For the second time in two weeks, a local REIT has been sued by investors in a class action lawsuit.
The latest suit was filed in federal district court in New Jersey against five of Richmond-based Apple REIT’s funds, along with their founder and the New Yorker broker that sells the funds’ shares. The suit alleges that the defendants misrepresented the value and risks related to investing in the funds.
The suit is the latest legal headache for Apple. In early June, Apple REIT’s main broker, David Lerner Associates, made headlines after federal regulators accused the firm of misleading investors when selling shares of Apple REITs Seven and Eight.
Apple REIT, which invests in hotels, has since been under the microscope as investors and the media have dug in to find the true value of its shares and the means by which is has continued to pay investor dividends.
The lead plaintiffs in the latest class action suit are Stanley and Debra Kronberg, two New Jersey residents and Apple REIT investors.
Represented by four law firms, they allege counts of negligence, negligent misrepresentation and unjust enrichment.
Messages left for James Cecchi of Carella, Byrne, Cecchi, Olstein, Brody & Agnello, the lead attorney on the case, were not returned.
Messages left for Apple REIT spokesperson Kelly Clark were not returned in recent days. It is not clear which law firm will be representing the company in the suits.
This latest suit differs from the first in that it names Apple REITs Six through Ten and several David Lerner executives as defendants.
The first case is only going after Apple REITs Nine and Ten. The newest suit is not suing the members of the Apple REITs’ boards of directors as the first did.
But the 30-page suit calls into question the financial model of Apple REITs, claiming that the fees and commissions paid to Lerner, Knight and others could not be sustained while maintaining dividends.
The suit also claims that Apple REITs were using both loans and the money from new investors to pay dividends, an allegation that was also included in the first suit.
“In order to continue the scheme, and to allow Defendants to continue to earn substantial
commissions, management fees and transaction fees, the Apple REITs borrowed money and used those borrowed funds, along with investor funds, to pay the investors their own money back in the form of distributions,” the suits claims.
More suits are likely. BizSense reported last week that law firms across the country are itching to locate investors to file similar claims.
It is likely that if more class action suits of this nature are filed against Apple REIT, Lerner and others, the suits will ultimately be combined in federal court and tried as one.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].
For the second time in two weeks, a local REIT has been sued by investors in a class action lawsuit.
The latest suit was filed in federal district court in New Jersey against five of Richmond-based Apple REIT’s funds, along with their founder and the New Yorker broker that sells the funds’ shares. The suit alleges that the defendants misrepresented the value and risks related to investing in the funds.
The suit is the latest legal headache for Apple. In early June, Apple REIT’s main broker, David Lerner Associates, made headlines after federal regulators accused the firm of misleading investors when selling shares of Apple REITs Seven and Eight.
Apple REIT, which invests in hotels, has since been under the microscope as investors and the media have dug in to find the true value of its shares and the means by which is has continued to pay investor dividends.
The lead plaintiffs in the latest class action suit are Stanley and Debra Kronberg, two New Jersey residents and Apple REIT investors.
Represented by four law firms, they allege counts of negligence, negligent misrepresentation and unjust enrichment.
Messages left for James Cecchi of Carella, Byrne, Cecchi, Olstein, Brody & Agnello, the lead attorney on the case, were not returned.
Messages left for Apple REIT spokesperson Kelly Clark were not returned in recent days. It is not clear which law firm will be representing the company in the suits.
This latest suit differs from the first in that it names Apple REITs Six through Ten and several David Lerner executives as defendants.
The first case is only going after Apple REITs Nine and Ten. The newest suit is not suing the members of the Apple REITs’ boards of directors as the first did.
But the 30-page suit calls into question the financial model of Apple REITs, claiming that the fees and commissions paid to Lerner, Knight and others could not be sustained while maintaining dividends.
The suit also claims that Apple REITs were using both loans and the money from new investors to pay dividends, an allegation that was also included in the first suit.
“In order to continue the scheme, and to allow Defendants to continue to earn substantial
commissions, management fees and transaction fees, the Apple REITs borrowed money and used those borrowed funds, along with investor funds, to pay the investors their own money back in the form of distributions,” the suits claims.
More suits are likely. BizSense reported last week that law firms across the country are itching to locate investors to file similar claims.
It is likely that if more class action suits of this nature are filed against Apple REIT, Lerner and others, the suits will ultimately be combined in federal court and tried as one.
Michael Schwartz is a BizSense reporter. Please send news tips to [email protected].
I cannot believe what a litigious society this is. Why did investors not research Apple Reits on the internet (e.g., Reit Wrecks), or ask for a prospectus to read carefully and thoroughly. I am certain that this would have helped them to make a much more informed decision. I find it so comical that people impulsively invest in opportunities that clearly are “too good to be true,” especially in this economic climate. And then….when the house of cards falls down…boo hoo let’s sue. Tomfoolery PS: I met with a very kind David Lerner representative, but after researching the firm and… Read more »
Correction: representative told me he could not guarantee anything…
Ms. Wilson: (Or Ms. Walcoe) First, the ReitWrecks site did not discover what was going on with these REITs until AFTER five billion dollars was invested in them. Nor is a website like that a defense against an offense: a company is not supposed to commit the offense in the first place – that is the purpose of securiities law. FINRA alleges that David Lerner Associates willfully hid the true state of these investments from their clients. Yesterday, the SEC weighed in with an opinion of its own. So this isn’t about “the lawyers.” If you’ve been reading ReitWrecks, you… Read more »
Nicole – Now that it is so obvious, you can comment how could anyone not know. You would have been smart if you broke the story back in the day. First of all, back in 2004, there weren’t any problems listed about Apple REIT 6 or REITS and David Lerner on the internet. So one who did their due diligence would have no idea at the time. Second, now that there all these postings about the problems, take a look at the dates. Why is it that there wasn’t any tv or radio(news radio/financial radio) talking about these problems back… Read more »
Ms. “Wilson:”
“Correction: representative told me he could NOT guarantee anything”
This folks, is what is known as a “Freudian Slip.”
Yes, I have been deceived Mike… several times. That’s why I’m not so quick to jump into situations that appear “too good to be true.” I realize I sounded insensitive and arrogant. For this I apologize. My heart does indeed go out to those who have been deceived. Investing is a HUGE gamble. No one has a crystal ball. As for the Freudian slip, it was my finger that slipped on the keyboard, not my unconscious…at least not in this particular case. Good night.
By the way, several of my friends and I were planning on investing in Reit 9 approximately 1 1/2 years ago or so. I did share with them what I had read and encouraged them to be very careful. I was told by the Lerner representative that these were “just blogs,” …”anyone can write anything they want in a blog.” I spoke to some friends who had more expertise in investing. They did some research too and told me to steer clear. I still was so very tempted. The representative was very convincing. I simply went with my instincts. I… Read more »
By the way: thousands and thousands of people lost their savings and homes due to subprime mortgages which were the result of greed and foul play on the part of our top financial institutions. Exacerbating this tragedy were derivative trading (credit default swaps) and probably all sorts of shenanagans, also associated with our top financial institutions. Almost our whole country was impacted. Why did we not all gather together to file a class action suit against Goldman-Sachs; JP Morgan; and others?????? Talk about fraud!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! No, instead we ended up bailing them out!! Why don’t we file suits against casinos when… Read more »