Securities Cases: David Lerner Associates Settles Nontraded REIT Sales for $700K, RBS Resolves Investor Lawsuit, and HSBC Holdings Settles More Libor Rigging Claims

David Lerner Associates to Pay NJ Over Nontraded REIT Sales
David Lerner Associates has agreed to pay a $700K penalty to resolve allegations accusing it of illegally selling nontraded real estate investment trusts in the state of New Jersey. In the consent order from the New Jersey Bureau of Securities, the firm also agreed to pay $50K to a fund for investor education, as well as $100K for costs.

At issue are the nontraded REITs Apple 9, Apple 8, and Apple 7. In early 2014, the three REITs merged together and became Apple Hospitality REIT Inc (APLE). Investors complained to the state regulator about the sale of the three REITs, which raised money to purchase hotels. After the NJ regulator contacted the firm about possible failures in its compliance system related to the sale of the non-traded real estate investment trusts, David Lerner Associates said it would assess its sale of the REITs there.

A third party-conducted review disclosed that the firm did not abide by its own procedures and policies for nontraded REIT sales. According the findings, David Lerner Associates sold non-traded REITS to customers who failed to meet suitability standards per the terms of the prospectus. Also, in at least 40 NJ accounts holding the Apple REITS, no records or books were available about each customer’s income, net worth, and investment goals.

David Lerner Associates has since stated that no investor involved in the IPO of any of the three Apple REITs sustained “a loss on a total return basis.”

Royal Bank of Scotland Settles Investor Lawsuit over Cash Call from 2008
In London, Royal Bank of Scotland (RBS) and thousands of investors have arrived at an out-of-court settlement in a securities case over a 12 billion pound cash call. As part of the settlement, Royal Bank of Scotland will pay $257M.

Investors who sued claimed that the lender misled them prior to an emergency rights issue at the time of the financial crisis. They contend that no one told them that the bank was in financial trouble before they went on to invest more money in RBS. As part of the settlement, the RBoS Sharehodlers Action Group has agreed to 82 pence-per-share, which is much lower than the £2 to £2.30 per share that they paid.

It was just in December that RBS announced that it would pay up to $1.02B to resolve shareholder group claims related to these allegations. It has settled with three other shareholders groups. In those instances, the bank did not admit wrongdoing.

HSBC Holdings Settles US Bondholder Claims Related to Libor Rigging Allegations
In Manhattan federal court, HSBC Holdings Plc (HSBC) and a group of US bondholders have settled claims accusing the bank of rigging Libor (London Interbank Offered Rate). The terms of the settlement were not disclosed.

Over the past few years, different types of investors have alleged that HSBC and other banks worked together to suppress the benchmark interest rate to enhance earnings prior to, during, and after the 2008 financial crisis.

This settlement will go toward bondholders contending that the benchmark rigging caused them to receive returns on over $500B of dollar-denominated debt that were artificially low. The debt had interest payouts tied to Libor.

In January, HSBC agreed to pay $35M to settle similar claims involving private US antitrust litigation. Those claims accused the bank of rigging yen Libor, and Euroyen Tibor.

The SSEK Parters Group is a securities fraud law firm.

Read the Consent Order in NJ’s Nontraded REIT Case Involving David Lerner Associates (PDF)

HSBC settles bondholders’ claims of Libor manipulation, Reuters, May 16, 2017