This article was originally posted on TheStreet Foundation Web site on August 25.
NEW YORK (TheStreet) -- It's all about suiting the spin to the audience when you're in the financial industry, and the investment seminar at the Trumbull, Conn. Marriott on a late-spring evening in June had "senior citizen" written all over it.
"We're gonna tell you about investments that provide income and investment appreciation," said Jonathan Hurwitz, an executive at the brokerage firm David Lerner Associates, to 300 mostly 60- and 70-something investors as they dined on lukewarm chicken parmesan. And, lest anyone consider leaving early, "After that's done, we're gonna serve dessert and have a little drawing and give away some door prizes," Hurwitz said.
Thus began a common pitch by Syosset, N.Y.-based Lerner, a 38-year-old firm that has the distinction of being on a short list of brokerages compiled by the Financial Industry Regulatory Authority that have seen a top officer barred or suspended from the business.
Financial companies for years have used "free meal" seminars to lure seniors, even if the rubber-chicken milieu does come off a tad retro in these Internet days. What sets Lerner apart is that it can consistently pack a hotel ballroom despite its regulatory past.
Company founder David Lerner lost his brokerage license for a year as a part of a 2012 settlement with Finra over misleading sales claims and other violations. He paid $250,000 in fines and his firm paid $14 million -- $2.3 million in fines and $12 million in restitution to investors. Lerner has since reclaimed his license, but is barred from working as a supervisor until October 2015. Only 25 presidents or CEOs of brokerage firms were suspended or barred in 2012, according to the Washington, D.C. law firm Sutherland Asbill & Brennan LLP, which tracks Finra enforcement statistics.
Finra said in a complaint on May 27, 2011 that Lerner and his firm targeted many "unsophisticated and elderly" clients to sell illiquid non-traded real-estate investment trusts that were concentrated in the hotel industry. The firm used misleading marketing techniques to sell the REITs, Finra said. In the months after the complaint, Finra said Lerner sent letters to 50,000 customers in an attempt to "counter negative press." And even those letters had "exaggerated, false or misleading statements," according to an amended Finra complaint on Dec. 13, 2011. The $14 million in fines and restitution against the firm was Finra's largest monetary sanction of 2012, said Michelle Ong, a Finra spokeswoman.
David Lerner, who once was the headline act at the firm's free-dinner seminars, didn't attend the Connecticut event on June 11, where a huge poster warned attendees as they entered that they were not allowed to tape the session. But Hurwitz and his colleagues were plugging the very same "Apple REIT Ten" product that was at the heart of the Oct. 22, 2012 settlement between Lerner and Finra -- albeit absent the firm's previous hyperbole.
Lerner's line of "Apple" products are non-traded real-estate investment trusts that own income-producing real estate. REITs are alluring to investors seeking yield because they distribute at least 90% of their taxable income to shareholders. But unlike exchange-traded REITs that can be bought and sold on a stock exchange, non-traded REITs have a limited secondary market.