The investment attorneys of Gana Weinstein LLP are investigating investor claims of unsuitable investments in oil and gas related products. Our firm is currently representing a number of investors who lost substantial savings due to poor advice to concentrate holdings in speculative commodities investments like master limited partnerships (MLPs). ClearBridge MLP and Midstream Fund, Inc. (NYSE: CEM) is a mutual fund that provides a single investment for accessing a portfolio of energy-related MLPs and midstream entities.
Year to date ClearBridge MLP and Midstream Fund has returned a -68.73% return as of April 30, 2020. The price of the fund has fallen to $3.19.
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.
Wall Street loves MLPs because they provide high yields to investors and require companies to pay Wall Street in order to continue to grow. In 2013 banks earned fees of $890.3 million from MLP issuance. Bloomberg quoted an analyst stating that “MLPs are Wall Street’s dream,” because “[t]hey’re fee machines.” Naturally, in order to entice investors to continue to invest in MLPs Wall Street pumps up MLPs every chance they get. According to Bloomberg, in May 2014 “[a]nalysts predict that 93 of the 114 MLPs in existence will rise in value in the next year…” Astonishingly, “all but five MLPs are recommended by the majority of the analysts who cover them.” At that time professionals without conflicts called MLPs “the next great investment debacle” and warned that “many MLP shareholders…may not understand what they’ve gotten into.”
The oil and gas market has been in a constant state of decline since 2014 resulting in the bankruptcy and financial struggles of many oil related companies. Investments in oil and commodities, especially oil and commodity exploration companies, are by their nature cyclical. While the price of oil fluctuates greatly, since the 1970s and factoring inflation oil stays in the $40-$60 a barrel most of the time. The exceptions being periodic but limited duration swings higher and lower than that amount that eventually return to the mean. Comparatively, the S&P 500 returns 11.41% a year and about 8.4% adjusted for inflation. Consequently, there is little reason for advisors to recommend high concentrations in oil related companies given the cyclical and mean reverting nature of oil and gas investments.
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 such as exchange traded notes (ETNs), structured notes, private placements, MLPs, leveraged ETFs, mutual funds, and individual stocks. 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.