Securities Lawyers Blog
The Securities and Exchange Commission (SEC) has found private securities offerings of oil and gas ventures pose a substantial danger and risk for investor fraud. An SEC Investor Alert listed some common red flag sales pitches often made to investors including: (1) Sales pitches referring to the high price of oil and gas; (2) “Can’t miss” wells or “guaranteed” returns; (3) Promises of high returns with little risk; (4) Sales pressure to purchase quickly; and (5) Sales pitches touting new technology to get higher production out of low-producing wells.
The Financial Industry Regulatory Authority (FINRA) has also clamped down on inappropriate sales of oil and gas ventures. Recently, FINRA fined broker Jeffrey Alexander (Alexander) concerning allegations that he recommended the purchase of interests in Amazon 13-30, an oil and gas program offered by Amazon Exploration that raised funds for the drilling of a well in Nebraska. FINRA found that the recommendations made by Alexander to three investors without a reasonable basis for believing the investment to be suitable for any investors.
In August 2012, FINRA alleged that the brokerage firm Shoreline Pacific entered into an agreement with Amazon Exploration where the firm would offer and sell up to 30 partnership units in Amazon 13-30. Shoreline Pacific was to receive a “success fee” of 20% of the funds it raised, as well as five Amazon 13-30 units if the firm was able raise $1 million for the venture. FINRA alleged that Alexander worked in Shoreline’s Colorado Springs office and was the primary point of contact between the firm and Amazon Exploration and primarily responsible for finding investors for the Amazon 13-30 private placement.
FINRA found that Alexander did not have a reasonable basis based upon reasonable due diligence to believe that Amazon 13-30 was a suitable investment for at least some investors. FINRA found that there were red flags concerning the background of the principals of Amazon Exploration and certain lack of disclosures in the private placement memorandum that should have been fully investigated before Alexander recommended the investment to clients.
FINRA also found that for the three individuals who invested in Amazon 13-30 through Shoreline Pacific, each completed a subscription agreement but no other information was obtained and recorded. FINRA’s suitability rule requires a representative to have a reasonable basis for believing a recommendation to be suitable for each person to whom it is recommended, based upon the person’s investment profile. However, FINRA found that the subscription agreements did not contain information concerning the investor’s age, other investments, specific information about the investor’s financial circumstances, risk tolerance, liquidity needs and time horizon. FINRA found that without this information a reasonably believe that an investment in Amazon 13-30 was suitable for the individuals who invested could not be made.
The attorneys at Gana Weinstein LLP are experienced in representing investors concerning the sale of oil and gas private placements. Our consultations are free of charge and the firm is only compensated if you recover.