Articles Posted in Private Placements

shutterstock_101456704The investment attorneys at Gana Weinstein LLP are investigating the potential unsuitable sales of securities sponsored by Mewbourne Oil Company (Mewbourne). Mewbourne claims on its website to have grown into one of the more prominent independent oil and natural gas producers in the Anadarko and Permian Basins of Texas, Oklahoma and New Mexico. The company sponsors several oil and gas private placements and investments including:

  • Mewbourne Energy Partners 11-A
  • Mewbourne Energy Partners 12-A

shutterstock_173864537The investment attorneys at Gana Weinstein LLP are investigating the potential unsuitable sales of securities in Vertical Funds private placements. The Vertical Funds include Vertical Recovery Management, LLC, Vertical Mortgage Fund I, LLC, Vertical US Recovery Fund, LLC, and Vertical US Recovery Fund II, LLC.

Some of the Vertical Funds were advertised as buying real estate notes at a discount and collect mortgage funds through borrower refinancing or a future sale. Upon information and belief at least one of these funds has entered the bankruptcy alternative of General Assignment for Benefit of Creditors under California law. This development is expected to wipe away the majority of investor capital.

Private placement offerings are among the most speculative and costly investment products offered to retail investors. While the size of the private placement market is unknown, according to 2008 estimates, companies issued approximately $609 billion of securities through Regulation D offerings. Private placements allow many small companies to efficiently raise capital. However, regulators continue to find significant problems in the due diligence and sales efforts of some brokerage firms when selling private placements to investors. These problems include fraud, misrepresentations and omissions in sales materials and offering documents, conflicts of interest, and suitability abuses.

shutterstock_20354401The securities lawyers of Gana Weinstein LLP are investigating potential unsuitable investments and recommendations in a number of oil and gas related ventures including Adageo Energy. According to the company’s website Adageo Energy specializes in high-growth, high-return opportunities in the energy sector. The company’s focus includes the identification, acquisition, drilling, development, and operation of oil and gas properties. Adageo Energy is a sponsor of several oil and gas private placements.

One such issuance is Adageo Energy Partners, LP which according to SEC filings sought to raise $50 million and raised at least $31 million of that amount through brokerage firms including Direct Capital Securities, Inc., Madison Avenue Securities, Inc., WFP Securities, Inc., Arete Wealth Management, LLC, Newbridge Securities Corporation, Charter Pacific Securities, LLC, ePLANNING Securities, Inc., Sunset Financial Services, Inc., Jesup & Lamont Securities Corp., and Capital Guardian, LLC.

As reported in Reuters for issuers other than Adageo Energy, many of these types of private placement deals fail and investors take outsized risks compared to the scant compensation they are likely to receive. The issue with oil and gas private placements is two fold. First the much of the investor’s funds are eaten up by fees and costs and are never used for investment purposes. For instance and analysis of Atlas Energy LP found that the issuer typically charged between 15 percent and 20 percent in upfront fees from investors and paid brokers an additional 10 percent of the total offering in sales commissions. According to Reuters, investors only get to see 65-70% of their capital actually put to work on oil and gas projects.

shutterstock_168478292The investment lawyers of Gana Weinstein LLP are investigating customer complaints against broker Harris Kirk (Kirk). There are at least 3 customer complaints against Kirk. In addition, there is one employment separation disclosed and a FINRA investigation. Some of the customer complaints appear to be related to recommendation of oil and gas private placements and investments likely offered by Reef Oil and Gas Companies.   The investment attorneys at Gana Weinstein LLP continue to report on investor losses and unsuitable investments in oil and gas related investments, like Reef Oil and Gas.

The employment termination from Reef Securities, Inc. (Reef) came in September 2013 after the firm alleged that Kirk engaged in actions inconsistent with the firm’s policies in that Kirk provided inaccurate information concerning his outside business activities. Thereafter, Kirk was employed by Chestnut Exploration Partners, Inc. until February 2015 at which time he was once again associated with Reef.

Investors often do not appreciate the risks when investing in oil and gas private placements. Even before the collapse of oil prices it was rare for investors to make money on oil deals. According to Reuters, of 34 deals Reef Oil and Gas has issued since 1996, only 12 have paid out more cash to investors than they initially contributed. Reuters also found that Reef sold an additional 31 smaller deals between 1996 and 2010 taking $146 million from investors and only paying out just $55 million.

shutterstock_120556300The investment attorneys at Gana Weinstein LLP are interested in speaking with investors of broker Joseph Sturniolo (Sturniolo). According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Sturniolo has been the subject of at least 8 customer complaints. The customer complaints against Sturniolo allege securities law violations that including unsuitable investments, misrepresentations, and breach of fiduciary duty among other claims.

The most recent complaint was filed in June 2015, and alleged $400,692 in losses due to a recommendation to invest in a real estate security transaction. Another investor in April 2015, claimed $676,705 in damages due to a real estate security transaction.   Many of the complaints appear to be in connection with in connection with the sales of tenants-in-common (TICs).

As a background, TICs largely been sold unfairly as tax advantaged products that allow customers to defer capital gains taxes on appreciated real estate. TICs are private placements that have no secondary trading market and are therefore illiquid investments. In a typical TIC, the investor receives a fractional interest in the property along with other stakeholders and the profits are generated mostly through the efforts of the sponsor and the management company that manages and leases the property. The sponsor typically structures the TIC investment with up-front fees and expenses charged to the TIC and negotiates the sale price and loan for the acquired property. Because these fees are often higher than 15%, there is often no way for the investment to be profitable for the investor.

shutterstock_188631644The Financial Industry Regulatory Authority (FINRA) brought an enforcement action (FINRA No. 2011025610501) against brokerage firm Braymen, Lambert and Noel Securities, Ltd. (BLNS) and the firm’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Compliance Officer (CCO) Shannon Braymen (Braymen) resulting in a monetary sanction. FINRA’s allegations were that from April 2007 to November 2011 BLNS, acting through Braymen, failed to supervise its private placement securities business and the activities of brokers located in two offices. The firm was also accused of failing to register those two branch office locations. In addition, FINRA found that BLNS failed to conduct or to adequately document branch office inspections, and had inadequate supervisory systems and written supervisory procedures for non-branch office locations. Finally, FINRA found that BLNS and Braymen failed to capture and retain certain email correspondence.

BLNS is a member of FINRA and registered as a broker-dealer since March 2003, as a full-service broker-dealer. BLNS currently employs approximately 24 brokers and operates out of 4 branch offices. The firm conducts a securities business in corporate debt securities, over-the-counter equity securities, US government securities, mutual funds, options, private placements and variable contracts. BLNS is also authorized to underwrite corporate securities, proprietary trading and investment advisory services. Braymen entered the securities industry in February 1995. During Braymen’s career she has obtained various securities licenses and had supervisory responsibility for each of the supervisory areas complained of by FINRA.

FINRA’s findings highlighted supervisory deficiencies in a number of areas. One of FINRA’s findings was that BLNS and two brokers located in an unregistered branch office in San Antonio, Texas participated in nine private placement offerings. BLNS and Braymen were accused of failing to adequately supervise the firm’s participation in these nine offerings. FINRA found that the firm had no documentation of principal review and approval of any of the private placement documents, no documentation that a principal of the firm had conducted due diligence, and no documentation of principal review and approval of customer subscription documents. Review of subscription documents are required to determine the suitability of the investments for customers.

shutterstock_186468539The attorneys at Gana Weinstein LLP are interested in speaking with investors of broker Kenneth Bolton. According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) Kenneth Bolton (Bolton) has been the subject of at least 10 customer complaints, and 1 regulatory action, and one employment separation for cause. The customer complaints against Bolton allege securities law violations that including unsuitable investments, fraud, misrepresentations, failure to perform due diligence, violation of federal and state securities laws, and breach of fiduciary duty among other claims.

The most recent complaint was filed in January 2015, and alleged $413,000 in losses due to an unsuitable investment strategy. Another investor in May 2014, claimed $2,700,000 in damages.  Some of the customer complaints appear to be in connection with in connection with the sales of tenants-in-common (TICs).

Bolton entered the securities industry in 1983. From March 1995, until August 2007, Bolton was associated with First Montauk Securities Corp. From August 2007, until December 2009, Bolton was associated with National Securities Corporation. Presently, Bolton is associated with Sandlapper Securities, LLC out of the firm’s Greenville, South Carolina branch office location.

shutterstock_115937266According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Salvatore Pizzimenti (Pizzimenti) has been the subject of at least 4 customer complaints. Customers have filed complaints against Pizzimenti alleging securities law violations including claims of churning and excessive trading, unsuitable investments, excessive commissions, unauthorized trading, breach of fiduciary duty, and fraud among other claims. In 2013, a customer complained that Pizzimenti churned their account causing $500,000 in damages. In August 2012, another customer also complained that Pizzimenti recommended a high risk private placement and also charged excessive fees causing $1,000,000 in damages.

Pizzimenti entered the securities industry in 2004. From January 2007, until January 2009, Pizzimenti was registered with Pointe Capital, Inc. From January 2009, until February 2010, Pizzimenti was associated with National Securities Corporation. From February 2010, until August 2011, Pizzimenti was a registered representative of J.P. Turner & Company, L.L.C. Since August 2011, Pizzimenti has been associated with Legend Securities, Inc. out of the firm’s New York, New York 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.

shutterstock_128856874According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Michael McDonald (McDonald) has been the subject of at least 5 customer complaints. Customers have filed complaints against McDonald alleging securities law violations including claims of churning and excessive trading, unsuitable investments, excessive commissions, unauthorized trading, breach of fiduciary duty, and fraud among other claims. In 2011, a customer complained that McDonald recommended a private placement leading to $450,000 in damages. In 2008, another customer also complained that McDonald recommended a private placement called Xyience, Inc which caused $450,000 in damages.

McDonald entered the securities industry in 1993. From November 2005, until February 2011, McDonald was registered with JHS Capital Advisors, Inc. Since February 2011, McDonald has been associated with Aegis Capital Corp. out of the firm’s Maitland Florida 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.

shutterstock_61848763According to the BrokerCheck records kept by Financial Industry Regulatory Authority (FINRA) broker Eric Wegner (Wegner) has been the subject of at least 5 customer complaints and two financial disclosures. Customers have filed complaints against Wegner alleging a number of securities law violations including that the broker made unsuitable investments, misrepresentations, breach of fiduciary duty, and false statements mostly in connection with recommendations to invest in private placements such as tenants-in-common (TICs) interests. In addition, one complaint involves a dispute over a variable annuity recommendation.

Wegner entered the securities industry in 2000. From December 2002, until December 2008, Wegner was a registered representative with Sammons Securities Company, LLC. Thereafter, from January 2009, until February 2011, Wegner was associated with QA3 Financial Corp. From February 2011, until July 2013, Wegner was associated with Sigma Financial Corporation. Finally, Wegner is currently a registered representative with Cambridge Investment Research, Inc. out of the firm’s Delafield, Wisconsin office location.

TIC investments have led to devastating investor losses and are in almost all cases unsuitable products. The near certainty of failure of investing in TICs as a whole has led to the product virtually disappearing as an offered investment from most reputable brokerage firms.   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.