(Bloomberg News) David Lerner Associates Inc. was sued by investors who claimed it acted negligently in the sale and underwriting of more than $6.8 billion in shares of the Apple Real Estate Investment Trusts.

The brokerage firm, known for its founder's "Take a tip from Poppy" advertising slogan, misstated the business model of the REITS and misrepresented the value of shares and returns for investors, according to a complaint filed yesterday in federal court in Newark, New Jersey.

Over the past seven years, the firm has collected more than $600 million in fees and commissions while five Apple REITs have made more than $6 billion in proceeds, according to the complaint. The firm has marketed the REITs as appropriate for conservative investors and claims they have never lost money by investing in hotels, the complaint said.

"In fact, investors who have acquired interests in the Apple REITs have incurred substantial unrealized losses because their interests are worth far less than the price paid by investors to acquire them," according to the complaint, filed by Stanley and Debra Kronberg of Mahwah, New Jersey.

Joseph C. Pickard, the firm's general counsel, said in an e-mailed statement that the claims are "frivolous" and were filed by "attorneys seeking a quick payday."

"The allegations are baseless and rife with falsehoods, distortions and misleading statements, and we look forward to the opportunity to be vindicated in a court of law," he said.

19-Year History

The 35-year-old firm, based in Syosset, New York, has underwritten Apple REITs for 19 years, Pickard said.

The investors, who are seeking class-action status for the case, claim the REITs were sold to retail investors and retirees at $11 per share and paid returns of 7 percent to 8 percent. The REITs never disclosed that they failed to generate enough income from successful operations and that they "were paying investors with their own money," according to the complaint.

The firm last month was accused by the Financial Industry Regulatory Authority of overcharging customers on sales of municipal bonds and mortgage securities.

David Lerner Associates was fined in 2004 by the National Association of Securities Dealers for sales contests that promoted proprietary mutual funds and variable annuity and variable life insurance products. A year later the brokerage was fined for airing advertisements that exaggerated the firm's investing record.

The firm was fined $400,000 in 2006 for violating disclosure rules in the sale of variable life insurance and annuities. David Lerner Associates didn't admit or deny wrongdoing.

The case is Kronberg v. David Lerner Associates Inc., U.S. District Court, District of New Jersey (Newark).