Securities Lawyers Blog
The investment attorneys of Gana Weinstein LLP are investigating investor claims of unsuitable investments in oil and gas related products such as exchange traded notes (ETNs), structured notes, MLPs, and leveraged ETFs. Some of the ETNs, leveraged ETNs, and structured products underwritten by Credit Suisse in the X-Links and Velocity Shares ETNs include:
- Credit Suisse S&P MLP ETN (NYSE: MLPO)
- Credit Suisse X-Links Commodity Benchmark ETN (NYSE: CSCB)
- Credit Suisse X-Links Commodity Rotation ETN (NYSE: CSCR)
- Credit Suisse X-Links Cushing MLP Infrastructure ETN (NYSE: MLPN)
- Credit Suisse Velocity Shares 3X Long Crude ETN (NYSE: UWTI)
- Credit Suisse Velocity Shares 3X Natural Gas ETN (NYSE: VGAZ)
MLPs, commodities, and leveraged products are speculative and complex products that are often not suitable for investors. Our clients tell us similar stories that their advisors hyped oil and gas and commodities high yielding investments without significant discussion of risk. In a recent Associated Press article, common stories of how investors are pitched by their financial advisors on oil and gas investments were reported on. Often times these products are pitched as ways to ride the boom in U.S. oil and gas production and receive steady streams of income.
As a background, MLPs are publicly traded partnerships. About 86% of the total MLP securities market, a $490 billion sector, can be attributed to energy and natural resource companies. There are about 130 MLPs trading on major exchanges that focus on energy related industries and natural resources.
Leveraged ETNs behave drastically different and have different risk qualities from traditional ETNs. The use of derivatives and debt to multiply returns on underlining assets attempts to generate 2 to 3 times the return of the underlining asset class. However, holding these investments over time introduces tracking error, that is the index and the leveraged investment diverge. For example, between December 1, 2008, and April 30, 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while the ProShares Ultra Oil and Gas, a fund seeking to deliver twice the index’s daily return fell six percent. In another example, the ProShares UltraShort Oil and Gas, seeks to deliver twice the inverse of the index’s daily return fell by 26 percent over the same period.
Financial advisors must ensure that the oil and gas and commodities related investments being recommended to their client is appropriate for the investor and conduct due diligence on the company before making the recommendation. Unfortunately, sometimes adivsors fail to conduct sufficient research or understand the risks and prospects of the company. Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up. However, brokers who sell oil and gas and commodities products are obligated to understand the risks of these investments and convey them to clients.
Our firm represents securities investors in claims against brokerage firms over sales practices related to the recommendations of oil & gas and commodities products. Investors who have suffered losses may be able recover their losses through securities arbitration. Our consultations are free of charge and the firm is only compensated if you recover.