The law firm Hagens Berman is conducting an investigation whether several real estate investment trusts made false and misleading statements to investors.
The investigation follows a complaint filed by the Financial Industry Regulatory Authority alleging that David Lerner Associates, Syosset, N.Y., sold shares to seniors and unsophisticated investors by misleading them about the risks and business model of investing into Apple REIT’s trusts.
On June 21, the amended lawsuit was filed by FINRA in U.S. District Court for the District of New Jersey. The lawsuit alleges that DLA solicited investors to purchase shares in Apple REIT Ten, a nontraded $2 billion REIT without conducting a reasonable search whether it was a smart decision for the investors. The investment firm also allegedly provided false information on the company’s website about Apple REIT’s distribution rates.
Apple REIT claims to be nonlisted, public, real estate investment trusts focused on the ownership and operation of high-quality hotels that generate attractive returns for its shareholders.
Investors claim in the lawsuit that since 2004, Apple REIT was valuing its shares at the constant price of $11 despite the economic downturn in commercial real estate. At the same time, paid returns to the retail investors and retirees were 7% to 8%.
Since January 2011, as sole underwriter for Apple REIT Ten, DLA has sold over $300 million of the REIT's shares, the lawsuit said. In total, the firm has sold nearly $6.8 billion of Apple REIT securities into 122,600 customer accounts as the underwriter.
According to the lawsuit, DLA earns 10% of all offerings of Apple REIT securities as well as other fees, generating nearly $600 million for the firm. This has accounted for 60% to 70% of the firms annual business since 1996.
“DLA failed to sufficiently investigate the valuation and distribution irregularities of the closed Apple REITs prior to selling Apple REIT Ten,” FINRA said. “Rather than conduct due diligence into those valuations and distribution irregularities to determine that they were reasonable and that the Apple REITs were suitable, DLA accepted the valuations and continued to record them on customer account statements.”
Hagens Berman, based in Seattle, is requesting any investors who purchased trusts through Apple REIT and DLA from June 16, 2008 to the present date should contact the firm to help them with their investigation.
“All investors need honest and reliable disclosure before putting their money at risk,” said Reed Kathrein, a partner at Hagens Berman who is leading the investigation. “If DLA preyed upon unsophisticated investors and seniors by making false statements about the trusts’ potential performance, they should be held to account.”
