This article follows up on a recent article reported in Reuters concerning Atlas Energy LP’s private placement partnerships in oil and gas. Atlas Resources LLC, a subsidiary the energy group, has filed documents with the SEC for Atlas Resources Series 34-2014 LP stating that it seeks to raise as much as $300 million by Dec. 31 of 2014. The deal allows investors to participate in investments where advances in drilling technology have turned previously inaccessible reservoirs of oil into viable prospects. In addition, Atlas promises to invest up to $145 million of its own capital alongside investors.
In the last article we explored how the house seems more likely to win on these deals over investors. But beyond the inherent risks with speculating on oil and gas and unknown oil deposits most investors don’t realize the deals are often unfair to investors. In a normal speculative investment as the investment risk goes up the investor demands greater rewards to compensate for the additional risk. However, with oil and gas private placements the risks are sky high and the rewards simply don’t match up.
In order to counter this criticism, issuers say that the tax benefits of their deals where the investor can write off more than 90 percent of their initial outlay the year they make it helps defray the risk and increase the value proposition. First, the same tax advantage claims are often nominal compared to the principal risk of loss of the investment as seen by Puerto Rican investors in the UBS Bond Funds who have now seen their investments decline by 50% or more in some cases. Second, often times brokers sell oil and gas investments indiscriminately to the young and old who have lower incomes and cannot take advantage of the tax benefits.
In fact, of the 28 people interviewed by Reuters who invested in deals from Atlas, Reef Oil & Gas Partners, Discovery Resources & Development LLC, and Black Diamond Energy Inc. 17 were retirees who had low tax burdens when the product was recommended to them.
By now you may be asking, how do these deals even get issued? First, the private placement market is very opaque. Issuers are only required to file a statement to exempt the security from registration and a few other details about the investment. Second, investors rely upon the brokerage industry’s due diligence on each issue they sell to ensure its suitability for investors. But many brokers use outside due-diligence firms that may be paid by the issuer, a conflict of interest, when evaluating deals. Indeed, some of the largest securities frauds in the private placement space have been the result of reliance on third-party due diligence.
Finally, brokers pitch oil and gas projects to investors as a way to generate monthly income and an alternative to traditional stocks and bonds. Given the recent collapse of the oil market it is likely that many of the oil and gas investments issued in recent years will end up unprofitable.
Investors who have suffered losses may be able recover their losses through arbitration. The attorneys at Gana Weinstein LLP are experienced in representing investors in cases where brokerage firms fail to supervise their representatives sale of unsuitable investments in oil and gas projects. Our consultations are free of charge and the firm is only compensated if you recover.
Below is a list of brokerage firms that have sold Atlas Energy private placements:
Alliance Affiliated Equities Corporation
AXA Advisors, LLC
Benjamin & Jerold Brokerage I, LLC
Berthel, Fisher & Company Financial Services, Inc.
Bryan Funding, Inc.
Cadaret, Grant & Co., Inc.
Calton & Associates, Inc.
Cambridge Investment Research, Inc.
Capital Guardian, LLC
Centaurus Financial, Inc.
Center Street Securities, Inc.
Coastal Equities, Inc.
Crow Capital Securities, L.P.
Dempsey Lord Smith, LLC
Financial West Group
First Allied Securities, Inc.
First Financial Equity Corporation
First Tennessee Brokerage Inc.
Fogel Neale Securities LLC
FSC Securities Corporation
Girard Securities, Inc.
H. Beck, Inc.
Hagen Securities, Inc.
Heim, Young & Associates, Inc.
Infinity Securities, Inc.
Integrated Trading and Investments, Inc.
International Assets Advisory LLC
Investment Planners, Inc.
Investment Security Corporation
J.W. Cole Financial, Inc.
Kovack Securities Inc.
Lincoln Financial Advisors Corporation
Lincoln Financial Securities Corporation
Lowell & Company, Inc.
LPL Financial LLC
Maitland Securities, Inc.
May Capital Group, LLC
McNally Financial Services Corporation
McLaughlin Ryder Investments, Inc.
Merrimac Corporate Securities, Inc.
MetLife Securities Inc.
Money Concepts Capital Corp.
Neidiger, Tucker, Bruner, Inc.
New England Securities
Newport Coast Securities, Inc.
NFP Securities, Inc.
Niagara International Capital Limited
The O.N. Equity Sales Company
Prospera Financial Services, Inc.
Purshe Kaplan Sterling Investments
Resource Horizons Group LLC
Royal Alliance Associates, Inc.
Sagepoint Financial, Inc.
Securities America, Inc.
Spire Securities, LLC
Summit Brokerage Services, Inc.
The Strategic Financial Alliance, Inc.
TransAm Securities, Inc.
Triad Advisors, Inc.
United Planners’ Financial Services of America
Whitehall-Parker Securities, Inc.
Wilbanks Securities, Inc.
Woodbury Financial Services, Inc.
World Equity Group, Inc.
Anthem Securities, Inc.