Also sanctioned in today's action were David Lerner, the firm's President; John Dempsey, the firm's Senior Vice President of Sales, and SSH Securities, Inc., an affiliate of DLA. Lerner and Dempsey are each being fined $25,000. Dempsey is being suspended from serving in a principal or supervisory capacity with any registered firm for 30 days. SSH Securities, Inc. will pay a fine of $10,000 for preparing inaccurate fact sheets distributed by DLA to promote a proprietary family of mutual funds.
"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 Executive 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."
In a September 2004 complaint, NASD charged the firm and David Lerner with using 11 radio advertisements and other communications between May 2001 and May 2003 that contained numerous statements and claims that were misleading, exaggerated or unwarranted. The firm advertised heavily on New York metropolitan area radio stations with 60-second spots that ran several days a week, frequently throughout the day. DLA spent significant amounts of money on radio ads -- $2.3 million during the review period, which represented 71 percent of its total marketing expenditures. As the spokesman for the firm, David Lerner narrated all of the ads.
A recurring theme of the radio advertisements was the concept of "providing returns of 10 percent and more" to "tens of thousands" of customers. For example, one advertisement stated: "For 25 years, we at David Lerner Associates have provided tens of thousands of people with investments that, even in these turbulent times, continue to pay over 10%." Another stated: "We are currently providing returns of 10 percent and more in investments that have nothing to do with the stock market." NASD charged that these and other statements, which the firm could not support, were exaggerated, unwarranted or misleading.
The firm's advertisements also suggested that individuals who invested with DLA would retain the value of their assets regardless of market conditions, or would regain prior losses sustained in the stock market downturn in 2000. For instance, one advertisement stated, "While past performance can never be a guarantee of future results, we at David Lerner Associates are proud and pleased that for 26 years, tens of thousands of our investors have been receiving high income and solid returns regardless of whether interest rates or the stock market went up or down." Another advertisement stated, "By counseling them to select value-oriented investments, our clients have not only weathered the financial storm, they have actually seen their income grow and their assets more than hold their value." NASD alleged that these and other statements were exaggerated or misleading and were improperly promissory.
Like radio advertising, investment seminars were also important to the firm's marketing efforts. During the relevant period, the firm conducted approximately 70 to 80 seminars for the public, with Lerner appearing as the principal speaker at each seminar. As with the radio ads, the firm did not have factual support for many of the claims and also failed to disclose material information.
Finally, SSH Securities prepared and DLA distributed fact sheets concerning DLA's proprietary Spirit of America mutual funds, which NASD charged contained inaccurate information. NASD charged Dempsey, the principal of DLA responsible for approving advertisements, with failing to discharge his supervisory responsibilities.
Without admitting or denying the allegations, the firms and individuals consented to NASD's findings of advertising and supervisory failures and agreed to the imposed sanctions.
Investors can obtain more information about, and the disciplinary record of, any NASD-registered broker or brokerage firm by using NASD's BrokerCheck. NASD makes BrokerCheck available at no charge to the public. In 2004, members of the public used this service to conduct more than 3.8 million searches and request almost 190,000 reports for existing brokers or firms. Investors can link directly to BrokerCheck at www.nasdbrokercheck.com . Investors can also access this service by calling 1-800-289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.
("Copyright 2005 National Association of Securities Dealers, Inc.")
