling the securities. It also used marketing materials which failed to inform customers that the income from the REITs was not sufficient to support the distributions to unit owners.

Mr. Lerner, the founder and president of the firm, personally participated in the misleading sales campaign for the REIT. He made false claims about the returns, market values and performance and prospects of the securities, according to the regulator. In some seminars he told listeners that the product was a “cash cow” and a “gold mine.”

A second matter centered on charging unfair markups in connection with the sale of municipal securities and CMOs. Previously a FINRA hearing panel found the firm and Mr. Mason liable.

On both charges the firm was fined $2.3 million and will pay $12 million in restitution to customers involved. In addition, Mr. Learner was suspended from the securities industry followed by a two year suspension from acting as a principal. He was also directed to pay a fine of $250,000. Mr. Mason was suspended for six months from the securities industry and directed to pay a $200,000 fine.