Stoltmann & Eccleston Law and MPF Hedge Fund

Attempt $30 Million Dollar Ripoff of Average Investors!

29th of Jun, 2011 by Mackrow

The Unholy Trinity of two corrupt lawyers and a disreputable hedge fund are currently attempting a $30 million dollar swindle of Apple REIT 7 & 8 shares from unsuspecting shareholders.

The Anatomy of a Scam:

Step One: Create Fear and Panic

Andrew Stoltmann of Stoltmann Law Offices and James Eccleston of Eccleston Law Offices both in Chicago run ads in newspapers insinuating that Apple REIT shareholders have suffered losses. The truth is, there are no losses. They succeed in scaring an elderly share holder into becoming their client so they can then file a false complaint to FINRA supposedly on
her behalf. The newspapers pick up the newly opened FINRA complaint initiated by Eccleston and Stoltsmann and write fictitious and sensationalized articles about the underwriter and the issuer without checking any facts. Eccleston writes childish blogs about shareholder "blood baths" and "judgment day approaching" unless you run to him for protection. During the fear ramp-up stage they repeat the steady mantra that the $11.00 shares are only worth $3.00. The newspapers oblige and repeat the same mantra.

Step Two: Enter the White Knight

A press release is issued to the newspapers disguised as an interview with an official from McKenzie, Patterson and Fuller (MPF), a predatory and opportunistic hedge fund. The MPF official posing as an authority declares, based on our calculations the Apple 7 & 8 shares are not worth $11.00 they are only worth $4.00, however, we are willing to buy 5 million shares from each REIT from the shareholders at $3.00, we need to make a nominal profit but if we can help we are willing to do it. The Chicago Lawyers cheer, the newspapers nod in approval. A savior has arrived in the nick of time!

(Side note: does anyone believe a hedge fund would invest $30 million dollars in "worthless" shares?)

Step Three: Set the Trap

The mini-tender offer is sent to all Apple 7 & 8 shareholders announcing the Good News that MPF is here to take those risky $11.00 shares earning 7% annually off the hands of Apple 7 & 8 victims. The infomercial like letter repeats Dont wait, act now! , Limited Time Offer! Hurry, limited time to act! MPF has done its best to create fear and urgency.

Step Four: Wait For the Mice to Take the Cheese.

Conclusion

Do these bottom feeding scoundrels really believe Apple 7 & 8 shareholders like me and thousands of others are too stupid to see this obvious con job? This is an attempted $30 million dollar robbery of elderly retirees, childrens college funds, small business owners retirement plans, out of work shareholders trying to put food on the table and young families trying to build a nest without stock market risk. The SEC declared in 2008 that more often, these mini-offerings are being used to catch people unaware. Once you transfer your shares to these criminals there is no getting them back. Throw MPFs criminal offer in the trash! My Apple 7 & 8 shares have provided protection to my principal and provided me with 8% and 7% dividends that I receive monthly, even during the economic collapse! They never missed a dividend and Ive never lost a dime in all the years Ive been a shareholder. These scum of the earth lawyers, Eccleston and Stoltmann along with their partners in crime at MPF can have my shares when they can pry them from my cold dead hands!

Track this Report 1 Comment | Post a Comment

Comments

4895 days ago by Eccleston Law

Stoltmann Law and Eccleston Law are highly reputable and peer-honored law firms that are not alone in bringing legal actions against David Lerner Associates and Apple REITs. They are joined by securities regulator FINRA (see disciplinary complaint http://disciplinaryactions.finra.org/viewdocument.aspx?DocNB=17059) and reportedly by the Securities and Exchange Commission (SEC) (see article below). Efforts to protect investors from the fraudulent practices of David Lerner Associates have been covered by the press, including the New York Times (see June 2nd article below).

As reported in today’s Wall Street Journal, the SEC is scrutinizing non-traded REITs and the article mentions Apple REITs in particular. See article below.

The truth is that the value of Apple REITs is far less than reported, and that so-called monthly income or dividends comes from loans or the investors’ own capital. This is not only the conclusion of the law firms, but also the securities regulators, Apple REITS themselves and others. Consider the following answers to the question facing Apple REIT investors: how much have I lost – what is the share valuation of my Apple REITs?

1. Glade Knight, promoter of Apple REITs, statement to the New York Times: “Who knows what the value is?” http://www.nytimes.com/2011/06/03/business/03norris.html.

2. Securities regulator FINRA, disciplinary complaint against David Lerner Associates: $11 share price is “constant” and “artificial”. $11 per share value for Apple REITs 6 through 9 “is currently inaccurate and has been inaccurate in the past.” (http://disciplinaryactions.finra.org/viewdocument.aspx?DocNB=17059).

3. MacKenzie Patterson Fuller, L.P., tender offer for Apple REIT 7 and 8: $3 per share. http://www.sec.gov/Archives/edgar/data/1102946/000110294611000018/applereitsevenltr611.htm and http://www.sec.gov/Archives/edgar/data/1102946/000110294611000017/applereiteightltr611.htm

4. Apple REIT 7 and Apple REIT 8, own SEC filings: $7.83 and $7.57 per share, respectively.

5. David Lerner: Displayed a picture of the Mona Lisa, and asked, “What is it worth?” He attempted to answer, “No one knows until it ultimately is sold.”

Unfortunately with losses as high as 70% (Answer #3), Apple REIT answers no longer can believe the David Lerner Associates fantasy value of a constant $11 per share. Investors should act now to protect whatever value they have in Apple REITs, by seeking counsel as to their available rights of rescission (voiding investment and returning money) and damages.

ARTICLES REFERENCED:

Statements Skip Over REIT’s Woes
By FLOYD NORRIS

Late 2007 was among the worst times ever to invest in real estate, and those who did so have losses to show for it.

And yet some people who purchased an investment in hotels then have received comforting account statements from their broker, David Lerner Associates. If you believe those statements, the value of their real estate investment trust has never wavered.

Unfortunately, that is nonsense. The real estate investment trust, Apple REIT Eight, is facing significant problems. It has failed to make mortgage payments on four hotels it owns, and says it may have to surrender the properties to the lenders. Yet it has not written down the values of those hotels on its financial statements.

It has made monthly payouts to investors, but much of the money needed to make those payments was borrowed. At first, borrowing was easy, but it seems to have become more difficult. The last loan was made after the trust’s chief executive agreed to personally guarantee repayment.

Yet every month David Lerner has sent out statements showing the value of shares in Apple Eight at $11 each, just what most of them sold for. The first investors in 2007 were sold shares at $10.50, so their statements indicate gains.

This week the Financial Industry Regulatory Authority filed a disciplinary action against Lerner, accusing it of misleading investors in selling the current Apple REIT, No. 10. It said Lerner was “targeting unsophisticated and elderly customers with unsuitable sales of this illiquid security” and misled them regarding the record of earlier Apple funds.

Just a day later, an investment management company began a tender offer for up to 5 percent of the outstanding Apple Eight shares. It did not offer $11, or anything close to that amount. It offered $3.
The Apple REITs are perhaps the most egregious of a little-known class of investments. unlisted REITs, that are sold to investors who think they are being cautious. They are registered with the Securities and Exchange Commission, but not publicly traded. The Apple REITs will repurchase a small number of shares each year, but most investors will have to wait five years or more to get their money back, when the REIT either liquidates or begins to trade publicly.

Oddly, the very lack of liquidity is used as a selling point by brokers selling to investors who fear the volatility of the stock market and crave a steady income. The fact that the steady income may simply come from borrowing more money is not emphasized. Apple Eight buyers expected an 8 percent annual payout, although the figure was reduced to 7 percent last year.

In bringing charges against David Lerner, a company that claims to emphasize safe investments and advertises heavily in Florida and New York City, Finra chose to focus on the sale of the shares to customers for whom such risky investments were not appropriate, as well as claiming deception in the way the shares were marketed.

Lerner, which gets most of its income from selling the Apple funds, used to primarily be a seller of muni bonds. Last year, Finra charged it with overcharging customers through excessive markups of bonds sold to them. Lerner denied the allegations and is still fighting them.

In its response to the latest charges, Lerner evidently decided that the best defense is a good offense. After calling the complaint “baseless” and “rife with falsehoods, distortions, and misleading statements, ” the firm, which uses the initials D.L.A., chose to bring up Bernard L. Madoff, who was convicted of organizing the largest Ponzi scheme in history:

“What is obvious is that D.L.A. and other small firms have become the scapegoats for Finra’s utter failure to address Madoff’s fraudulent scheme.”

When I asked Lerner officials which other small firms had been badly treated, they referred me to a column in The New York Post that quoted an anonymous broker who complained that Finra was unfair, but did not cite any examples.

Bringing up Mr. Madoff may be relevant here, but not for the reasons Lerner cited. Mr. Madoff preyed on wealthy investors who wanted good returns without volatility.

There is no question that the Apple REITs own real hotels, and are not Ponzi schemes. But the lack of volatility shown in the Lerner account statements has been a lure for customers and is misleading.
The nontraded REIT sector is big but generally sails below the investment horizon. Last year sales of such shares by sponsors raised $8.3 billion from investors. That was up from $6.4 billion the year before but below the 2007 record of $11.8 billion, according to figures compiled by Blue Vault Partners, a research firm.

The shares are sold by brokers attracted by high commissions. In the case of the Apple REITs, 10 percent of the purchase price went to Lerner. Then Glade M. Knight, the chief executive of the Apple REITs, collected a 2 percent commission for every hotel purchased by the REIT, on top of the advisory fees he was paid. He can collect another 2 percent when the hotels are sold.

“These things pay an unbelievable commission to the broker, ” said Barry Vinocur, the editor of REIT Wrap, a newsletter. “The client ends up with a phenomenally uncompetitive investment.”
Were the shares publicly traded, their trading value would almost certainly decline upon issuance, since every dollar invested buys, at most, 88 cents of assets. After that the asset values may rise or fall, but that will not be clear to investors until the Apple REITs liquidate or begin to trade publicly.

Wall Street Journal
Nontraded REITs Are Put on Notice by SEC
By ANTON TROIANOVSKI And CRAIG KARMIN

The Securities and Exchange Commission is intensifying its scrutiny of the booming business of real-estate investment trusts that aren't traded on a stock exchange, SEC officials say.
In the past decade, even through the economic downturn, such REITs have raised more than $73 billion from investors. By comparison, they had raised only $6 billion through 1999, according to investment-banking firm Robert A. Stanger & Co., which tracks the business through SEC filings. Money has poured in from individual investors drawn to steady annual returns of about 7% despite initial fees that often are around 10% of their investment.

The SEC has approved about 90 nontraded REITs since 1990, according to Blue Vault Partners LLC, a research firm in Cumming, Ga. The investment vehicles own hundreds of commercial properties, ranging from warehouses to ski resorts.

But the sector now is embroiled in controversy. In late May, the financial industry's regulating body said one of the most successful money-raisers in the real-estate business, David Lerner Associates Inc., was misleading investors and marketing unsuitable products to them.

The Financial Industry Regulatory Authority said the Syosset, N.Y., firm targeted elderly and unsophisticated customers as it marketed a $2 billion real-estate fund. Finra said the firm provided "misleading" information about the REITs on the firm's website. Finra also said the firm should have conducted more due diligence on the company that manages its real-estate funds, some of which have been paying out returns greater than the amount of cash actually generated by those funds. The claim is still pending.

The company, run by David Lerner, a former municipal-bond salesman nicknamed "Poppy" in commercials that pitch seminars touting the REITs, has described the Finra action as "ripe with falsehoods." The seminars offer door prizes such as umbrellas and flat-screen TVs.
Other firms that run nontraded REITs are trying to distance themselves from sales techniques used by Mr. Lerner. His funds, sold as Apple REITs, are managed by Richmond, Va., real-estate investor Glade Knight. A spokeswoman for Mr. Knight declined to comment.

CONCLUSION
Investors in all Apple REITs should act quickly and contact one of our attorneys at 312-332-0000. Our attorneys already are representing investors in pending arbitration actions and class actions who have suffered losses investing in the Apple REITs along with those who are seeking to rescind (get out of) their investment in these products. One also can visit our website at www.ecclestonlaw.com.

Finally, our attorneys adhere to nothing but the highest ethical standards, including honesty and integrity. In fact, numerous independent attorney rating agencies have evaluated the firm and its attorneys and have given them their highest ratings. For example, the prestigious Martindale-Hubble has bestowed upon James Eccleston the coveted AV® Peer Review Rating (which is the highest possible rating for both integrity and ethics). James Eccleston has been named an Illinois Super Lawyer every year since its inception in 2005. Likewise, Andrew Stoltmann has been named an Illinois Super Lawyer Rising Star and enjoys an excellent reputation nationwide. Therefore, any suggestion that the firms or their attorneys engage in dishonest or unethical practices is an unfortunate attempt to (unfairly) tarnish the firms’ reputation.

As detailed in Andrew Stoltmann’s reply, these complaints are nothing more than a concerted campaign of defamation waged by David Lerner Associates’ cronies, who hide their real identities and post under false user names. Their true identities soon will be revealed.