David Lerner Associates Going out of Business: Check Updates
There have been rumors about David Lerner Associates Going out of Business, but the firm has not officially announced any plans to shut down. However, it has faced numerous complaints and legal issues regarding its investment practices, raising concerns about its future.
The firm sold its proprietary products like Energy 11 LP, Energy Resource 12 LP, and Spirit of America Energy Funds (SOAEX). Investors filed claims saying the firm sold unsuitable investments and misrepresented risks.
Many of these products were marketed to unsophisticated investors like retirees, who were promised low-risk returns but lost money. DLA has been accused of overcharging customers and using misleading advertising. This led to fines from FINRA and the New Jersey Department of Securities.
DLA denies the accusations and says they look forward to being vindicated in court. Despite their denial, the firm’s history of legal challenges and investor complaints raises concerns about its practices. Now, in this article, we explain the challenges DLA has faced and its current situation.
Introduction of David Lerner Associates
David Lerner Associates began in 1976 as a privately-held securities broker/dealer. The firm manages over $4 billion in client assets. The company is committed to educating the public about investment opportunities.
Its headquarters is located in Syosset, New York, with branch offices in Westport, Connecticut, Boca Raton, Florida, Teaneck and Lawrenceville, New Jersey, and White Plains, New York. The firm offers a variety of financial products and services.
These include municipal bonds, mutual funds, retirement planning, life insurance, and other investment solutions. It holds free investment seminars in the New York tri-state area and Florida. These seminars attract thousands of people every year.
David Lerner Associates Lawsuit
David Lerner Associates (DLA) is facing lawsuits due to alleged misconduct. The issues include misleading clients, unsuitable investment advice, and poor supervision. Here are the key reasons for the lawsuits:
1. Misleading Sales of REITs
DLA has been accused of misleading investors in selling non-traded Real Estate Investment Trusts (REITs), particularly the Apple REITs series. The allegations include:
- Misrepresentation of safety and returns: DLA marketed these investments as low-risk with consistent income, despite their illiquid and volatile nature.
- Lack of transparency: Investors claim they were not informed that distributions often came from their own principal or borrowed funds, rather than profits.
- Targeting vulnerable clients: The firm allegedly sold these risky products to retirees and inexperienced investors who were unsuitable for such investments.
2. Unsuitable Investment Recommendations
The firm has also been accused of:
- Pushing high-commission products, such as Energy 11 and Energy Resource 12 LPs, which concentrated investments in the oil and gas sector.
- Exposing clients to significant losses during market downturns, particularly when oil prices declined.
3. Failure to Supervise Representatives
David Lerner Associates has faced lawsuits and regulatory penalties for failing to adequately supervise its brokers. This lack of oversight has led to:
- Unsuitable investment advice.
- Breaches of fiduciary duty.
- Negligence in ensuring clients understood the risks of their investments.
4. Regulatory Violations and Settlements
- FINRA Actions: DLA has been fined for multiple violations, including improper sales practices and misleading advertising. In 2012, the firm was ordered to pay $12 million to compensate investors in non-traded REITs.
- State-Level Penalties: The New Jersey Department of Securities fined DLA $650,000 for negligence and unsuitable REIT sales.
5. Investor Losses
Clients who invested in DLA’s proprietary products, such as REITs and energy partnerships, have reported significant financial losses. Many lawsuits allege that these investments were unsuitable for their financial goals and risk tolerance.
Martin Walcoe Under Investigation by Finra
Martin Walcoe, CEO and President of David Lerner Associates, is currently under investigation by Finra. The case relates to the sale of proprietary energy funds to clients. The investigation, known as a “Wells Notice,” is a formal notice from Finra about potential charges.
Two years earlier, Daniel T. Lerner, the Executive Vice President and son of the company’s founder, faced a similar investigation. These cases raise concerns about the firm’s sales practices and compliance with industry regulations.
Allegations Against Martin Walcoe
Finra claims that Walcoe failed to supervise sales of proprietary energy funds reasonably. It also alleges that he recommended these products without ensuring their suitability for clients. The energy funds under scrutiny are high-risk private placements sold only by the firm’s financial advisors. Despite these allegations, Walcoe stated,
“I strongly disagree with the proposed allegations.”
The company emphasized that these investments have provided approximately 7% annual distributions and have shown unrealized profits for many clients.
Timeline of Major David Lerner Associates Complaints and Fines
Here is a timeline highlighting the significant complaints and fines faced by David Lerner Associates (DLA):
- 2004: Fined by NASD (now FINRA) for sales contests promoting proprietary mutual funds and insurance products.
- 2005: Penalized for exaggerated advertisements that misrepresented investment performance.
- 2006: Fined $400,000 for failing to disclose risks associated with variable annuities and insurance products.
- 2012: FINRA ordered DLA to pay $12 million in restitution to investors of Apple REITs. An additional $2.3 million was levied for overcharging on mortgage and municipal bonds.
- 2017: Paid $650,000 in a settlement with the New Jersey Department of Securities for violations tied to non-traded REITs.
- 2020: Losses mounted from energy investments, including Energy 11 and Energy Resource 12, due to devaluations in the energy sector.
- 2021: The New Jersey Department of Securities fined DLA $650,000 for failing to supervise brokers. The firm was accused of negligence and unsuitable investment recommendations.
- Ongoing Lawsuits: DLA continues to face lawsuits from clients claiming they were misled into unsuitable, high-risk investments. Allegations include violations of fiduciary duties and lack of transparency.
David Lerner’s Response to Allegations
David Lerner Associates (DLA) strongly denied the allegations. Their counsel stated,
“The allegations are baseless and rife with falsehoods, distortions, and misleading statements, and we look forward to the opportunity to be vindicated in a court of law.”
In a press release, DLA implied that the claims from FINRA were linked to the Ponzi scheme by Bernard Madoff, saying,
“It is apparent to us that DLA and other small firms have become the scapegoats for FINRA’s utter failure to address Madoff’s fraudulent scheme.”
However, they did not confirm or provide evidence for this claim. DLA described the allegations as “frivolous” with no solid legal basis. They suggested that many lawyers or attorneys filed the complaints to make quick money. Over time, it became clear that their defense would face challenges in court.
Recent Disputes and Investor Complaints
David Lerner Associates has faced multiple disputes and complaints from investors, primarily related to its energy funds and regulatory violations. These issues have led to lawsuits, arbitration claims, and regulatory investigations.
- Energy Fund Losses
The Energy 11 LP and Energy Resource 12 LP funds resulted in $45 million in unpaid distributions to investors, sparking multiple lawsuits. - Regulatory Violations
Investigations revealed failures in properly screening customers to ensure products aligned with their investment goals. Investors allege they were misled about risks and potential returns. - Arbitration Claims
Investors have filed multiple FINRA arbitration claims against DLA representatives, citing:- Breach of fiduciary duty
- Failure to supervise
- Negligent misrepresentation
Specific Product Controversies
David Lerner Associates (DLA) has faced controversy over two major product offerings: Apple REITs and Energy Sector investments. These products generated significant revenue for the firm but resulted in severe losses for many investors.
The complaints center around inadequate risk disclosure, high commissions, and a lack of liquidity.
Apple REITs
DLA earned significant commissions from Apple REIT sales (60%–70% of their business). From 1996 to 2010, the firm raised over $4 billion for these products. Many investors reported severe losses due to lack of liquidity and inadequate disclosure of risks.
Energy Sector Investments
The firm’s heavy promotion of Energy 11 and Energy Resource 12 investments left portfolios overly exposed to the volatile oil and gas markets. These losses were exacerbated by the energy sector’s downturn in 2020.
David Lerner Associates Reviews
David Lerner Associates (DLA) is a brokerage firm that has garnered mixed reviews over the years. While some investors have had positive experiences, others have voiced concerns about their investment products and customer service. Below is a breakdown of the general sentiment regarding DLA.
Positive Reviews
1. Personalized Investment Guidance
Some clients appreciate DLA’s approach to providing personalized financial guidance. They have praised the firm’s representatives for being attentive and taking time to understand their individual financial goals.
2. Long Track Record
With over 40 years in business, DLA has established a presence in the investment industry. Long-term clients often acknowledge the firm’s experience and expertise in handling a variety of financial services.
3. Diverse Investment Options
Clients have mentioned that DLA offers a range of investment opportunities, including stocks, bonds, and real estate. Some investors feel that these options help diversify their portfolios.
Negative Reviews
1. Allegations of Misleading Practices
Several complaints and reviews focus on allegations of misleading practices, especially related to the sale of non-traded REITs (Real Estate Investment Trusts). Some investors claim that they were given exaggerated promises regarding returns without being fully informed about the risks involved.
2. Unsuitable Investment Recommendations
DLA has faced lawsuits and regulatory actions for recommending unsuitable investments to clients, particularly retirees or those with low risk tolerance. Many investors feel they were sold high-risk products that did not match their financial goals or risk preferences.
3. Customer Service Issues
Some reviews point to difficulties in getting in touch with customer service representatives, especially when trying to resolve issues or clarify concerns. These complaints often describe long wait times and a lack of helpful responses.
4. High Fees and Commissions
Another common complaint involves the firm’s commission-based structure, where clients feel that fees and commissions on investments, particularly on certain proprietary products like non-traded REITs, were too high. Investors have expressed frustration over paying substantial fees.
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FAQs
Q. Who is the CEO of David Lerner?
The CEO of David Lerner Associates is Martin Walcoe.
Q. What is David Lerner?
David Lerner Associates is a privately-held securities broker/dealer, managing client assets of more than $4 billion.
