Scrutiny is growing for Apple REITs – securities sold exclusively through David Lerner Associates. The products and Lerner have been in the hot seat for more than a month, after the Financial Industry Regulatory Authority (FINRA) filed a complaint stating that shares in Apple REITS had not been re-priced in years.

Meanwhile, Apple REIT investors have been under the impression that their shares were valued at the $11/share purchase price listed on their account statements. As it turns out, Lerner is now telling a different story. In a recent notice to Apple 7 and Apple 8 REIT investors, the value of the shares was $7.83 and $7.57 per share, respectively.

As reported June 15 by Investment News, FINRA stated in its complaint in May that it was misleading to investors not to reflect the updated value of the REITs on the David Lerner Associates Web site, especially in cases where the REITs pay dividends with principal and borrowed funds instead of operating income.

Accurate pricing of shares of illiquid, long-term non-traded REITs has been a bone of contention for nearly two years. Previously, the common practice in the brokerage industry was to list the share price on client account statements at par value, or the amount at which the broker/dealer sold it, with the product typically priced at $10 or $11 a share.

If you are concerned about your investment in Apple REITs, please contact us to tell your story.

Over a period of six years, Li Ching Lu isolated, abused and stole millions from a 74-year-old stroke victim for whom Lu served as a “caretaker.” Last month, Lu was convicted of financial abuse fraud and received four years in a California state prison.

Lu’s crime brings to light, once again, the subject of elder abuse fraud and what can and should be done to make sure this doesn’t happen to you or a loved one.

As reported June 7 by Forbes, the first question concerning Lu’s case is why didn’t anyone notice that she began to isolate her victim from her friends, family, financial advisors? Was no one checking on the victim regularly? And where were the investment advisors? Why didn’t they become alarmed – or at the very least, interested – that the victim herself was no longer in contact with them?

Lu’s crime occurred in California, where banks are mandated by state law to report suspicious activity to adult protective services or law enforcement.  That alone begs another question as the Forbes article points out: How could the caregiver manage to launder $4 million through six different banks, using 63 different accounts? If your bank were monitoring activity on all your accounts, it’s a reasonable assumption to expect that someone might notice the 74 year old’s tremendous and unusual withdrawals.

As for Lu, she used her victim’s money to buy a Porsche SUV, a home, a BMW, pay the tuition at her son’s private university, support her gambling habit and make large jewelry purchases.

Elder abuse fraud is growing crime. Every year, the elderly suffer $2.6 billion in financial losses.

Reps for Securities America, the troubled broker/dealer whose name is now permanently linked to lawsuits and arbitration claims involving sales of failed private placements in Medical Capital Holdings, have been asked to sign a “letter of support” that they plan to remain with the firm. The unusual move has some people suggesting that Securities America is about to be sold.

Ameriprise Financial, the parent company of Securities America, announced in April of its plans to find a new buyer for the company.

As reported June 8 by Investment News, the letter of support to Securities America states the following:

“We are confident in the abilities of Securities America’s senior management team to navigate the company through these challenges and opportunities.

“We believe they will assist [parent company] Ameriprise in the selection of a new owner with the interests of the advisors and our clients firmly in mind.”

It then concludes: “We intend to stay with Securities America to see what opportunities will come from this process.”

Securities America has been embroiled in legal issues since July 2009, when the Securities and Exchange Commission (SEC) charged Medical Capital Holdings with fraud. Dozens of independent broker/dealers sold private placements in Medical Capital to investors, but Securities America was by far the product’s biggest distributor. It sold about $700 million worth of the notes to clients. Nearly half of that amount is now in default.

In April, Securities America reached a potential $160 million settlement with investors in a class-action law suit.

Omni Brokerage Inc. is the latest broker/dealer to go out of business. The Utah-based B-D, which is facing $2.8 million in claims for selling DBSI tenant-in-common (TICs) exchanges, says its shuttering is tied to lack of business, not legal issues.

However, Omni is at the center of several arbitration claims filed by investors with the Financial Industry Regulatory Authority (FINRA) over failed DBSI deals. As reported in a June 2 story by Investment News, a lawsuit filed by DBSI trustee James Zazzali says Omni generated $271,000 in commissions from pitching the DBSI TICs.

Omni joins dozens of other broker/dealers that sold failed private placements issued by Medical Capital Holdings Inc. and Provident Royalties LLC and, as a result, have gone out of business. As of March 2010, a total of 16 broker/dealers have closed their doors.

DBSI was a leading packager of tenant-in-common exchanges. TICs are a form of real estate ownership in which two or more parties have a fractional interest in a property.

DBSI began to default on its payments to investors in 2008. The firm later filed for Chapter 11 bankruptcy protection.

In December 2010, the trustee for the DBSI bankruptcy sued more than 90 broker/dealers that sold the failed product, including Omni.

According to the Investment News story, the DBSI trustee claims that TICs from DBSI were actually part of a $600 million Ponzi scheme. A similar allegation has been waged against Medical Capital Holdings and Provident Royalties.

Jim Nagengast, CEO of embattled Securities America, claims that The Bank of New York Mellon Corp. and Wells Fargo Bank NA are suing the broker/dealer in an attempt to reduce their liability in the sale of failed private placements in Medical Capital Holdings.

The story, first reported May 29 by Investment News, cites an email to the Securities America advisers in which Nagengast reportedly claims that a pending settlement in a class action filed against Securities America, if approved, would wipe out the banks’ claims against the firm.

The Bank of New York Mellon Corp. and Wells Fargo Bank filed separate lawsuits against Securities America last month. Both banks were formerly trustees for Medical Capital Holdings.

The Bank of New York complaint states that the broker/dealers that sold private placements in Medical Capital breached their obligation to MedCap investors by selling an unsuitable product and failing to disclose the risks of the notes.

Bank of New York Mellon has sued 13 broker/dealers; Wells Fargo has sued six firms, as well as Ameriprise Financial, which owns Securities America.

In September 2009, two months after the Securities and Exchange Commission (SEC) charged Medical Capital with fraud, a group of Medical Capital investors sued The Bank of New York Mellon Corp. and Wells Fargo Bank in a class action lawsuit. The plaintiffs in that class action claimed in an amended 2010 complaint that the two trustees signed off on requests by Medical Capital executives to take $325 million in fees — despite documents for the notes indicating that fees were not supposed to come from investor funds.

From 2003 to 2008, dozens of independent broker/dealers sold private placements in Medical Capital, raising $2.2 billion. By far, Securities America is the biggest seller of Medical Capital notes, selling about $700 million.

In total, investors have lost more than $1 billion in principal. Today, regulators and the Medical Capital bankruptcy trustees say Medical Capital operated as nothing more than a Ponzi scheme.

The private-placement game is changing, thanks in large part to ongoing legal cases over failed private placements – also known as Reg D offerings – in Provident Royalties and Medical Capital Holdings. Both companies were charged with fraud by the Securities and Exchange Commission (SEC) in 2009.

Major private-placement players like Securities America are feeling the ramifications of the issues involving Medical Capital and Provident Royalties – including a rash of lawsuits and arbitration claims filed by investors, as well as fraud charges issued by state securities regulators.

For some broker/dealers, the legal troubles stemming to Provident and Medical Capital, as well as to other failed private-placement offerings, have proven too much. Unable to sustain sufficient capital to fight their legal battles, many have gone out of business. Among the broker/dealers that have shuttered: Cullum & Burks Securities Inc., Securities Network, GunnAllen Financial, QA3 Financial Corp. and Jesup & Lamont Securities Corp., among others.

For the broker/dealers that do remain in the private-placement game, it’s likely they will see stricter oversight of the investments they market and sell to investors in the future. Just this week, the head of the Financial Industry Regulatory Authority (FINRA) publicly called upon broker/dealers that sell private placements to engage in a more vigorous due diligence process, “pushing and pulling” for information about the products.

“We want to recognize where there’s limited disclosure and appears to be a speculative investment, you need to push to try to get more information,” said Richard Ketchum, chairman and chief executive of FINRA, at the regulator’s annual meeting in Washington

“It’s not good enough to go to a canned information session. You need to push and pull,” he said of the due diligence process for broker/dealers touting risking private-placement deals.

Following a lengthy legal battle with various state regulators over failed private placements issued by Medical Capital Holdings, broker/dealer Securities America has agreed to make whole 63 Massachusetts clients who bought $5 million worth of the investments.

According to Massachusetts Secretary of State William Galvin, Securities America will pay $2.8 million to clients within 10 days.

The settlement, however, is contingent on several factors. As reported May 24 by Investment News, Securities America could be liable for up to another $2.2 million if a class action settlement currently being heard before a federal judge in Dallas falls through.

In addition, Securities America may have to pay more if the receiver for Medical Capital fails to pay 10% back to investors.

In the end, Massachusetts investors will recover 100% of the $5 million in principal they lost in Medical Capital. In July 2009, the Securities and Exchange Commission (SEC) charged the company with fraud.

Dozens of independent broker/dealers – the largest of which was Securities America -sold private placements in Medical Capital. From 2003 to 2008, Securities America sold about $700 million of the notes to investors. About half was lost in the alleged fraud.

In 2010, the Massachusetts Securities Division charged Securities America with fraud and accused the company of failing to disclose to investors that the Medical Capital notes it was selling were high-risk investments.

Massachusetts regulators also charged Securities America of using sales tactics that ignored warnings of their own analysts. In addition, the regulator claimed that the broker/dealer touted the Med Cap notes to unsophisticated investors.

Sales of private placements in Provident Royalties have put yet another broker/dealer of business. Securities Network LLC of Norcross, Ga., told the Financial Industry Regulatory Authority (FINRA) in March of its plans to terminate its broker/dealer license.

As reported May 24 by Investment News, Securities Network was not a huge seller of private placements in Provident Royalties. According to a court filing, the company sold $215,000 of Provident’s preferred stock to investors.

The amount is minuscule compared to that of other firms that marketed and sold hundreds of millions of dollars of the product. In total, independent broker/dealers sold about $485 million of Provident private-placement offerings.

The list of broker/dealers that have shut down because of connections to sales involving Provident private placements, as well as another private-placement deal – Medical Capital Holdings – keeps getting bigger. Among the broker/dealers to shutter: GunnAllen Financial Inc., QA3 Financial Corp., Okoboji Financial Services, and Jesup & Lamont Securities Corp.

In 2009, the Securities and Exchange Commission (SEC) charged both Provident Royalties and Medical Capital Holdings with fraud. In its complaint against the two companies, the SEC alleged that both operated as Ponzi schemes.

In the wake of soured private placement deals in Medical Capital Holdings and Provident Royalties – as well as other investments gone bad at the hands of rogue brokers – the Financial Industry Regulatory Authority (FINRA) is putting more information about its disciplinary actions online for investors and others to view.

Launched May 17, the new Disciplinary Actions Online database provides access to FINRA complaints filed against firms and individual brokers, settlement agreements and decisions by FINRA arbitration panels. In the past, anyone wanting information about those items had to contact FINRA directly.

The new and improved database will provide enhanced functionality, allowing users to conduct searches by broker or firm name, timeframe, key words and case numbers.

The database also includes pending complaints that FINRA has filed against firms and brokers. As reported May 18 by Investment News, this feature alone could make pending complaints easier to find, compared to the multistep process needed to locate pending actions disclosed on FINRA’s BrokerCheck system.

Beginning June 15, FINRA’s monthly disciplinary action summaries will contain links to corresponding documents in the new disciplinary database.

An arbitration panel of the Financial Industry Regulatory Authority (FINRA) recently awarded $2.5 million in compensatory damages to an investor for his claim against Merrill Lynch. The investor was represented by Maddox Hargett & Caruso P.C.

The case itself involved one spouse stealing money from another spouse through a brokerage account. In this instance, the brokerage in question happened to be Merrill Lynch.

The issue, however, is not unusual, and gives a whole new meaning to the marriage vow lines of for “richer and poorer.” Every year, investors lose millions of dollars from stockbroker misconduct, investment firm negligence and securities fraud. In the past year, these kinds of cases have skyrocketed, with more investors filing claims for investment negligence, stockbroker incompetence and IRA theft.

If a spouse “steals” money from his or her spouse’s brokerage account, the brokerage can, in fact, be held liable and cited for investment broker negligence, as well as for other types of misconduct or fraud.

Investment broker negligence occurs when the conduct of broker falls below a standard that’s been established to protect investors against unreasonable risk of harm. The cause of action for stockbroker negligence is based upon duties owed by a broker to his or her clients and the breach of that duty. This includes the duty to exercise due diligence and care in connection with a client’s account.

Ultimately, stockbroker negligence can result in severe financial losses for an investor.

Victims of stockbroker negligence can include anyone: Individual investors, retirees, small businesses, corporations, pension funds, and institutional investors. For a free initial consultation regarding your securities claim, contact Mark Maddox at 800-505-5515. Or, fill out the contact form on this Web site to obtain candid legal advice.