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David Lerner Associates faces $2.3M fine; will appeal
An investment-industry agency panel has ruled against a Syosset broker, fining it $2.3 million and ordering that it pay back $1.4 million to customers for allegedly overcharging clients, a finding that the company disputes and plans to appeal.
In the ruling against David Lerner Associates Inc., a Financial Industry Regulatory Authority hearing panel said its rulings were based on accusations that the company inflated markups on client investments and failed to properly supervise its sales force.
In a further action, the FINRA panel fined David Lerner Associates' head trader, William Mason, $200,000 and suspended him for six months from the securities industry.
Responding to the FINRA actions, Joseph C. Pickard, general counsel for the company, said David Lerner Associates plans to appeal, and looks "forward to vindication at a fair and impartial hearing."
The firm "believes that the current Hearing Panel’s ruling is simply wrong, completely ignores the relevant facts and fails to follow the law," Picard said in a statement. Mason, too, will appeal, the company attorney said.
The ruling becomes final in 45 days unless there is an appeal to the authority's national adjudicatory council.
In its ruling, issued Wednesday, the FINRA panel said the company "charged excessive markups on municipal bond and collateralized mortgage obligation (CMO) transactions over a two-year period, causing the firm's retail customers to pay unfairly high prices and receive lower yields than they otherwise would have received."
The ruling resolves charges brought by FINRA's Department of Enforcement in May 2010. The overcharges took place from 2005-2007 and involved more than 1,500 municipal bond transactions and more than 1,700 CMO transactions, the organization said.
In a separate FINRA matter, the authority last year "issued a complaint against David Lerner & Associates, charging the firm with misrepresentations, advertising and suitability violations concerning the sales of Apple REIT Ten-- an illiquid, non-traded $2-billion REIT -- and for targeting unsophisticated and elderly customers," FINRA said in a statement.
The Apple REIT matter is still current, representatives for FINRA and David Lerner Associates said Wednesday. The company said it denies and will defend itself against FINRA's accusations in the REIT complaint, and it expects to be vindicated.
Photo shows company founder David Lerner.