NASD fined David Lerner Associates Inc. of Syosset, N.Y., and its affiliate, SSH Securities Inc. a total of $125,000 and ordered them to take remedial measures for misleading investors through exaggerated, unsubstantiated advertisements and sales literature provided in radio spots, public seminars, the firm's Web site, and print ads, including an ad regarding a municipal bond issue.
The securities regulator also suspended John Dempsey, the senior vice president of sales and a principal at DLA and SSH Securities, from acting in a supervisory or principal basis with any NASD-member firm for 30 days, except for training purposes.
"To protect investors, and to help them make the best and most appropriate investment decisions, NASD rules require firms to use accurate, fair and balanced communications when marketing their products and services," said Barry Goldsmith, NASD's senior vice president and head of enforcement. "David Lerner Associates violated those rules by making statements that investors would naturally be expected to rely upon, that were widely disseminated through the media, but which were exaggerated, misleading and unsupported by the facts.
Most of the misleading sales and advertising material, which was released between March 2001 and May 2003, appeared to have been made regarding real estate investment trusts and the firm's Spirit of America investment and real estate funds, according to NASD enforcement documents. SSH Securities was formed in 1997 to act as the distributor for the mutual funds.
But a recurring theme running through the sales literature and ads was that DLA has provided "tens of thousands" of investors with "high returns" of more than 10% in non-equity instruments, regardless of what was happening in the financial markets.
One print ad, which was entitled "David Lerner Associates Is Proud to be Named Co-Manager of the Upcoming State of Connecticut General Obligation Bond Issue," stated: "For over 25 years, we at David Lerner Associates have provided tens of thousands of people with conservative investments that even in these turbulent times continue to provide high returns."
NASD concluded: "The firm did not have the factual support, or omitted information necessary to evaluate the claims made."
The securities regulator fined DLA $115,000, of which $25,000 was to be paid by the firm or David Lerner, the firm's founder and president, and $25,000 was to be paid by the firm or Dempsey. SSH Securities was fined $10,000. In addition, NASD ordered DLA, for the next six months to submit all ads and sales literature to the regulator for pre-approval at least 10 days before the use of the information. It ordered the firm to submit power point presentations to NASD for approval at least 30 days before their use.
In a statement issued yesterday, DLA said: "The advertisements and marketing materials at issue in this case were broadcast or used ... during a severely declining stock market, and promoted DLA as a firm, which specialized in income-oriented investments such as tax-free municipal bonds, REITs, and government securities.
"Pursuant to the agreement of the parties, several of the allegations in the NASD's complaint were dropped and DLA, SSH, and the two individuals agreed to settle the remaining allegations without admitting or denying that any violative conduct occurred solely because it deemed such a resolution to be in the best interests of all parties."
David Lerner Associates has been a NASD member since 1976 and employs 400 registered representatives and associated persons in its Syosset headquarters and six branch officers, according to NASD. It has been subject to at least three other enforcement actions since February 2004, one by the Securities and Exchange Commission and two by NASD. The enforcement actions revolved around suitability issues, sales contests, and breakpoint discounts regarding real estate investment trusts, variable contracts and mutual funds, according to the NASD. (c) 2005 The Bond Buyer and SourceMedia, Inc. All rights reserved. http://www.bondbuyer.com http://www.sourcemedia.com
