If you bought a real estate investment trust or municipal bonds from David Lerner Associates, listen up - you might be entitled to money back.
Regulators ordered David Lerner to pay $12 million in restitution to customers who purchased shares in his Apple REIT Ten, a nontraded $2 billion REIT sold to customers who were charged excessive markups.
Real estate investment trusts buy and sell real estate and pay out distributions, or income, regularly to holders. Many are publicly traded, but Apple REITs are not, and their valuations were under investigation.
As the sole distributor of Apple REITs, Lerner solicited thousands of customers, targeting unsophisticated investors and the elderly, selling this illiquid fund without performing adequate due diligence to determine whether it was suitable, according to the settlement agreement issued Oct. 22 by the stock market watchdog the Financial Industry Regulatory Authority (FINRA).
To sell this particular Apple REIT Ten, the latest in a series, Lerner also used misleading marketing that promised 7 to 8 percent annual returns for Apple REIT Ten, calling it a "tremendous cash cow." What the firm did not disclose was that income from the REIT was insufficient to keep paying out distributions without taking on tremendous debt.
Also, the firm marked up prices of municipal bonds sold to retail investors, and those customers are also due restitution, regulators say.
FINRA fined David Lerner personally $250,000 - he is the founder, president, and CEO - and suspended him for one year from the industry, followed by a two-year suspension from acting as a principal of the firm.
We warned readers about Lerner in 2011. So if you are a customer of David Lerner Associates, read the full FINRA settlement at finra.org, and call to find out if you are entitled to money back. The number for FINRA offices in Philadelphia is 215-665-1180; the main FINRA phone number is 301-590-6500.
Look out below
The longtime market technician Stanley Berge (1918-2010) founded a firm that is now run by Susan Berge, and the shop issues the Berge Report, highlighting technical moves in the stock markets.
Here is the scary latest missive: "Clients are advised to sell into strength, or otherwise adopt defensive positions, in anticipation of a major decline of 20-30 percent or more, lasting 6-12 months or longer."
Berge sees the development of a top in the stock market of major significance.
"Most major bear markets last for one to two years. That was certainly the case for the 2000-02 and 2007-09 bear markets. It is likely to be the case for this one too," Susan Berge wrote.
Given the market's flawless record of making a major bottom in every off-presidential election year since 1962, "our guess is that the pending bear market will continue into 2014. Sometime in 2014, the odds overwhelmingly favor the development of a major bottom," the report predicts. "In order to take advantage of that buying opportunity, however, the focus now must be on preserving capital and avoiding downside risk."
Tips on bonds
Readers wrote to us in droves about our column on iBonds and how difficult they are to buy in quantity these days. One reader proposed another bond option: Closed-end municipal bond funds. Some yield as high as 5.5 percent.
Since individual municipal bonds are hard to buy, or can be overpriced for individual investors, mutual funds can be the next best bet. Unless the money manager overseeing the fund changes the dividend policy, the yield should stay the same.
Some muni bond funds to investigate: Eaton Vance Municipal Bond Fund, Eaton Vance Pennsylvania Municipal Bond Fund, BlackRock Muniyield Pennsylvania Insured Fund, and Nuveen Municipal Opportunity Fund.
Contact Erin Arvedlund at 646-797-0759 or firstname.lastname@example.org. Previous columns are at philly.com/arvedlund.