April 5, 2013 (Update) - The Judge dismissed the case and said that investors had received sufficient disclosure to understand the risks of investing in the trusts.
June 30, 2011 (Shareholders Foundation) - An investor in Apple REITs (Real Estate Investment Trusts) has filed a lawsuit on behalf of all persons who purchased, subscribed or otherwise acquired shares in the five offerings non-traded Apple Real Estate Investment Trusts (Apple REIT Six, Apple REIT Seven, Apple REIT Eight, Apple REIT Nine and Apple REIT Ten) sold by David Lerner Associates, Inc in the U.S. District Court, District of New Jersey against David Lerner Associates, Inc. , its senior officers, Apple REITs Six through Ten and their principal, Glade M. Knight.

According to the complaint the plaintiff alleges that David Lerner Associates, Inc that more than $6.8 billion in shares of Apple REITs were sold by David Lerner Associates through an ongoing investment scheme, whereby material information regarding how the Apple REIT business model operated was misrepresented, significant risks about the investments were not disclosed, and the true value of the shares and returns on the investment were misrepresented to investors, many of whom were elderly, retired and/or unsophisticated investors. The plaintiff claims that David Lerner Associates, Inc acted negligently in its sales, marketing and underwriting of more than $3.2 billion of securities in Apple REITs to DLA’s brokerage customers. The Complaint further alleges that David Lerner Associates, Inc negligently failed to disclose to investors that Apple REITs were sold at artificial prices of $11 per share, and that its 7-8% returns paid to investors were not from income or funds from operations but paid from new investor money or borrowing.
David Lerner Associates, Inc was fined by the National Association of Securities Dealers (“NASD”) in 2004 for sales contests that promoted proprietary mutual funds and certain variable annuity and variable life insurance products. In 2006 David Lerner Associates, Inc reportedly was fined for airing advertisements that exaggerated the firm's investing record.
Since 2007, David Lerner Associates, Inc also allegedly failed to disclose that the Apple REITs were not financially healthy but that they had deteriorated far below the artificial $11 values on investors’ account statements, so the lawsuit. The Apple REITs also, as alleged, had not paid dividends from earnings for over seven years, and that 7-8% dividends were likely unsustainable in the future. For its efforts, David Lerner Associates, Inc allegedly received more than $600 million in fees and commissions which represented 60-70% of David Lerner Associates’ business annually over the last seven years. David Lerner Associates, Inc received 10% of all funds invested, which included underwriting fees and marketing expenses. The Complaint alleges that David Lerner Associates, Inc was unjustly enriched at the investors’ expense, so the plaintiff.
Further, the Complaint alleges that the Apple REITs and its primary principal, Glade M. Knight, as liable for David Lerner Associates’ acts under agency law. David Lerner Associates, Inc was the exclusive selling agent for the Apple REITs, and sold to its captive customer base of over 120,000 accounts. David Lerner Associates, Inc used radio, the internet and investor seminars to sell Apple REITs. The Complaint alleges that the financial fortunes of David Lerner Associates, Inc and the Apple REITs were so intertwined that the Apple REITs and Knight are liable for its negligence.
On May 31, 2011, the Financial Industry Regulatory Authority (“FINRA”) already announced also a complaint against David Lerner Associates, Inc charging the firm with soliciting investors for Apple REIT Ten, a $2 billion illiquid REIT, without conducting a reasonable investigation to determine that it was suitable for the investors and (misleading the investors about Apple REIT Ten distributions. David Lerner & Associates Inc. has denied FINRA's allegations.