Many Investors Find that Securities Arbitration Can Be Better than Court

The dismissal of an Apple REIT class action lawsuit against David Lerner Associates Inc. in U.S. District Court for the Eastern District of New York should have little effect on the Apple REIT arbitration cases that are being resolved through Financial Industry Regulatory Authority arbitration. In fact, most investors are likely to recoup their losses via this avenue.

Per Bloomberg, Investors are contending that they were defrauded in the underwriting and sale of more than $6.8 billion Apple Real Estate Investment Trusts (REITs), which were marketed as suitable for conservative investors. Meantime, Lerner Associates earned over $600 million in commissions and fees as five Apple REITs made above $6 billion.

Last year alone, FINRA told David Lerner to pay $12 million in Apple REIT Ten restitution to investors. The financial firm allegedly targeted elderly investors, misleading them while failing to properly disclose the risks involved in the securities.

In this class action case, the judge threw out the plaintiffs’ arguments that the offering materials for the Apple REITs had misrepresentations. Yet, as Shepherd Smith Edwards and Kantas, LLP Founder and REIT Attorney William Shepherd points out, it isn’t so much that Lerner made representations about the real estate investment trusts but that they were not suitable for the investors that he is currently recommending.

This means that even if the risks were properly disclosed, if the investment was unsuitable for the client it was recommended to, there could likely be grounds for a securities case and resulting recovery.

“Securities class action cases can only be pursued under federal securities fraud laws,” points out Apple REIT Attorney Shepherd. “Securities arbitration claims can be sought under state securities laws, which are usually far better for investors. As well, such claims can be sought for breach of fiduciary duty, breach of contract, and even negligence. More importantly, the average recovery in securities class action cases is less than 10% of the investors’ losses. For these and other reasons, many investors’ cases fare better in securities arbitration than in court.”

Big win in court for David Lerner, Investment News, April 5, 2013

Class-action suit against David Lerner Associates dismissed, Newsday, April 4, 2013

More Blog Posts:
Prospective Securities Class Action Lawsuit Accuses David Lerner Associates Inc. Accused of Recycling Investor Capital and Using a Credit Line to Meet Dividend Payout, Stockbroker Fraud Blog, September 30, 2011

David Lerner Associates Must Pay $14M Over Apple REIT Ten Sales and Allegedly Excessive Markups Involving CMOs and Municipal Bonds—$12M to Go to Investors, Institutional Investor Securities Blog, October 22, 2012