Now the lawyers are getting involved.
Apple REITs Nine and Ten, two local REITs whose sister funds are under increasing scrutiny, are seeing some of the controversy spill over in their direction.
A class action suit was filed Friday in federal court in New York against Apple REITs Nine and Ten, their founder Glade Knight, the firm that sells their shares and several of their directors.
The lengthy suit, filed on behalf of all parties that invested in shares of Apple REITs Nine and Ten, alleges that the defendants failed to disclose information about the true financial state of its previous funds, thereby painting a misleading picture and violating securities rules.
Apple REIT Ten is the newest REIT in the company’s portfolio. Its shares are still being sold to investors by David Lerner Associates, a New York firm that made headlines last week after federal regulators accused it of misleading investors when selling shares of Apple REIT Eight and Seven. The firm is also one of the defendants in the suit.
Apple REIT Ten launched in January and has raised $307 million. Its goal is to sell $2 billion worth of shares.
The suit says that the models around which Apple REITs were designed were “guaranteed to lose investors capital.”
It claims the REITs models don’t allow them to generate enough cash to support the dividends and commissions that are built into their system. “Thus the operational shortfalls were virtually guaranteed,” the suit claims.
The suit also claims that because Apple REITs Six through Ten have never become profitable enough to consistently fund the dividends they were paying, they paid those distributions using the money raised from new investors and from borrowing on lines of credit.
Apple REIT CEO Glade Knight
The suit points out that the market value of shares of Apple REITs Six, Seven and Eight had fallen well below the $11 at which they were being sold.
A California investment fund made an unsolicited offer this month to the shareholders of the two REITs to buy their shares for $3 apiece.
Apple REIT said in SEC filings last week that the book value of the units in question is $7.57 each.
The law firms of Chimicles & Tikellis LLP, Labaton Sucharow LLP, Eccleston Law Offices, P.C., and Stoltman Law Offices, P.C., filed the class action suit with the lead named plaintiff being Nancy Kowalski, a Palm Beach County, Fla., resident who purchased 1,81 shares of Apple REIT Nine.
The suit estimates that the class members for the suit number in the tens of thousands.
Meanwhile, on June 9, Ronald A. Rosenfeld, an Apple REIT Ten director who was named as a defendant in the suit, resigned from his position on the REIT Ten board.
But it still seems to be business as usual at Apple REIT Ten.
On June 8, the fund closed on the purchase of three hotels for a total of $36 million. The previous week it closed on closed the purchase of five hotels for a total of $62.5 million.
Messages left last week for Glade Knight were not returned. Kelly Clark, head of investor relations at Apple REITs, said that because Apple REIT Ten is in the midst of a public offering, the company couldn’t comment because of the SEC-mandated quiet period.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].
Now the lawyers are getting involved.
Apple REITs Nine and Ten, two local REITs whose sister funds are under increasing scrutiny, are seeing some of the controversy spill over in their direction.
A class action suit was filed Friday in federal court in New York against Apple REITs Nine and Ten, their founder Glade Knight, the firm that sells their shares and several of their directors.
The lengthy suit, filed on behalf of all parties that invested in shares of Apple REITs Nine and Ten, alleges that the defendants failed to disclose information about the true financial state of its previous funds, thereby painting a misleading picture and violating securities rules.
Apple REIT Ten is the newest REIT in the company’s portfolio. Its shares are still being sold to investors by David Lerner Associates, a New York firm that made headlines last week after federal regulators accused it of misleading investors when selling shares of Apple REIT Eight and Seven. The firm is also one of the defendants in the suit.
Apple REIT Ten launched in January and has raised $307 million. Its goal is to sell $2 billion worth of shares.
The suit says that the models around which Apple REITs were designed were “guaranteed to lose investors capital.”
It claims the REITs models don’t allow them to generate enough cash to support the dividends and commissions that are built into their system. “Thus the operational shortfalls were virtually guaranteed,” the suit claims.
The suit also claims that because Apple REITs Six through Ten have never become profitable enough to consistently fund the dividends they were paying, they paid those distributions using the money raised from new investors and from borrowing on lines of credit.
Apple REIT CEO Glade Knight
The suit points out that the market value of shares of Apple REITs Six, Seven and Eight had fallen well below the $11 at which they were being sold.
A California investment fund made an unsolicited offer this month to the shareholders of the two REITs to buy their shares for $3 apiece.
Apple REIT said in SEC filings last week that the book value of the units in question is $7.57 each.
The law firms of Chimicles & Tikellis LLP, Labaton Sucharow LLP, Eccleston Law Offices, P.C., and Stoltman Law Offices, P.C., filed the class action suit with the lead named plaintiff being Nancy Kowalski, a Palm Beach County, Fla., resident who purchased 1,81 shares of Apple REIT Nine.
The suit estimates that the class members for the suit number in the tens of thousands.
Meanwhile, on June 9, Ronald A. Rosenfeld, an Apple REIT Ten director who was named as a defendant in the suit, resigned from his position on the REIT Ten board.
But it still seems to be business as usual at Apple REIT Ten.
On June 8, the fund closed on the purchase of three hotels for a total of $36 million. The previous week it closed on closed the purchase of five hotels for a total of $62.5 million.
Messages left last week for Glade Knight were not returned. Kelly Clark, head of investor relations at Apple REITs, said that because Apple REIT Ten is in the midst of a public offering, the company couldn’t comment because of the SEC-mandated quiet period.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].
Quote [Nancy Kowalski, a Palm Beach County, Fla., resident who purchased 1,81 shares of Apple REIT Nine] So Ms Nancy Kowalski, purchased 181 shares of Apple 9 at $11.00 a share. That means she would own $1,991.00 worth of Apple 9 and she’s earning an 8% dividend on that. And there are four law firms bringing a Class Action lawsuit on her behalf?! She didn’t lose any money, it’s less than $2,000.00……am I missing something or is it just me that thinks this is ludicrous?! Eccleston & Stoltman being involved doesn’t surprise me, they would sue a homeless man for… Read more »
Thank you David.
I used to work for David Lerner, the minimum investment into the Apple programs is $5k. so purchasing 181 shares is not possible. There is a piece missing from that story.