David Lerner Associates charged with 'excessive' markups

Poppy's brokerage is in trouble again.

As just about any Long Islander who listens to the radio knows by now, "Poppy" is the nickname for David Lerner, founder of Syosset-based David Lerner Associates, the brokerage famous for its presumed testimonials from clients praising and thanking the financier.

The commercials end with Lerner saying, "Take a tip from Poppy," a nickname given to him by his granddaughters.

But one organization not taking any tips from "Poppy" these days is the Financial Industry Regulatory Authority, which on May 1 accused the firm and its head trader, William Mason, of charging customers "excessive" markups on usually safe municipal bonds and mortgage-backed securities. The complaint by FINRA, which regulates brokerage firms, was posted on the organization's website earlier this week.

FINRA charged David Lerner Associates and Mason with "a pattern of unreasonable markups" that caused the firm's customers to pay "unfairly high prices" and receive "lower yields than they otherwise would have received."

FINRA said Mason and the firm charged the excessive markups in more than 1,500 municipal bond transactions from January 2005 through January 2007, and in more than 1,800 collateralized mortgage obligation transactions in the same period.

Mason and the firm made investors pay markups of as much as 5.78 percent on the bond transactions and as much as 12.81 percent on the sale of mortgage securities, FINRA said. It noted that the average markup charged in about 1,228 trades it identified was about 4.19 percent.

In a statement, David Lerner Associates said it "vigorously denies" FINRA's allegations and "expects to be completely vindicated upon the conclusion of this process."

Jessica Hopper, a director in FINRA's enforcement division, said the charges were filed after a routine audit by the organization's examiners. She said that though there is no "bright line test" of what is fair and reasonable in such transactions, FINRA looks "at a whole bunch of factors" in making its determination, such as other such transactions.

The firm has been in trouble before. In 2005 it agreed to pay a $175,000 fine to settle charges by the National Association of Securities Dealers, a self-regulatory organization, that it made misleading statements in radio ads and other sales pitches.

FINRA is asking for a fine, disgorgement of ill-gotten gains and full restitution to customers. Any penalties will be determined by a hearing panel.