Business Context and Reporting Period
This Form 8-K is filed by Apple REIT Nine, Inc. (a subsidiary of Apple Hospitality REIT, Inc.) on May 27, 2011, reporting events occurring through June 2011. The filing addresses regulatory complaints and subsequent litigation involving the "Apple REIT Companies" (Apple REIT Six through Ten) and their former distributor, David Lerner Associates, Inc.
Financial Metrics
The filing text does not provide specific financial data, including revenue, profit, cash flow, margins, debt, or liquidity metrics. The document focuses exclusively on legal and regulatory events.
Material Changes and Events
- FINRA Complaint: On May 27, 2011, the Financial Industry Regulatory Authority (FINRA) filed a complaint against David Lerner Associates, Inc. regarding sales practices related to Apple REIT Ten, Inc. units. David Lerner Associates was the sole distributor for Apple REIT Six, Seven, Eight, and Nine.
- Class Action Litigation (Nancy Kowalski): On June 17, 2011, a shareholder filed a putative class action in the U.S. District Court for the Eastern District of New York against the Company, its directors, officers, Apple REIT Ten, and David Lerner Associates. The suit alleges failure to disclose material information regarding unit values, an investment model designed to lose capital, and false statements concerning distributions.
- Class Action Litigation (Kronberg et al.): On June 20, 2011, two shareholders filed a putative class action in the U.S. District Court for the District of New Jersey against David Lerner Associates, the Apple REIT Companies, and Glade M. Knight. Allegations include false misrepresentations about unit values and distributions, and failure to disclose risks associated with illiquid investments.
Management Commentary, Risks, and Outlook
Management states that the Company is unaffiliated with David Lerner Associates, Inc., though it relies on the firm for unit administration. The Company intends to cooperate with regulatory inquiries and vigorously defend against the pending lawsuits, asserting that the claims are without merit. Management explicitly states that it cannot reasonably predict the outcome of these proceedings or estimate potential damages or remedies at this time.
Key Facts for Investor Verification
- Verify the status of the FINRA complaint against David Lerner Associates and any potential impact on the administration of Apple REIT units.
- Monitor the progress of the two putative class action lawsuits (Kowalski and Kronberg) for updates on class certification and potential settlement discussions.
- Confirm whether the allegations regarding undisclosed risks and misleading distribution statements affect the valuation or liquidity of the Company's units.
- Review subsequent filings for any updates on the relationship with David Lerner Associates, given the Company's reliance on them for administration.