Articles Tagged with oil & gas

shutterstock_26269225The law offices of Gana LLP are announcing their investigation into potential securities claims against brokerage firms over sales practices related to the recommendation of structured notes linked to oil & gas. These structured products are issued by Barclays (NYSE:BCS), Morgan Stanley (NYSE:MS), Deutsche Bank (NYSE:DB), UBS (NYSE:UBS), Citigroup (NYSE:C), Bank of America Merrill Lynch (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Credit Suisse (NYSE:CS), and BNP Paribas among others firms. The structured notes are issued under the names Principal Protected Notes, Principal Protected Booster Notes, Buffered Bullish Notes, Accelerated Return Notes, Strategic Return Notes, Capped Leverage Return Notes, Target Term Securities, Market Linked Notes, E-Tracs, Return Optimization Notes, Auto-Callable Securities, Performance Leveraged Upside Securities (PLUS), and Equity Linked Securities (ELKs).

Brokers often pitch structured products as providing “downside protection” against losses to a related index while allowing modest up side gain potential. However, today investors are waking up to the fact that structured products linked to the oil market are offering no protection. According to Bloomberg, retail structured notes meant to protect against a drop in crude failed to do so. Of the $437.1 million in oil related structured products that have matured this year, 44 percent, or $194.3 million of principal has been lost. The largest deal in the oil space is a $104.6 million Barclays issuance in April 2014 that has lost 42 percent of its value.

Indeed, Bloomberg found that all but three of the 39 notes examined protected against a certain percentage of losses, typically in the range of 10 percent to 20 percent. These notes quickly breached these loss limits as crude oil prices have declined more than 60 percent. Once the securities breached the “soft barriers” investors became exposed to the full loss at maturity and the value of the notes became wholly dependent on the change in oil prices.

The 14-month Barclays notes issued on April 11, 2014, occurred when a barrel of crude cost $103.74. The notes promised to pay 7.2 percent at maturity as long as oil did not drop more than 20 percent. If oil drops, the investor picks up the tab. When structured notes matured on June 22, oil was trading around $60 a barrel and the investment returned only $60.9 million of principal to investors.

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shutterstock_156972491The law offices of Gana LLP are currently investigating brokerage firms that placed investors in oil and gas related investments and who have suffered losses as a result. One company under investigation is Oil and gas producer Magnum Hunter Resources Corp, (Magnum Hunter) (Stock Symbol: MHR). Magnum Hunter is mainly a natural gas producer that operates in the Marcellus and Utica shale fields located in Ohio and West Virginia. According to news sources the company is laden with debt and has been forced to cancel its dividends as well as hire a financial adviser to explore strategic alternatives to keep the company afloat amid the oil downturn.

The company has stated that it is actively working to repair its balance sheet by exploring assets sales among other measures. Magnum Hunter posted a net loss in the second quarter of $30.5 million on revenue of $39.9 million. The companies total liabilities were $1.1 billion.

Our offices continue to report on investment losses suffered by investors in energy and oil and gas related investments that brokerage firms have increasingly recommended to retail investors in recent years. Investors have been exposed to energy investments through a variety of investment vehicles including private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks.

Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up. However, due to a combination of forces including slack demand in China and the strengthening dollar, last summer the price of oil & gas plummeted and remains around $40 to this day. Some experts are saying that if production volume continues to be as high as it currently is and demand growth weak that the return to $100 a barrel is years away.

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shutterstock_153463763According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Robert Horning (Horning) has been the subject of at least 8 customer complaints. Customers have filed complaints against Horning alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, fraud, breach of fiduciary duty, and false statements in connection with recommendations to invest in private placements such as tenants-in-common (TICs) interests, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), and equipment leasing programs.

Horning entered the securities industry in 1993. From November 2004, until July 2009, Horning was a registered representative with Direct Capital Securities, Inc. Thereafter, since July 2009, Horning has been associated with Centaurus Financial, Inc. (Centaurus) out of the firm’s Los Angeles, California office location.

TIC investments have come under fire by many investors. Indeed, due to the failure of the TIC investment strategy as a whole across the securities industry, TIC investments have virtually disappeared as offered investments.   According to InvestmentNews “At the height of the TIC market in 2006, 71 sponsors raised $3.65 billion in equity from TICs and DSTs…TICs now are all but extinct because of the fallout from the credit crisis.” In fact, TICs recommendations have been a major contributor to bankrupting brokerage firms. For example, 43 of the 92 broker-dealers that sold TICs sponsored by DBSI Inc., a company whose executives were later charged with running a Ponzi scheme, a staggering 47% of firms that sold DBSI are no longer in business.

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shutterstock_180341738According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker John Schooler (Schooler) has been hit with at least 26 customer complaints over his career. Customers have filed complaints against Schooler alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Schooler involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs, and tenants-in-common (TICs). The majority these products are high commission based products that often pay broker commission of between 7-10%. As the research now shows these products are arguably always unsuitable for investors because they do not compensate investors for their substantial risks. See Controversy Over Non-Traded REITs: Should These Products Be Sold to Investors? Part II

Schooler entered the securities industry in 1993. From 1994, until July 2011, Schooler was associated with WFP Securities. From June 2011, until July 2011, Schooler became associated with JRL Capital Corporation. Finally, Since July 2011, Schooler has been associated with First Financial Equity Corporation out of the firm’s Scottdale, Arizona office location.

As a background, a Non-Traded REIT is a security that invests in different types of real estate assets such as commercial, residential, or other specialty niche real estate markets such as strip malls, hotels, storage, and other industries. There are publicly traded REITs that are bought and sold on an exchange with similar liquidity to traditional assets like stocks and bonds. However, Non-traded REITs are sold only through broker-dealers, are illiquid, have no or limited secondary market and redemption options, and can only be liquidated on terms dictated by the issuer, which may be changed at any time and without prior warning.

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shutterstock_20354398According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Brian Folland (Folland) has been hit with at least 30 customer complaints over his career and two tax liens. Customers have filed complaints against Folland alleging securities law violations including that the broker made unsuitable investments, negligence, misrepresentations, breach of fiduciary duty, violation of blue sky statutes in several states, and fraud among other claims. The claims against Folland involve various types of securities including private placements, direct participation programs and limited partnerships which include investments like oil & gas, non-traded real estate investment trusts (Non-Traded REITs), equipment leasing programs. In addition, in July 2012, Folland disclosed a tax lien of $334,995 owed. Tax liens of that size provide an incentive and conflict of interest in the recommendation of high commission based products such as private placements and direct participation programs that often pay commission between 7-10%.

Folland entered the securities industry in 1995. From July 2007 until May 2013, Folland was associated with brokerage firm National Securities Corporation (National Securities) out of the firm’s Fresno, California office location.

All advisers have a fundamental responsibility to deal fairly with investors including making suitable investment recommendations. In order to make suitable recommendations the broker must have a reasonable basis for recommending the product or security based upon the broker’s investigation of the investments properties including its benefits, risks, tax consequences, and other relevant factors. In addition, the broker must also understand the customer’s specific investment objectives to determine whether or not the specific product or security being recommended is appropriate for the customer based upon their needs.

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shutterstock_39128059The law offices of Gana LLP are currently investigating investors who have suffered losses in in now bankrupt coal company, Patriot Coal Corp (Stock Symbols: PCX) (Patriot Coal). Patriot Coal is the third largest coal producer in the eastern US. Patriot Coal has operations in the eastern US in Central Appalachia, Northern Appalachia, and the Illinois Basin.

According to Reuters, Patriot Coal filed for bankruptcy protection on in May 2015, just 18 months after emerging from its previous Chapter 11. The bankruptcy filing has been prompted by low energy prices. In order to support its mining and marketing operations during bankruptcy, the company has secured up to $100 million in financing. Patriot Coal has listed assets and liabilities of more than $1 billion in its bankruptcy petition. Patriot Coal also has 1.4 billion tons of proven and probable coal reserves. In the prior bankruptcy, Patriot received an agreement with its former parent Peabody Energy to provide $400 million to cover health care benefits for retired mine workers.

Patriot Coal is only one of several energy related companies our firm has been tracking through bankruptcy including Xinergy Ltd, Dune Energy Inc, BPZ Energy Inc, RAAM Global, Sabine Oil & Gas Corp., and Quicksilver Resources Inc. In addition, Walter Energy Inc, another coal produce, has skipped an April interest payment on its debt

Our offices continue to report on investment losses suffered by investors in energy and oil and gas related investments that brokerage firms have increasingly recommended to retail investors in recent years. Investors have been exposed to energy investments through a variety of investment vehicles including private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks.

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shutterstock_22722853The law offices of Gana LLP are currently investigating investors who have suffered losses in in now bankrupt oil and gas company, American Eagle Energy Corp. (Stock Symbols: AMZG) (American Eagle Energy). American Eagle Energy is a Colorado, Littleton-based company that buys and develops wells in the Williston Basin of North Dakota. American Eagle Energy filed for chapter 11 bankruptcy in May 2015.

Our offices continue to report on investment losses suffered by investors in various oil and gas investments that brokerage firms have increasingly recommended to retail investors in recent years. These investments include private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks.

Oil and gas related investments have been recommended by brokers under the assumption that oil & gas would continue to be sold at around $100 and increase steadily over time. However, last summer the price of oil & gas plummeted due to a strengthening dollar and increased global supply of oil and remains below $60 to this day. Some experts are saying that if production volume continues to be as high as it currently is and demand growth weak that the return to $100 a barrel is years away.

Before recommending investments in oil and gas companies, brokers and advisors must ensure that the investment is appropriate for the investor and conduct due diligence on the company in order to understand the risks and prospects of the company.

In the case of oil and gas investments, many of these companies, such as American Eagle Energy, took on enormous amounts of debt in order to engage in exploration activities that could only make sense if the price of oil remained high. As reported by the Wall Street Journal the drop in oil prices and the industry downturn has made it difficult for the company to refinance its debts.

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shutterstock_168737270Long time readers of this blog know that we have previously reported that brokerage firms have increasingly recommended that retail investors invest heavily in various types of oil & gas investments including private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks. See Overconcentrated in Oil and Gas Investments?, MLP Fund MainStay Cushing Royalty Energy Hurt by Failing Oil & Gas Prices; Oil and Gas Investments – Issuers Profit While Investors Take All the Risk

For instance, MLPs are publicly traded partnerships where about 86% of approximately 130 MLP securities, a $490 billion sector, can be attributed to energy and natural resource companies. Billions more have been raised in the private placement market. These oil and gas private placements suffer from enormous risks that often outweigh any potential benefits including securities fraud, conflicts of interests, high transaction / sales costs, and investment risk.

These investments have been recommended by brokers under the assumption that oil & gas would continue to be sold at around $100 and increase steadily over time. However, last summer the price of oil & gas plummeted due to a strengthening dollar and increased global supply of oil and remains below $60 to this day. Some experts are saying that if production volume continues to be as high as it currently is and demand growth weak that the return to $100 a barrel is years away.

In addition, several companies have recently been accused of making false statements in order to promote their stock price through these turbulent times triggering class action complaints. Two such companies are Cobalt International (Cobalt) and Seadrill Limited (Seadrill).

According to the allegations, Cobalt was supposed to operate in compliance with U.S. laws prohibiting the bribery of foreign officials. However, the complaint alleges that Cobalt gained access to its oil wells in Angola by partnering with certain shell companies that were in part owned by high-level Angolan officials. This action placed Cobalt at risk of an enforcement action by the SEC and Department of Justice for violating the Foreign Corrupt Practices Act. In addition, the class action complaint alleges that Cobalt overstated the value of these Angola wells after it learned that they contained little or no oil. Accordingly, Cobalt’s stock price has plummeted over the last year.

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shutterstock_57938968The law offices of Gana LLP continue to report on investment losses suffered by investors in oil and gas investments that brokerage firms have increasingly recommended to retail investors in recent years. These investments include private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and even individual stocks. See Overconcentrated in Oil and Gas Investments?, MLP Fund MainStay Cushing Royalty Energy Hurt by Failing Oil & Gas Prices; Oil and Gas Investments – Issuers Profit While Investors Take All the Risk

Recently, the according to Bloomberg, BlackGold Capital Management, the energy-focused hedge fund that manages the BlackGold Opportunity Fund LLC and BlackGold Opportunity Offshore Fund LLC (BlackGold Funds) announced that losses in December 2014 were almost triple its initial report after an auditor examined how it valued debt holdings and certain changes were made to the valuation.

According to SEC records, the BlackGold Opportunity Fund was launched in 2009. Since that time the Fund has touted an annualized rate of return of 20% since inception. In 2014, the Fund suffered 12 percent decline compared with a 13 percent loss for oil and gas companies in the Bloomberg high-yield bond index. KKR & Co., which acquired nearly a 25% stake in BlackGold Capital Management reported that BlackGold lost only 6 percent in December originally which was recently revised to 17%. Given the enormous decline already experienced, it is possible that the BlackGold Funds will continue to suffer substantial declines unless the price of oil experiences a tremendous rebound in the near future.

The increased loss was reported after the BlackGold Funds switched valuation methods for December to estimating the fair value of some of the securities instead of using actual prices. This changed calculations during an audit leading to the reporting of greater markdowns.

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shutterstock_175000886The law offices of Gana LLP are investigating a series of claims before The Financial Industry Regulatory Authority (FINRA) in relation to the conduct of financial advisor Robert Smith (Smith). Smith has been accused by at least 10 customers over his career concerning allegations that Smith overconcentrated the customer’s accounts in private placement securities including equipment leasing programs, oil & gas investments, and non-traded real estate investment trusts (Non-traded REITs).

Smith has been registered with several broker dealers over the years. Starting in 2000 Smith was registered with American General Securities (n/k/a SagePoint Financial, Inc.) until May 2006. Thereafter, Smith was associated with ProEquities, Inc. until June 2010. Finally, from June 2010, until June 2014, Smith was registered with Berthel, Fisher & Company Financial Services, Inc. (Berthel Fisher). Currently, Smith is not registered with any FINRA firm. Upon information and belief, from 2006 on Smith operated his securities business under a DBA called Proactive Retirement Investing.

The large number of complaints against Smith concerning the same or similar charges of misconduct is unusual in the brokerage industry. Most brokers go their entire careers without a single complaint. A small number have one or two complaints. But only a tiny percentage have more than two customer complaints. Here, at least 10 customers have made allegations against Smith all concerning difficult to value private placement securities.

The types of products Smith recommended do immediately appear to be inappropriate to the investor. In oil & gas, Non-Traded REIT, and equipment leasing programs the investor often receives a stream of income for a number of years, maybe as much as 5 to 7 years before something goes wrong. All of sudden the income stops or the interest payments are lowered substantially. Only then does the investor learn that product is not expected to return the investor’s principal for a variety of reasons depending upon the product. These income paying securities lull investors into a false sense of security because they initially receive a stream of income and belief the investments are viable.

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