David Lerner Associates, the Syosset brokerage that urged investors to "take a tip from Poppy," was ordered Monday by a securities regulator to pay more than $14 million in fines and restitution to customers for overcharging them and other violations.
The firm's founder and president, David Lerner, 76, of Manhasset, who was "Poppy" in his company's radio ads, was fined $250,000 and suspended for a year from the securities industry. He was suspended an additional two years from being a principal in a securities firm.
The firm agreed in a settlement with the Financial Industry Regulatory Authority to pay $12 million in restitution to customers who purchased shares in a $2-billion real estate investment trust, which the regulators said were sold with misleading marketing materials and with "excessive markups," meaning customers were overcharged.
FINRA also fined the firm more than $2.3 million for charging "unfair" prices on municipal and mortgage bonds over a 30-month period, and for violating rules for supervising sales of those bonds.
The orders came as part of a settlement in which the firm neither admitted nor denied wrongdoing. In a statement Monday, Lerner general counsel Joseph Pickard said it was "time to move the company past these distractions and settle with the regulators."
The company's head trader, William Mason, was fined $200,000 and suspended for six months from the securities industry for his role in charging excessive markups.
FINRA said Lerner's company targeted "unsophisticated investors and the elderly" in selling the real estate investment trust, Apple REIT Ten, "without performing adequate due diligence to determine whether it was suitable for investors." It said Lerner "personally made false claims regarding the investment returns, market values, and performance and prospects" of the trust.
FINRA, the brokerage industry's self-regulatory organization, accused the firm and Mason in May 2010 of overcharging customers. It proposed a $2.3-million fine in April but Lerner contested it.
Meanwhile, Lerner's company faces about 75 securities arbitration claims by investors, according to lawyer Andrew Stoltmann of Chicago, who said he is handling 15 of them. The claims allege Lerner sold unsuitable investments to its clients.
Lerner also faces a class-action lawsuit filed in federal court for the eastern district of New York in June of last year by investors accusing it of using improper sales methods to persuade more than 122,000 clients, many of whom were "unsophisticated and elderly," to buy billions in risky investments in real estate trusts. Lerner denies wrongdoing.