← Broker database 2025-05-20
David Lerner Associates Suspended Two Years for Unsuitable Sales to Seniors
According to FINRA, David Lerner Associates, Inc. was suspended from engaging in the sale of proprietary, illiquid products for two years, censured, and ordered to pay $1,002,566.16 in restitution to customers for failing to reasonably supervise sales of illiquid limited partnerships.
The Syosset, New York firm was found in violation of FINRA rules for failing to respond to red flags indicating that its representatives were making unsuitable recommendations of proprietary limited partnerships. The firm was aware that customer investment profiles were being updated contemporaneously with sales to make customers appear eligible for purchases under the firm's written supervisory procedures.
The violations were particularly concerning because they targeted vulnerable investors. More than 120 unsuitable sales were made to customers aged 76 or older whose investment profiles were updated at the time of recommendations to meet eligibility criteria. The firm knew certain representatives were recommending these illiquid products to seniors, which raised suitability concerns given the products' nature.
In total, approximately 200 customers received unsuitable recommendations. These included customers who lacked sophistication, those seeking safe income-generating investments, and customers who became unsuitably concentrated in illiquid products given their individual liquidity needs.
The firm also was aware that representatives were resubmitting trades that the firm's system had originally rejected because customer investment profiles did not meet the requirements of the firm's supervisory procedures. Rather than investigating these red flags, the firm allowed the sales to proceed.
No fine was imposed in light of the firm's agreement to pay over $1 million in restitution, the anticipated costs of the non-monetary sanctions, and the firm's financial condition.
For investors, this case illustrates the dangers of illiquid investments for seniors and those with liquidity needs. Before investing in any limited partnership or other illiquid product, ensure you fully understand when and how you can access your funds. Be wary if your broker suggests changing your investment profile to qualify for a particular investment.